With all the action we’ve been having, shouldn’t prices have been going up by now?
We’ve been through an unprecedented four years, and Rob Dawg said it early on – forget all previous assumptions and expect the unexpected.
First let’s review the easy reasons why pricing will languish:
- Potential sellers waiting in the wings, anxious to get out. There are 165,650 underwater homeowners in San Diego County, plus we have a steady flow of baby-boomers heading for their final destination. Every time we see a little pricing pop in a neighborhood, these potential sellers will want a piece of it. When two or more list their home, they will likely thwart any pricing momentum.
- Short sales will undermine pricing momentum until somebody does something.
- Economy/Europe/Politics/Deficit, etc. will cause buyers to stay cautious. There is no widespread economic recovery, and stagnant wages and unemployment will limit pricing.
Let’s call those the ‘easy three’ reasons why pricing with struggle to increase, and include some evidence. Lately we’ve been hearing that housing has bottomed out. Consider Rich’s graph below (from his latest post) that shows how the inventory count changed course in August, which is unusual. Sellers must be getting a whiff of the opportunity, and the more listings we see, the more cautious buyers will be:
THE OTHER REASONS WHY PRICING WILL STRUGGLE:
- Buyers have full access to the comparable sales. This has never happened before – the realtors kept a tight grip on the pertinent pricing data earlier, and during the 2003-2007 era, all that mattered was that you bought before you got priced out forever. These days, the buyers are coming to their own conclusions, and being conservative with their estimates of value – and you can’t blame them. They will pay a fair price, about the same as the last guy, or maybe a tick more, but that’s it.
- Realtor gimmicks and sleazy techniques are turning off the buyers. Those who might pay a little more than the last guy will be the buyers who felt like they were treated right.
- The presentation of homes has improved, but still far short of what could be. There are still too many listings with few photos, lousy photos, or no photos, there are few professional open houses and even fewer video tours, and trying to show a house hasn’t improved one bit – and it may have gone backwards. Buyers cool off in a hurry, and this new trend of inputting listings onto the MLS but not showing them for a week or two is killing deals.
- We keep hearing pundits talk about pricing in simple terms; up or down, good or bad, buyer’s or seller’s market, etc., but today’s homebuyers know that pricing issues are more complex. They aren’t going to be influenced by lazy talk.
- Ben said he’s going to keep rates low through 2015 or as long as it takes, so buyers don’t feel any big rush. The American Dream ain’t what it used to be, and people have a new appreciation for the benefits of renting. Generally, there is a new ambivalence towards homebuying, and a determination to not overpay.
- Buying the right house, at the right price, is prevailing.
You could make the case that you should buy now while there are still this many hurdles, because if they got cleared out and we had a pure marketplace, we could be off to the races.
There are a number of possibilities that could change everything.
Somebody like Google could start the PublicMLS, banks could stop allowing short sales (or only pay 3% to dual-agents), or the law could run through the whole industry. I keep hoping that the truth and transparency will prevail, but it is slow in coming!
Trumping all of these reasons why prices will struggle is the sellers’ ego and greed – I thought I could make that its own post later!
@ JtR:
“6 – Buying the right house, at the right price, is prevailing.”
Buying the RIGHT house is a very important point for us first time buyers because the perception of what is right for an individual buyer is radically different from what the perception was back in the go-go days. Specifically, buyers are more apprehensive to buy the big bomber stucco fortress out in East County because of the price of gas, utility bills, etc.
Nicely summarized.
Really good post jtr. We’re all really curious where the market is headed since indicators are no longer pointed straight down.
Eli,
To see where the market is heading, glance directly to the right of your post.
Thanks MB Mike!
Agreed that prices are heading northbound again on the redfin charts, but I think there was either malaise or overshoot at the end of 2011, and we’re back to where we were at this time last year.
We’ll see what happens this year!
Thought that was funny…
My take is that the current trend will continue in neighborhoods that have a lot to offer (schools, beach, proximity to work etc). Law of supply (not much now) and demand.
Buyers are smarter now and seem to have the ability to spend whatever is req’d to get what they want. They recognize that buying in areas that have been the most resilient will be better investments.
Up here in Manhattan Beach, places in solid locations sell in a week, usually with multiple offers. No sign of slowing down.
I agree with MB Mike.
In general, closer to the beach would be in more demand than inland areas.
Rental Prices and all-cash/almost-cash deals are also significant factors in the mix. On Craiglist, I could not find a decent 4Br, 3000sf SFH for rent in Aviara for under $4000. 2/3 Bedroom apartments are touching $2000+ per month in rent.
Jim, more transparency would be wonderful. As would less slanted reporting by local papers. Median prices in Sonoma County were up 11% YoY. Impressive. When I look at what’s selling I see a LOT of low end homes being sold for all cash to investors, many of the REO flips. A lot of these investors are buying 2-3 homes.ANd they have driven the prices up from $225K-$250K to $325K-$350k for hoems that might bring $1500 a month gross. More homes in the $500k-$1MM range sold this year than last, but when I look at $ per sq ft and location prices have not gone up.Someone must have be giving seminars on buying SFR as rentals and making a nice buck. Paying 200x rent for a 70’s tract homes is not a good investment…