Real Estate’s Magic Elixir

I was ridiculed from coast to coast for saying the local real estate market was ‘abuzz’, but similar stories are slipping out.  Yesterday’s post about the downtown-SD condo market showed inventory has dropped from 600+ units last year to just 247 condos for sale currently, and sales are up.  Apparently the drop in prices, and mortgage rates around 4%, are causing more properties to be sold!

Here’s another, this one about the Phoenix market.

(P.S. I got busted by the Wall Street Journal yesterday, and told them that I would abide with their policy to only include a snippet, and direct you to their website for the full article.  Hopefully you are a subscriber!)

From the wsj.com:

PHOENIX—The Phoenix housing market is defying conventional economic theory.

Inventories of homes for sale are low, falling 41% to 21,304 in October, compared to 35,732 at the same time a year ago for Greater Phoenix, according to the Cromford Report, a market research firm in Mesa, Ariz.

The number of home sales is rising—to 6,428 in October from 5,443 in same month a year ago, according to the Cromford Report. The city’s unemployment rate is inching down and is below the national average.

The laws of supply and demand suggest housing prices should be rising, or at least stop falling. But they continue to decline, due to a flood of bargain-hunting investors who still dominate the market, as well as conservative bank appraisals. As a result, economic recovery in what was once one of the country’s most dynamic cities is being held back.

The monthly median price for a previously owned, single-family home in Greater Phoenix sank 5% to $120,000 in October from $127,500 a year earlier. The national median was $165,400 in September, the latest month reported by the National Association of Realtors.

Over the same time, as prices weakened, unit sales rose 18%, according to the Cromford Report.

Read the full article here:


(Everyone mis-reads the drop in median sales price as a sign that prices are dropping, but what it really means is that more properties on the lower end are selling.  When inventories are dropping, and sales are rising, you have a healthier market.)

Is it just a seasonal drop-off? Not in San Diego.  Compare the difference above between today’s inventory with those from 12 and 24 months ago.

2012 Forecasts

Hat tip to Mr. T for sending in this article from money.cnn.com:

Last year the economic forecasting firm Fiserv predicted that home values would sink around 5% in 2011, and that prices in three-quarters of the nation’s major metro areas would fall. The bad news is, the firm wasn’t that far off the mark.

The good news: In the coming year, Fiserv thinks 95% of the 384 metro areas it tracks will see prices rise.

Don’t expect the market to move much beyond first gear, though. The median expectation among more than 100 economists and real estate pros surveyed by MacroMarkets is that home values will inch ahead by a mere 0.25%, compared to their 2011 median forecast decline of 2.8%. They also foresee annualized gains through 2015 of just 1.1%, as the real estate market slowly works its way through a mountain of foreclosures.

Those foreclosures will continue to weigh on the market. According to Core- Logic, there are 5.4 million homes that are for sale or part of the market’s “shadow inventory” — which includes bank-owned properties, homes in the foreclosure pipeline that haven’t hit the market yet, or properties where owners are seriously behind on payments.

To put that in perspective, Freddie Mac forecasts that only 4.8 million homes will be purchased in all of 2012. A market with six months of inventory is considered healthy. That there’s more than a year’s worth of housing stock now tells you what a tough slog this will still be. “It’s analogous to a flood,” says Mark Fleming, CoreLogic’s chief economist. “The water is very deep in the living room, but it’s no longer getting deeper and is starting to recede.

Helping that process along will be low-interest-rate mortgages that are expected to remain cheap. Jay Brinkmann, chief economist at the Mortgage Bankers Association, says the 4.2% rate on a 30-year fixed rate in late October might not last long. Still, he expects the 30-year fixed mortgage rate to stay below 5% throughout 2012.

Buyers: Downsize the dream.  For those gearing up to make a purchase, 2012 could be a great opportunity, what with cheap prices, low borrowing rates, and little competition among prospective bidders.

Before you take the plunge, remember that the price you pay matters, as does your ability to easily resell that home down the road.

This means it’s best to focus on smaller properties in your area near restaurants and retail. McMansions of at least 2,600 square feet, which were the ideal in the boom years, are coveted by a mere 18% of households today, according to a recent survey by Trulia. And that figure could fall even more.

A separate survey by the National Association of Home Builders found that home-construction firms expect U.S. houses to average 2,152 square feet in 2015 — down 10% from last year.

Some of this is attributable to the lingering effects of the past recession, which has eaten into housing budgets. But there’s also a permanent change at play. “Baby boomers are trading down. They don’t need the McMansion, and they don’t want to drive as much,” says Trulia chief economist Jed Kolko.

Sellers: Price it right. The longer you can wait for prices to stabilize in your area and for demand to pick up, the less likely you’ll need to entertain low-ball offers. If you have to make a move in 2012, though, the trick will be to price your home correctly out of the gate.

According to a recent national survey of real estate agents, 75% of homeowners believe their house is worth more than what agents put the fair market value at, and nearly one in two homeowners still overestimate their home’s value by more than 10%.

Meanwhile, Trulia reports that about one in four homes in its database has gone through at least one price reduction, and the average price cut for those homes is 8%.

Joe Magdziarz, president of the Appraisal Institute, says you and your agent should stick with comparable sales data just within the past 90 days, as that’s what lenders expect appraisers to use.

If you don’t trust your agent’s recommendation, shell out $300 to $400 for an outside appraisal. That will be money well spent if it pushes you to list your home in sync with current market valuations and you sell faster.

Owners: Shorten your loan. Refinancing your old mortgage to a new fixed-rate loan could have you smiling for years to come. If there’s any chance you can refinance into a 15-year loan, go for it; the 3.45% rate in late October was near an all-time low. On a $250,000 mortgage, going from a 30-year mortgage at 4.2% to a 15-year loan charging 3.45% would save you $120,000 in interest over the life of the loan.

What if the added $560 monthly payment is too steep to handle? Shop for a 20-year loan. The rate is likely to be only slightly less than on a 30-year loan, but the faster payback will save you in the long run.

San Diego Housing Demand

I checked the tax rolls by zip code to count the SFRs in our regular North San Diego County Coastal region (La Jolla to Carlsbad).

It showed 67,918 single-family residences.

We have been averaging 200 detached sales each month since 1/1/09 in NSDCC, which works out to be about 3.5% of the total NSDCC housing stock being sold each year. 

For those who worry about the impact of unemployment on the local housing market, consider that we’re only selling 200 houses per month.  There are around 300,000 people who live in the La Jolla-to-Carlsbad region.

Because the tax rolls limits searching to 1,000 properties only, I sorted by the year built to help narrow it down.  Here is how it looks on a graph:


You are reading that correctly, the tax rolls show 43 houses built in 2011.  Let’s face it, NSDCC is just about done (there might be 1,000 – 2,000 SFRs left to be built in North SD County Coastal?).  With a finite inventory of houses, and growing population, doesn’t there have to be upward pressure on pricing?  I know these numbers below sound insane, maybe they expect to develop the Ramona-Borrego-El Centro triangle into the Inland Empire 2?  But the rich people will migrate to the coast – whether they come from out-of-area or homegrown:

From 10news.com:

SAN DIEGOThe vision for the San Diego region’s future is slowly coming into focus.

Led by the San Diego Foundation, the $2 million, two-year initiative – “Our Greater San Diego Vision” – aims to come up with a vision for the future of the San Diego area. It hopes to do that by identifying what is needed and asking the public to help set the course.

 A recent survey of local residents was modeled after other similar vision projects around the country.

 “Although people love San Diego, this is the first place where they’ve seen the top issue be a negative issue,” said Mary Ball, the vice president of the San Diego Foundation.

The negative that Ball was referring to was affordability.

New numbers revealed by the research show San Diegans spend about 33 percent of their income on housing.

“People in the San Diego region spend more of their money on housing than any other region in the country,” said Ball.

El Cajon resident Caroline Schiavone told 10News, “I have seven grandchildren and unfortunately, I don’t think they’ll ever be able to live here.”

Those doubts are reinforced by numbers. According to demographers, the population will grow by 1.3 million people in the next four decades mostly from residents’ children and grandchildren. That growth is like adding another city of San Diego. To accommodate the projected growth, the region will need 500,000 jobs and nearly 400,000 homes.

How to adjust to that growth and keep things affordable was one topic of the project’s first public workshop in Santee. Other topics included transportation, education and quality of life issues.

According to the research study, one potential obstacle is public officials.

“People are concerned leaders are not looking regionally for solutions,” said Ball.

The vision project – backed by a steering community of 150 community leaders – will draw heavily on public input.

“If the people of the region speak out, we believe elected officials will pay attention,” said Ball.

For more information on the project, visit ShowYourLoveSD.org.

You can also get more information at these five upcoming workshops:

Sept. 13, 2011
Market Creek Events Center
404 Euclid Ave.
San Diego, CA 92114
6:30 p.m. to 9:30 p.m.

Sept. 14. 2011
San Diego City Concourse
Copper Room, 202 C. Street
San Diego, CA 92101
9 a.m. to noon

Chula Vista Golf Course
4475 Bonita Rd.
Bonita, CA 91902
6:30 p.m. to 9:30 p.m.

Sept. 15, 2011
Quantum Learning Network
1938 Avenida Del Oro
Oceanside, CA 92056
1 p.m. to 4 p.m.

CA Center for the Arts
340 North Escondido Blvd.
Escondido, CA 92025
6:30 p.m. to 9:30 p.m.

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