San Diego Market Bottoms Out

Low inventory and high demand are pushing the real estate market in San Diego County off the bottom, slowly.

Multiple offers on the best properties in the entry-level market are being fueled by investors. Interestingly, the investors are not flipping these properties, rather, they are renting them out.

Low inventory is here to stay for the next year or two. We don’t see that changing much in the near future for several reasons.

First, there is no new home building going on, which is necessary to relieve the pressure.

Second, many existing homeowners aren’t going anywhere. If they have good jobs here, where would they go? Plus, too many are still underwater and can’t sell.

Lastly, forget about phantom inventory. As of March, the banks owned about 5,000 properties in the county. That number includes homes AND condos. In April, there were about 3,100 properties sold. Even if the banks put all their inventory on the market at once, it’s only one seven weeks worth!

So, there it is. The market has reached bottom, but there probably won’t be a major move to the upside until employment starts rising.

MARKET STATISTICS

Sales of single-family, re-sale homes were up 7.9% year-over-year in April. This is the tenth month in a row home sales have been higher than the year before.

The median price for homes was flat year-over-year, which is a nice change from the previous fourteen months of prices being lower year-over-year. Much of this weakness in price is coming from the move-up and high-end markets. In the entry-level market, prices are firming.

The move-up market is moribund and we expect it to stay that way until prices start rising and homeowners get back above water.

Pending home sales, another good indicator of market movement, were up 41.4% year-over-year. That’s seventeen months in a row pending sales have been higher than the year before.

The market right now is all about momentum.

SALES MOMENTUM…

for homes jumped 0.5 of a point to +3. Sales momentum, which is a leading indicator, has been rising since July 2011. The effect on prices is now starting to be felt, albeit weakly

PRICING MOMENTUM…

Which had been on the down-swing the past sixteen months, moved upward in April, gaining 0.2 of a point to 5.4.

WE CALCULATE…

momentum by using a 12-month moving average to eliminate seasonality. By comparing this year’s 12-month moving average to last year’s, we get a percentage showing market momentum.

CONDO STATISTICS…

Condo sales were down 1.9% year-over-year.

The median price for condos dropped 0.1% year-over-year.

Pending condo sales were up 26.4% year-over-year.

This is an extraordinarily tough market for buyers. It’s important to be calm and realistic. If you don’t know what to do or where to begin, give me a call and let’s discuss your situation and your options.

To read more download the Full PDF

Interactive Market Report

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For more details click here

The real estate market in San Diego County is entering a tumultuous period. Turmoil is normal when a market begins to change direction, especially when the market is reaching a bottom.

In this market, because of the size of the bubble, expect the turmoil to last awhile.

There are many signs of a market reaching bottom. We’re going to look at the three most important ones.

The first sign of a market reaching bottom is the reappearance of cash-buying investors. We’re there. They are bidding up the prices of the best of the entry-level homes.

The second sign of a bottom is low inventory. Active listings of single-family, re-sale homes have been below 8,000 for the past four months. The
last time inventory was that low was in the first five months of 2005. Inventory is 45% of the peak reached in September 2007.

The third sign we look at is foreclosures. Are they dropping?

Initial notices of default have dropped from 2,059 last October to 1,333 in February. Notices of sale have dropped from 1,931 in December to 1,519 in
February.

Properties going back to the bank have dropped from 831 last March to 360 in February.

Finally, the total number of properties owned by banks has dropped from 6,724 last March to 5,334 in February.

I expect you’ve been reading about “phantom inventory” and the massive number of bank-owned properties expected to hit the market soon.

Well, with 2,861 homes and condos sold in March, the number of bank-owned properties, 5,334, only adds a two month supply to the market.

Currently, there is only a four month supply of homes on the market where the average is six months.

MARKET STATISTICS

Sales of single-family, re-sale homes were up 2.2% year-over-year in March. This is the ninth month in a row home sales have been higher than the year
before.

Condo sales were down 13.3% year-over-year.

The median price for homes was down 2.8% yearover-year. Much of this weakness in price is coming from the move-up and high-end markets. In the
entry-level market, prices are firming.

The move-up market is moribund and we expect it to stay that way for a while because so many owners are underwater.

The median price for condos rose 5% year-overyear.

Pending home sales, another good indicator of market movement, were up 39.2% year-over-year. That’s sixteen months in a row pending sales have been higher than the year before.

Pending condo sales were up 22.3% year-over-year.

Please remember, while statistics are nice, they will not determine the price you pay or get for a property. That will come down to you and the buyer or seller.

To read more download the Full PDF

Interactive Market Report

The Obama administration on Tuesday announced another initiative to allow more homeowners to refinance, this time by dropping fees on federally insured mortgages that have prevented some borrowers from taking advantage of ultralow rates over the past year.

Those refinances are reserved for FHA borrowers who are refinancing into another FHA-backed mortgage, and they don’t require borrowers to verify income, employment, and credit. They also don’t require a new appraisal, which means underwater borrowers can refinance.

The FHA will drop upfront insurance premiums that borrowers must pay from 1% of the loan balance to .01%. The FHA will also drop annual premiums from 1.15% of the loan balance to 0.55%.

There is one catch: the new streamline refinance fees only apply to borrowers who took out loans before June 1, 2009. The FHA has backed a sizeable share of mortgages since then, and those borrowers won’t be able to take advantage of the reduced fees, which will limit the reach of this program.

Streamline refinances are available only to borrowers who have made all of their last 12 payments. Because the FHA already guarantees these loans and are on the hook for any losses, officials see little downside to letting these borrowers take advantage of low rates. The White House says these changes could help between 2 million and 3 million borrowers refinance.

MARKET STATISTICS

Sales of single-family, re-sale homes were up 1% year-over-year in February. This is the eighth month in a row home sales have been higher than the year before.

Condo sales were down 28% year-over-year.

The median price for homes was down 2.9% yearover-year. This is the thirteenth month in a row the median price has been lower than the year before.

The median price for condos fell 7.8% year-overyear.

Inventory of both homes and condos continues to be weak. Home inventory was down 1.9% compared to last February.

Condo inventory was down 13.9% year-over-year.

Pending home sales were up 31.8% year-overyear. That’s fifteen months in a row pending sales have been higher than the year before.

Pending condo sales were up 2.7% year-over-year.

Sales momentum gained 0.1 to 4.4%. Pricing momentum was flat at –5.8. Pricing momentum has been negative since July 2011.

Please remember, while statistics are nice, they will not determine the price you pay or get for a property. That will come down to you and the buyer or seller.

To read more download the Full PDF

Interactive Market Report

Once upon a time, when a homeowner did a short sale, the IRS counted the difference between what the bank took and what the homeowner owed as
income. Not much incentive there.

In 2007, the federal government enacted the MDRA that allows qualified taxpayers to exclude that “income”.

The law will end December 31st.

You must close the short sale by then.

Other qualifications include:
•  Good for up to $2,000,000 in forgiven debt
•  Only works for principal homes
•  The tax rule can be applied to debt used to refinance your home, provided the principal balance of the old mortgage, immediately before the refinancing, would have qualified.

See “The Mortgage Forgiveness Debt Relief Act and Debt Cancellation” for additional information. Use this link: CLICK HERE

If you’ve been considering a short sale, it’s time to get off the stick. Short sales are notorious for taking a long time, like six months or more.

If you are upside down and are having problems making your payments, it’s time to do something. It’s going to take a long time before upside down property becomes positive.

MARKET STATISTICS

Sales of single-family, re-sale homes were up 15.8% year-over-year in January. This is the seventh month in a row home sales have been higher
than the year before.

Condo sales were down 6.1% year-over-year.

The median price for homes was down 5.6% year-overyear. This is the twelfth month in a row the median price has been lower than the year before.

The median price for condos rose 1.5% year-overyear.

Inventory of both homes and condos continues to be weak. Home inventory was down 16.1% compared to last January.

Condo inventory was down 28% year-over-year.

Pending home sales grew by 12.4% year-overyear. That’s fourteen months in a row pending sales have been higher than the year before.

Pending condo sales were down 16.4% year-overyear.

Sales momentum moved into positive territory in January for the first time since August 2010: 0.4. Pricing momentum continues to deteriorate and is now at –5.1. Pricing momentum has been negative since July 2011.

Please remember, while statistics are nice, they will not determine the price you pay or get for a property. That will come down to you and the buyer or seller.

To read more download the Full PDF

Interactive Market Report

I have bought a house in San Diego.  I’m also going to start putting up guest posts by Ted McGinley.

This (the house buying part) shouldn’t be a huge shock for people who’ve been reading the site of late, because I’ve talked a lot about how it makes sense to buy in certain situations.  That said, I will briefly outline my thought process here.

After the recent leg down in interest rates, monthly payments are the lowest compared to incomes and rents than they’ve been in the history of the data, and are quite dramatically below their median historical levels:

 

I frequently point out that when it comes to determining whether homes are overvalued or undervalued, the price-based ratios are far more important than payment-based ratios.  However, as I discussed in this article, an individual buyer should be more interested in the expensiveness of the monthly payment, rather than the purchase price, if he or she is financing most of the purchase and intends to (or is at least able to) keep the home indefinitely.

A buyer in these circumstances is not only locking in rock-bottom monthly payments, but, crucially, is doing so ahead of what I believe will be a period of unusually high inflation.

Now, I don’t want to turn this into a big discussion on the something-flation debate, because that topic been thoroughly beaten to death elsewhere on this site as well as on my “day job” site, and it is beside the central point of this article.  Suffice it to say that I consider it a high-confidence forecast that the dollar is going to lose a lot of purchasing power in the years ahead, because nominal incomes — and thus prices, including those of rents and maybe even houses, a little — must be made to rise (in excess of any plausible level of economic growth, i.e., via inflation) if the country is to be able to continue servicing its tremendous and growing debt.

If this outlook is correct, as I believe it is, then today’s ultra-low rates make this an ideal time to take out a chunky 30-year fixed mortgage, and to sit back and let inflation hew away at the real value of the mortgage and the monthly payments over the years to come.

So, the missus and I went out looking for homes.  We only found one in our price range, a single family house in Bay Park, that we thought was awesome enough to be a long-term home.  So we made an offer, got a loan with as low a down payment as we could get away with, and have now re-joined the ranks of the titular Landed Poor.

And now I will attempt to anticipate some questions:

Q: Does this mean you think this is the bottom for home prices?

A. Not really.  I don’t know when the bottom will be, but it really doesn’t matter all that much as I’ve financed most of the property and I’m more interested in minimizing monthly payments than the purchase price.  For what it’s worth, my (not very high-confidence) prediction on home prices is that valuations will continue to slowly decline for a while, but nominal prices will kind of bounce along and not do anything too dramatic in either direction any time soon (barring an interest rate spike… see 3 questions down).

Q: OK, does this mean you think this is the bottom for monthly payments?

A. I suspect that it’s awfully close, at least in terms of level (I have less of an opinion on duration).  But my investing philosophy is that you shouldn’t get too caught up on catching the exact top or bottom, because it’s impossible to do so with any reliability.  If something is a great deal, you can be greedy and wait for it to become a super-great deal — but there’s a good chance that’s not going to happen, leaving the possibility that the train will leave the station without you.  I believe that long-term investing success (and far lower stress levels) will come from being disciplined about buying things that are cheap and selling things that are expensive, not by getting overly worked up about whether you caught the exact peak or trough.

I sat out an inflation-adjusted home price decline of almost 50%, and now I’m buying at a time when prices are cheaper than normal and monthly payments at 45% below their historical median.  That’s close enough for me.

Q: Monthly payments may be cheap, but homes are still overpriced.

A. Not so.  Not in the aggregate, anyway:

 

As of November, San Diego homes were 10% undervalued based on the historical ratio of home prices to San Diego incomes.   Of course, individual markets may vary from this aggregate figure, and there are always issues with even the best price indicators, so buyers should (and we did) verify that their target homes are reasonably priced compared to area rents.  On the whole, however, the argument that San Diego homes are overpriced is not supported by the data.

Q: Won’t interest rates go up a lot, and won’t that push down home prices?

A. Yes, it’s certainly possible that rates could rise a lot, possibly to a shocking degree.  And this could indeed put downward pressure on home prices.  There’s actually very little correlation between interest rates and home valuations, and if anything, homes have tended to get more expensive in rising rate environments (due to rising rates typically being accompanied by rising wages, as well as other external factors).  However, I think that a sufficiently steep and abrupt rate rise could really hurt home prices.

But recall that I am more concerned with minimizing monthly payments than the purchase price.  If rates rose enough to really impact prices, it’s likely that those higher rates would have affected monthly payments even more.  So for a long-term, heavily leveraged purchase, the threat of rising rates is a reason to act sooner rather than later.

Single-family, re-sales home sales were up 2.5% last year in San Diego County.

Unfortunately, after a nice gain of 7.1% in 2010, the median price was down last year. The median price for homes dropped 5.3%. The average price dropped 3%.

Condo sales in the county were down 5.7% compared to 2010.

The median price for condos dropped 6.8%.

THE CALIFORNIA ASSOCIATION OF REALTORS® expects the median home price to increase 1.7% in 2012. They forecast sales to increase by 1%.

“2012 will be another transition year for the California housing market, as the continued uncertainty about the U.S. financial system, job growth, and the stability of the overall economy remain,” said C.A.R. Vice President and Chief Economist Leslie Appleton-Young. “An improvement in job growth, consumer spending, and corresponding gains in housing are essential to a broader recovery in the economy, but would-be buyers will remain cautious as they weigh these myriad uncertainties against the clear opportunities presented by today’s very affordable housing market.

“The most likely scenario is for the modest recovery to continue, and this should push sales up slightly next year by 1 percent and maintain levels that are significantly higher than those recorded during the depths of the housing downturn,” said Appleton-Young.

MARKET STATISTICS

Sales of single-family, re-sale homes were up 8.3% year-over-year in December. This is the sixth month in a row home sales have been higher than the year before.

Condo sales were up 25% year-over-year.

The median price for homes was down 5.3% yearover-year.

The median price for condos rose 2.5% year-overyear.

Inventory of both homes and condos continues to be weak. Home inventory was down 14.7% compared to last December.

Condo inventory was down 29.4% year-over-year.

Pending home sales grew by 9.7% year-over-year. That’s thirteen months in a row pending sales have been higher than the year before.

Pending condo sales were down 14.1% compared to last November.

Please remember, while statistics are nice, they will not determine the price you pay or get for a property. That will come down to you and the buyer or seller.

To read more download the Full PDF

Interactive Market Report

Listed at $319,000

If you’ve been following our project on 66 Prospect St., Chula Vista and read our previous post, then you’ll be excited to see what the finished house looks like!

Check out the latest Video:

The Follow-Up:

The house was upgraded throughout. Kitchen has new maple cabinets, granite counter tops, recessed lighting, sit down bar & stainless steel appliances. Bathrooms feature new vanities with granite counters, new toilets and shower/tub enclosures. New flooring (wood, tile and carpet in bedrooms). Painted inside and out. Newer windows & doors. Cleaned up the pool and the rest of the back yard is completely re-landscaped. The backyard entertainment deck was also redone and gives a great entertainment area raised and elevated from the pool. Fans and mirror closet doors in bedrooms. Spacious bonus room can be office, media room or extra bedroom. New tankless energy efficient water heater, stack laundry closet in hallway. The front has been completely cleaned up giving it prestigious curb appeal and allowing the neighborhood to appreciate the house’s remodel.

Click here to see the rest of the renovation

[Show as slideshow]

Pending sales were up 10.4% in October compared to September, and up 9.2% year-over-year, according to the National Association of REALTORS®.

Lawrence Yun, NAR chief economist, said improved contract activity is a hopeful sign. “Home sales have been plodding along at a sub-par level while interest rates are hovering at record lows and there is a pent-up demand from buyers who normally would have entered the market in recent years. We hope this is indicates more buyers are taking advantage of the excellent affordability conditions,” he said.

“Many consumers are recognizing that home buyers in the past two years have had one of the lowest default rates in history. Moreover, continued inventory declines are another healthy sign for the housing market,” Yun added.

“Although contract signings are up, not all contracts lead to closings. Many potential home buyers inadvertently hurt their credit scores and chances of getting a mortgage through easily averted actions, such as cancelling an old credit line while taking on a new one,” Yun said. “Such actions could unwittingly prevent buyers from obtaining a mortgage if their credit score is close the margins of qualifying, or they might get a loan but with less favorable
terms.”

NAR encourages consumers to be aware of their credit score and actions which could hurt or enhance it. Http://houselogic.com, the association’s consumer website devoted to all aspects of homeownership, offers tips for improving credit scores at http://tinyurl.com/27czzgb.

MARKET STATISTICS

Sales of single-family, re-sale homes were up 16.2% year-over-year in November. This is the fifth month in a row home sales have been higher than the year before. Year-to-date, home sales are down 1.7%.

Condo sales were off 9.8% year-over-year. Yearto-date, condo sales are down 9.3%.

The median price for homes was down 0.6% from October, and down 9.2% year-over-year.

The median price for condos was flat compared to October, and was down 4.9% year-over-year.

Inventory of both homes and condos continues to be weak. Home inventory was down 12.3% compared to last November.

Condo inventory was down 16.6% year-over-year.

Pending home sales grew by 8.9% year-over-year. That’s twelve months in a row pending sales have been higher than the year before.

Pending condo sales were up 4% compared to last November.

Please remember, while statistics are nice, they will not determine the price you pay or get for a property. That will come down to you and the buyer or seller.

To read more download the Full PDF

Interactive Market Report