Another Investor said yesterday:
Prices are going up in Phoenix, why wouldn’t they go up in San Diego? No foreclosure inventory, and as you say, buyers are everywhere. When buyers become resigned to paying something closer to the new listing prices or going home empty-handed, they will buy at the higher prices. As long as they can afford the payments, that is.
Overpriced turkeys are always out there. The nice property that lists five percent higher than the most recent sales will draw bids when buyers see there is nothing else out there. Prices move up when buyers are more confident and sellers are not desperate. Barring a significant increase in interest rates, I think you will see at least a five percent increase in your market this year.
I agree that we could see a five-percent increase in prices around NSDCC this year, even though the measuring of price changes is imperfect. If the SD Case-Shiller Index rose 5% this year, it would only get us back to 2010 readings, because it dropped about 5% in 2011.
Why won’t prices go up much?
1) Buyers stay picky when they plan to live there long-term. The inferior properties aren’t enjoying an across-the-board appreciation like they did in the peak era, and still need to be aggressively-priced to find a buyer.
2) There should be a flood of short-sale listings over the next few months, unless the N.A.R. can petition Congress to extend the exemption to taxing debt relief that expires at the end of the year. I haven’t seen any official announcement from N.A.R. about them working on this. They didn’t have the juice last time, and the Fannie/Freddie conforming loan limits reverted back to the previous lower amounts, until Congress caved and bumped our FHA limit back to $697,500.
3) There isn’t much competition from investors around the higher-priced areas of NSDCC.
4) For every higher-priced sale, there is a fraudulent short-sale in the other direction.
5) The increase in activity might just be from lower prices, and the statistics will bounce around:
SD County Detached Sales for Jan and Feb:
| Year | Sales | Avg $/sf | DOM | SP/LP | Avg. SP |
| 2010 | |||||
| 2011 | |||||
| 2012 |
NSDCC Detached Sales for Jan and Feb:
| Year | Sales | Avg $/sf | DOM | SP/LP | Avg. SP | Median SP |
| 2010 | ||||||
| 2011 | ||||||
| 2012 |
The DOM and SP/LP categories are worth keeping an eye on, because they, like sales, are leading indicators. I don’t think buyers have to worry about prices getting away from them, but the agonizing wait for the right house, at the right price, may take longer than we thought.
Mish has a few pricing charts here:
http://globaleconomicanalysis.blogspot.com/2012/03/how-far-have-home-prices-really-fallen.html
“For every higher-priced sale, there is a fraudulent short-sale in the other direction.”
The ironic thing is that the housing bears think that the banks are colluding to keep prices higher when in reality their incompetence is driving prices lower.
Really good agents like Jim observe the DAILY changes in their markets and use this knowledge to help their clients. For folks out there trying to buy a home in the highly competitive NSDCC market, you need this level of expertise in your representation.
On a more macro level, real estate is cyclical, and all the empirical evidence I see says we are well past the inflection point of the bottom. I don’t think we will necessarily have a smooth ride, but I do think there has been a sea change in people’s perception of the real estate market. Every story in the news about competitive behavior in the market reinforces the changed perception.
Not sure what the influence of Asian buyers is in your local market. Up here in Silicon Valley it’s huge and growing. This article from Bloomberg on new homes in Irvine, up the road a bit from you folks, is telling.
http://www.bloomberg.com/news/2012-03-13/asian-buyers-buoy-new-homes-in-california-s-orange-county.html
The comment from one of your readers that he had to add $30,000 to his offer to get out in front of the cash buyers is also indicative of the new bullishness of the market. Not quite five percent, but heck, it’s only March. However, what really sticks in my mind is the parade of visitors through the open house in Jim’s recent video. The level of interest, even if it is not all backed by buying power, shows how much the market has changed. All those folks out there waiting for a better deal may find themselves left in the dust by more confident buyers with substantial cash in their pockets.
I defer to Jim on his detailed local market knowledge, but my 30 plus years of experience in real estate says we are going to see some significant appreciation this year, especially in the most desirable markets. My guess is five percent, but that’s a guess. I’m waiting to hear what Jim has to say as we get deeper into the spring selling season.
You wont see any action on a possible extension until after the election because congress is unable to do anything at all. Which of course means that the boom will happen.
Another Investor, markets are local. I work Sonoma County, primarily Western Sonoma County and I would hesitate to make any general statement about appreciation. Some ares, maybe. Not Bodega Bay, too many second homes bought by people from SF who are feeling the economic squeeze.
AI,
Thanks for a very powerful article.
For those wondering who is driving our local market, especially Carmel Valley, 92130, there is your answer.
Salient, well-thought and reasoned commentary by a Professional.
Thank you.
You’re welcome, thanks for the compliment.
Is it just me or is the real story the 10% drop in prices year over year? Ay carumba!
Personally AI I would not equate what’s going on in Phoenix to what’s going to happen in NSDCC, but that’s just me.
The stats (thanks again Jim) are what they are for NSDCC. Falling LP, falling SP, falling median and avg., increasing DOM. There is your story, and let me add a column on the far right -falling interest rates. There you go.
Could a few of the very best mint properties in NSDCC actually gain value this year? Sure, anything is possible. Again, those properties on the market are few and far between, are they not? So in order to see significant appreciation across this market, we are going to need significant appreciation in the dogs, the OPTs, the junkers, the mediocre, and whatever else makes up the vast majority of the market.
I will defer 100% to Jim on what he is seeing happening out there in terms of whether buyers are capitulating and bidding up these properties (OPTs, dogs, etc) or whether they are passing and holding out. If the latter is what is going on, how are we going to get significant appreciation AI?
Based on recent observations in NSDCC, as a buyer it comes down to the following …
(a) Do I want to buy the cheapest property (with no consideration for RE Basics)? … Perhaps I can wait … and I could find one at still cheaper price.
(b) Do I want to buy the right property for me and family ? … I would be lucky to find one at the “right” price … SP trend line is up and all the right-stuff in 700s and 800s is moving fast.
It appears that Market has overshot on the down side and is starting to correct itself. Its resulting into hyper-polarization of available inventory into Good and Bad.
Even though I would like to believe that it will benefit the buyer but based on my past experince I think it will benefit the seller. On the buyer’s side market is lead by least educated and least informed. They will establish (or have already established) the trend line.
Asian buyers are also motivated to buy in “desirable” S Cal pockets because of phenominal gains from the super size real estate bubbles in China, Honk Kong, Taiwan etc plus the currency exchange rate gains… For Ms Wang to put up $1.2 million cash, all she needs to do is sell a medium size appartment in China which she bought many years ago for relatively nothing….
I will defer 100% to Jim on what he is seeing happening out there in terms of whether buyers are capitulating and bidding up these properties (OPTs, dogs, etc) or whether they are passing and holding out.
Passing on dogs, paying slightly more for best-quality homes.
On the buyer’s side market is lead by least educated and least informed. They will establish (or have already established) the trend line.
Agreed, but will add to least educated/least informed categories…..those buyers with ample firepower who just don’t care what the price is, they see house, they like house, they buy house.
Just saw one where the appraisal came in $250,000 short (which was accurate) and the buyers said screw it, I’m buying it anyway.
I second George3 … same thing is going for buyers from India … High End So Cal real estate is peanuts compared to ongoing prices in nicer parts of Delhi and Bombay.
I also find comparing original LP to final SP, factoring in the # of days on the market to be interesting in my local area. Not sure I’ve seen those #’s for SD.
“High End So Cal real estate is peanuts compared to ongoing prices in nicer parts of Delhi and Bombay.”
How quickly we forget what happened in 2006 when Californian’s were buying up cheap properties in Phoenix, Las Vegas, and other areas because those properties were so cheap at the time. I honestly don’t think there’s really all that much foreign investment here and I think we’ll be fine if/when China’s, Canada’s and Australia’s housing bubbles pop, but let’s hope our prices and sales aren’t being fueled by another round of bubble speculators.