“There’s a bit of a buyer’s panic,” said Jeffrey Gundlach, founder and CEO of DoubleLine Capital, an L.A.-based investment firm.
“People are fighting with other people,” he noted, engaging in bidding wars in which houses go on the market and immediately receive dozens of offers.
“It’s almost the same type of environment I remember from the late 1980s,” said Gundlach, a longtime Southern California resident. “People would be writing out offers on the roofs of their cars – and there would always be several cars lined up.”
But there isn’t really a new housing bubble now. Although plenty of buyers probably feel like there is.
A number of factors have collided to create abundant froth in the present-day market – one that has made it exceptionally difficult for everyday buyers with conventional mortgages to beat out well-capitalized investors and all-cash purchasers.
“People are talking loudly about these price gains, but they’re not that high,” Gundlach said. He said the broader 20-city Case-Shiller composite index, which was set at 100 in 2000, topped out at 200 in 2007 and is now at 148.
“It’s rather easy to predict home prices going higher,” he said.
Thanks to surferdude808 for sending this in – read more:
Here is Professor Shiller dwelling on the reasons to be cautious – you never hear him talk about how today’s market is being driven by big money (the all-cash purchases, or big down payments blowing out the low-down-payment buyers) and it’s long-term impact:
Equity sales, that is sales of non-distressed properties, now constitute two-thirds of all home sales in California, compared to less than one-half only one year ago. A report from the California Association of Realtors® (C.A.R.) puts the share of equity sales in the state in February at 67.1 percent, compared to 64.4 percent in January and 46.7 percent in February 2012.
This is the highest share of equity sales since April 2008.
Short sales made up 19.9 percent of sales in California in February compared to 21.5 percent in January and 24.8 percent a year earlier. Sales of lender-owned real estate (REO) represented 12.6 percent of the home market in February, down from 13.7 percent the previous month and 28 percent in February 2012.
C.A.R.’s Pending Home Sales Index (PHSI) rose 8.7 percent from a revised 101.4 in January to 110.2 in February but was down 8.2 percent from the index in February 2012 of 120. The index is based on signed contracts and is a forward-looking indicator of future home sales.
The annual decline of pending sales might be attributed to the tight inventory of available homes. The Unsold Inventory Index for REOs was unchanged from January to February at 2.0 months while the Index for short sales was 3.3 month and for equity sales it was 3.8 months.
The biggest recent change to Keep Your Home California was deemed an “aggressive, out-of-the-box idea that yielded positive results” by Claudia Cappio, executive director of the California Housing Agency, which oversees the program.
The change was made in order to increase accessibility to the program for struggling homeowners and involves KYHC officials eliminating the dollar-for-dollar match for servicers, and taking on the full financial responsibility of the principal reduction, writes Cappio in a Treasury blog post.
The change plays out like this: mortgage servicers need to approve the principal reduction application before they modify or recast the loan with the new principal amount, creating a more affordable and sustainable mortgage for the homeowner.
According to Cappio, the results have been astounding. “Keep Your Home California now has almost 60 mortgage servicers participating in the Principal Reduction Program, including Bank of America, JPMorgan Chase and Wells Fargo,” she writes.
Cappio says more servicers on board means more homeowners are now applying and being approved for the program – a 47% increase in fourth-quarter 2012 compared to one-year prior.
Realtors copy what they see others doing in the MLS, and these days it has become common for listing agents to mention when they will be presenting offers, which is rather presumptuous.
How do you know you are going to have offers?
I guess you can call it a marketing technique if you are trying to bluff buyers into thinking you have a hot listing, but it seems arrogant.
But it is also reveals how oblivious agents are to the different levels of frenzy. The frenzy is not wide-spread, though it could be if pricing was more precise.
The last two weekends showed the difference.
At the Manzanita open house, buyers arrived 15 minutes before the open house started, and we had 100 people attend each day. At the open house at Archer on Saturday there were no lookers until 10 minutes after the publicized start time.
A big difference.
When you have a legitimate hot listing (Manzanita is remodeled one-story, 3-car, 8,800sf lot, no HOA listed for $649,000 in Carlsbad) buyers will endure because they know that there aren’t many like it and their patience level is higher. Even though we had offers on Saturday, we went ahead with the Sunday open house and made the deal on Monday.
There was sincere interest in Archer, but it wasn’t going to go crazy. A slightly larger house a block away that backed to open space had just closed last week for $640,000, putting a cap on our value. We were listed for $599,000, so the best case scenario was to end up between $599,000 and $640,000.
Most listing agents would go on automatic and let it run for 5-7 days and look up to see what happened. But buyers fall out of love quickly these days, and if it is a standard offering, they’re not going to wait, or pay over list price if they feel like they’ve been played for a few days.
BUYERS WANT TO PAY LESS. They don’t like these conditions, and if you give them any reason to back off, they will gladly take it.
We made the deal on Archer the first day on the market.
I’m not going to risk it – we had three acceptable offers, let’s sell the house.
The most motivated buyers come the first day, so the chances of a better offer coming in later dwindles immediately. If I can sell it for over list price to a solid buyer who will stick, I think it is a smart strategy to make the deal now and not mess around with it.
I had a good example of the opposite a couple of weeks ago.
A house that was listed last year for $1,150,000 but didn’t sell for four months, came back on the market for $1,295,000.
My client made a $1,250,000 cash offer on the second day, with a 24-hour expiration. The listing agent told me that she wanted to shop it around for 4-5 days, and refused to respond to our offer – she wouldn’t even counter-offer!
We walked, and it is still on the market.
Being able to interpret the frenzy, and adapt a sound strategy to selling your home should be the listing agent’s primary function. Get good help!
Consumers love to rate the products they’ve bought, the movies they’ve watched, the restaurants they’ve eaten in, even the doctors they’ve visited.
The National Association of Realtors is testing a program that allows homebuyers and sellers to review the real estate agents they’ve worked with. Those reviews would be used internally by companies and could be available to the public as well.
The trade group is piloting a new agent rating initiative called the Realtor Excellence Program, and is hoping individual companies will adopt the program as a way to increase professionalism in the industry while lessening problems that can lead to litigation.
“I’m general counsel,” said Laurie Janik, who is heading up the initiative for the national group. “I’m looking at reducing liability. I want happy sellers and happy buyers.
“Right now we measure agent performance based on how many deals they did,” she added. “But was (the transaction) a train wreck?”
Online reviews aren’t anything new, and consumers have come to read them with more than a grain of salt.
Some online review sites, particularly those with negative opining on service providers like hotels and restaurants, have come under fire because readers are never sure whether a truly dissatisfied customer or just a jealous competitor is penning them.
The Realtors’ organization and Quality Service Certification Inc., the third-party technology company handling the surveys, thinks it has found a way to prevent any “gaming” of the system.
If a realty firm, or an individual agent, decides to participate, QSC will receive all information on closed sales, including contact information of the buyers and sellers.
QSC will then email or mail those customers a survey to fill out that includes 34 data points on topics like the agent’s negotiation skills, how long it took to sell a property and follow-up communication.
A realty company’s executives can then go into a password-protected online system to view returned surveys and see how the company, individual offices and individual agents are performing.
“That’s been a really flawed metric for excellence — how much business do you do,” said Larry Romito, QSC’s chairman and CEO, who recommends that realty firms require all agents to participate. “We really need a balance of how much business do you do and how do you do it.”
Realty agents, Romito said, will improve the service they offer to customers because they know they’re being reviewed on so many metrics.
In addition to the internal system, agents can opt in to have their personal ratings performance put online for the public at QSC’s consumer website, ratedagent.com. While agents can decide what types of information they want displayed, it’s then all or nothing.
In other words, if agents choose to have customer comments displayed, all of them will be displayed, both good and bad.
Janik thinks the timing of this kind of review process is overdue but she understands the hesitancy of agents to have their reviews made public.
“For many agents, public ratings are like the third rail,” Janik said. “I think agents are scared to death of being rated.”
The national homes-for-sale inventory is on the rise (reported here), but it’s just another vague soundbite. The local numbers are what matter – here are today’s active listings of detached-homes between La Jolla and Carlsbad:
Avg. LP $$/sf
How does the new listings coming on the market compare to previous years? Here are the total number of NSDCC detached-homes listed between Jan. 1st and March 20th:
Not much difference in the count year-over-year, but the +12% increase in the average list-price-per-sf is noteworthy. Why are sellers so optimistic? Closed sales are up 15% YOY:
The 6% YOY increase in average cost-per-sf should be on the rise.
Encinitas has until Aug. 30 to show where 1,300 state-mandated housing units could be built as part of its housing element. If the city wants to meet the housing element deadline, Encinitas will have to make significant progress.
Cities could potentially face lawsuits for not adopting a housing element by the end of August. However, Encinitas hasn’t certified a housing element since incorporation in 1986, and yet the city hasn’t been significantly penalized. Still, representatives from the city said it’s important to have a housing element in place to take the threat of lawsuits off the table, make Encinitas eligible for more grants and finish a long-contentious process.
“I’m not sure what will happen, but if we were going to get it done by August, there’s still much work to be done,” Mayor Teresa Barth said.
She added that the city wants to at least demonstrate “forward motion” by August, and that councilmembers and residents have been notably frustrated by the housing element over the years.
The department of Housing and Community Development (HCD) requires that cities turn in a housing element every eight years. For the housing element, cities have to pencil out the potential locations of state-imposed housing. The number of housing units, 1,300 in the case of Encinitas, is derived from population and economic trends.
As for the 1,300 units that have already been allocated to Encinitas, Michael Strong, associate planner with the city, said that Encinitas and other California cities have “no vested right” to change or overturn the housing that’s been assigned to them.
He pointed to a legal case as precedent: About five years ago, the city of Irvine tried to fight the number of state-mandated housing units demanded of the city with a lawsuit. Ultimately, Irvine lost the two-year legal battle.
Conceivably, developers and affordable housing advocates could sue Encinitas for not having a certified housing element. Strong noted that other cities in California have lost court cases for not having one.
Yet another factor could affect the city’s housing element. On June 18, residents will decide whether to approve the “right-to-vote” initiative. If it passes, increasing density or building heights beyond 30 feet would require a majority vote of the public.
Presentations from groups looking at the housing element recommended selectively putting four or five story buildings in certain locations to accommodate some of the 1,300 units. This would trigger a vote if the initiative becomes law.
For more on the outrageous Encinitas City Council: