June 5, 2013

Losing Out To Those Cashing In

The Voice of San Diego reports from California. “Is the San Diego housing market in bubble territory again? In my mind, the ultimate test for bubble-hood lies in valuations. I believe the best way to measure housing valuations is to compare home prices to local incomes and rents. Right now, they are telling us that – bidding wars notwithstanding — there is no bubble to be seen in San Diego housing. I offer no opinion as to the direction of San Diego home prices in the years ahead. But those seeking out a bubble would be advised to look elsewhere.”

The Union Tribune. “The best evidence for a nascent bubble in San Diego County is behavioral. In scenes reminiscent of pre-crash 2005, they are joining waiting lists for new construction, writing offers on the hoods of cars, and sending ‘love letters’ to persuade sellers to pick them. The sense of urgency is increasing along with prices. It’s the classic sign of early bubble formation. ‘In a normal market, higher prices mean that sellers sell less. But the market becomes pathological when higher prices cause more buying,’ said Ed Leamer, an economist at the UCLA Anderson Forecast who in 2003 warned of the last bubble. ‘People are starting to think, ‘I’ve got to buy a house before it is too late.’ That’s a bubble.’”

NBC 7 San Diego. “The San Diego Association of Realtors reported median single-family home prices climbed 23 percent in the year ending in April 2013. One local Real Estate Broker said prices are over-inflated. ‘A 20 percent increase would tell you that, yes,’ said Scott Vinson, owner and broker at Coldwell Banker Royal Realty in Chula Vista. ‘I would like to see the market slow down a little, from a broker’s standpoint. I’d like it to slow down and get those first-time buyers involved and getting them buying homes before it’s too late.’”

“Vinson said some investors have orders for their real estate agents to purchase homes under a certain price without even looking at the property in hopes of purchasing it for a quick remodel and flip.”

CBS Los Angeles. “Matt Manner now has 18 homes that he’s fixing — and flipping. He pointed to one home he bought for $330,000, and plans on selling for $629,000. The goal, he said, is to double his profit. The current frenzy, he said, took off in January. That’s when Charlotte Dewaele began her search. Her initial hope was to have a home about 1,200 square feet. ‘Then that went down to a thousand, and now it’s just about anything,’ she said.”

“Her search for anything led to a California house marketed as having ‘charm.’ The entire house is 672 square feet and with a list price of $268,000. ‘It’s overpriced, but it’ll probably sell for a lot more than it’s priced at right now,’ Dewaele said.”

“Dewaele’s search is getting more urgent. She’s now six months pregnant. She’s ready to buy a house and has the money, but she can’t. Laura Key, Dewaele’s realtor describes the current housing market as ‘a mess.’ Each time they find a house, they lose out to those cashing in. ‘There’s always multiple offers. Then it’s sold within 24 hours. Then, less than 30 days, back on the market,’ Key said.”

“The flipped houses go for at least $50,000 to $75,000 more than what they purchased it for. Dewaele said she can’t bid that high without ‘overextending,’ as so many others did before the last housing boom went bust. And she doesn’t think she’ll find a home before her baby is born. ‘I’ve kind of lost hope,’ she said.”

The Sacramento Business Journal. “Real estate appraiser Ryan Lundquist has been at it for 10 years, so he remembers what his profession and the Sacramento real estate market was like in the mid-2000s. A cautionary note: He said he sees some similarities from then to the market developing now. ‘You see new construction, and back in the heyday, the builders would raise their prices by $10,000 a month,’ said Lundquist. ‘That’s happening again.’”

From KFSN. “Homebuyers are returning to the market but rising prices have some people worried about a ‘double bubble’ where prices again reach an unsustainable level and then collapse. People are happy to see their home values rise but the president of the California Realtors Association, Don Faught worries it’s happening too quickly. He says it’s not good for the recovering economy. ‘We do not want to price people out of this market,’ Faught said. ‘We’re kind of anticipating interest rates, right now it’s about four percent. They’re going to go to about five percent next year.’”

From Reuters. “Out of 50 million U.S. homeowners, 10.2 million are still ‘underwater’, according to the National Association of Realtors. In California alone, two million homeowners are underwater. Another 500,000 are delinquent on their mortgage payments, according to figures from ForeclosureRadar. In the Inland Empire, an area of 4.3 million people and one million homes, 52 percent of foreclosed homes that were purchased in the first quarter of 2013 were bought by Wall Street investors, according to John Husing, a regional economist. None of those homes were even advertised on the open market.”

“‘So over half the market was not even seen by realtors and normal buyers,’ Husing said. ‘This is not a natural recovery. A lot of what is driving demand has nothing to do with a normal housing market. It’s an anomaly caused by huge investment firms.’”

“ForeclosureRadar also uses another metric - sales activity - to determine the health of the housing market. According to the firm, the number of homes actually sold is at the lowest number since 2008. ‘We have artificially low interest rates, and low supply,’ said Sean O’Toole, ForeclosureRadar’s CEO. ‘You do get an increase in prices, but I don’t think you have a real recovery.’”

CBS Oakland. “Cash buyers accounted for more than a third (34.1 percent) of home sales in California in March, more than double the average (a 16.1 percent monthly average since 1988). They are not just buying foreclosures, they are buying everything. Real estate agent Patrick Leaper hasn’t seen this many cash buyers in 40 years. ‘There’s a tremendous amount of cash buyers out there,’ Leaper said. ‘Not just the investor, [or] people who have taken money out of their IRA’s and buying real estate, but homeowners too.’”

“In part it’s a response to the low interest rates paid on money in the bank. Some savers are putting their money in real estate instead. All that cash is helping drive up prices. In Oakland, the median sales price has risen from $240,000 in April last year to $537,000 this April, according to Red Oak Realty.”

“It’s almost as if buying a house in Oakland right now has become an endurance sport. Sara Mertz endured. After being beaten on eight previous offers, she went more than $100,000 over the asking price to get her new house. ‘From our experience, there’s not a lot on the market, and so when there is a house that we’re excited about, so is everybody else,’ Mentz said.”

Bits Bucket for June 5, 2013

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