‘Dose Of Reality’ Forces Price Drops In San Diego
The Union Tribune has this follow-up on San Diego home sales. “Home prices in San Diego County continued to cool off last month with a gain of 2.5 percent over January 2005 level. But new-home prices took the sharpest month-to-month dive ever recorded by DataQuick for the San Diego market, a loss that was not so much good news for homebuyers as it was a reflection of building-industry marketing practices.”
“The big drop in the new-home category pulled down the overall county median price to $490,000. That was $26,000 lower than December and $28,000 below the all-time high in November. The January median for new housing came in at $435,000, a record $104,500 less than in December and $22,000 less than in January 2005. The month-over-month decline represented a near-record 19.5 percent drop, the biggest since July 1997’s 24 percent change.”
“John Karevoll said the drop probably reflects two factors: the typical rush by big builders to close sales of new homes in December, before the start of the new year, which is followed by a lull in January; and the continuing sales of low-cost condo conversions.”
“Eastern Chula Vista’s ZIP code 91913, which includes parts of Eastlake and Otay Ranch, was one of several areas that best showed January’s erratic market performance. There, on the resale side compared with January 2005, the median price for single-family homes rose 12.1 percent to $656,000 on 22 sales while the median price for condos dropped 9.5 percent to $405,000 on 13 sales.”
“But in new housing, the median price for the area dropped a whopping 48.6 percent, plummeting from $725,500 last year to $373,250 this year. The precipitous drop in new home prices..appeared to be influenced by a large condo conversion project that recently began sales in Otay Ranch.”
“Several other ZIP codes also registered significant declines in home values, but the reason could not be linked to the impact of a single project. In the La Mesa-Mount Helix area, for example, the median price for single-family resale homes fell 9.4 percent, from $526,350 a year ago January to $477,000 last month. Real estate agents suggest that the drop in prices reflects a dose of reality that sellers in the area are forced to face.”
“‘Prices were higher than what they should have been,’ said La Mesa agent Carol Bostwick. ‘But now I’m seeing properties sitting on the market for 60 days and price reductions from $30,000 to $70,000. It may be that people are saying, ‘I want to get what my neighbor got two years ago’ for their house.’”
“Scripps Ranch showed an even larger year-over-year price decline of 14 percent to stand at $705,000, down from $820,000 a year earlier. Real estate agent Charmaine Vance believes that Scripps Ranch, which has benefited from a large runup in prices, may be facing stiff competition from newly constructed subdivisions nearby in the Interstate 15 corridor. She offered an example of a 34-year-old four-bedroom Scripps Ranch home that was listed for sale last May for $759,000. Today, it remains on the market despite a price reduction of more than $100,000.”
“‘I think all the buyers are waiting for the bubble to burst,’ she said.”
“The San Diego Association of Realtors said the number of active listings as of yesterday stood at 14,847, compared with 8,500 in February 2005.”
“Roni Telmosse, last year’s association president said her agents are warning sellers to plan on a four-month period from listing to close of escrow, but only if the home is priced right, is in good condition and is in a desirable place. ‘If it’s unrealistically priced or it’s a condition issue, it’s quite likely going to take longer,’ she said.”
i’m reading my latest LA Business Journal, a pretty decent local rag. David DeLerah is featured in the upcoming seminars announcements spouting his usual spewage (rewind tape please).
next page, LARGE article with pictures, and opening paragraph that LA residential gains have retreated 5 months based on january ‘06 data. there’s an irony buried in here somewhere.
Some Westside realtors seem to be finally starting to get concerned. I live near the beach in Venice, and on the way from my office this afternoon I was noticing what seemed to be an awfully large number of For Sale signs and found it odd. Then I came to the corner of 4th and Rose (near the beach) and saw 2 Open House signs from 2 different realtors on exactly the same corner. Then both even had red flags on them. It seems that the deep westside might be starting to flinch finally.
I remember looking for homes in South OC last year in February 2005 and prices were down in some areas about as much from their highs in 2004. But then they had a great run-up in March, April, May and June. I want things to drop and keep falling, but as with San Diego, I think we won’t know for sure until prices are lower in June 06 than Jan 06
that was when you can pretty much declare your income without any question and get a loan to buy a real estate.
Read this article and prepare to be very angry:
http://finance.yahoo.com/columnist/article/millionaire/2585
Imagine that. Buy a home, live in it, build your wealth, get great tax deductions — and then retire rich. It may sound too good to be true….
I just love it when we see yet another article by some smiling real estate jackass/ salesman ( complete with glamour shot pic ) spouting off about how anybody can cast their money into a house and retire rich.
This little game is just about over.
This guy is a money manager not a real estate salesman. At least according to his bio.
He states that he is being paid by the bank to write RE PR; i.e. a paid RE lobbyist or whore.
I read his book “Automatic Millionaire” and there is some good stuff in there, but one of the points that he drives home in his book is that “big hat no cattle” principle. He says that overextending yourself to appear wealthy is the most absurd mistake you can make.
In this case, just about anyone would be overextending to buy in todays bleak market. I agree, and I smell a whore.
I once had an engineering professor who when asked if a partcular rule applied would answer “yes, that is always always the case…except when it isn’t” At the time I thought he was a jerk but now I understand. For example, real estate is always always a great investment except when it isn’t.
the roman empire was drinking late into the night even as the barbarians from the north were at their gates.
and from this morning’s reuters story in yahoo finance, this one is closer to home: “”Warm weather and consumers’ willingness to spend every penny they have led to a huge increase in retail sales,” said Joel Naroff, head of Naroff Economic Advisors. “Households may be tapped out and dipping into savings and wealth, but that still hasn’t slowed them down one bit.”
now is the time to be sober and alert. keep on bloggin’
Yeah, I read that piece of cr@p article before I even had my coffee this morning. It’s really just an advertisement but I’m sure plenty of people will take it as “journalism.”
“Now let’s imagine that instead of continuing to rent, you buy the same home for $200,000. Initially, your costs as a homeowner are likely to total around the same $1,500 a month you would’ve paid in rent. But these costs won’t balloon “
His point is correct, from a 1995 perspective. But for example in Orange county, $1500 rents you a place that sells for about 400K, $2400 a month rents you a place that sells for about 800K. His examples are seriously outdated for anyone who lives in a highly overheated market. He is correct, if I was buying a home in parts of Colorado, Wyoming, or less desirable areas like much of South, and East Central areas, then true, it is better to buy than rent. Sad, I know people who bought that book and believe it to be gospel
More extreme in Bay Area. I rent a place for $2450 which just appraised at $1.25million.
I rent a house in the east bay for $3100/mo, the exact same house on the same block sold for 1.5 million last year
I rent a nice little house in del mar for $2500 a month. Two doors down, a small house’s asking price initially was $3.2 mill! Now down to 2.7….
His example makes sense for non-bubble areas where median prices are around 200k…At 700k, it’s out of whack.
Look for my rebuttal in my next post….
SoCalMtgGuy
Another F—-D Borrower
FB FORUMS
Nothin’ wrong with that — man’s entitled to his opinions, however baseless.
When you get an interest only loan and prices stay flat aren’t you just renting from the Bank?
Worse… you are in charge of upkeep and maintenance of the place if you are a homedebtor.
An I/O loan is intrisically a call option on future appreciation—a leveraged bet on market direction.
If the home appreciates enough, you make the big $$. If it stays flat or declines, you are SOL.
A lot will depend on your time frame and your financial ability to withstand a downturn, as well as how soon your funky loanage rejiggers higher.
It’s going to be interesting, that’s for sure.
Like all options if it moves out of the money, you walk away and sacrifice the premium which in this case happens to be a 10 year hit to your credit and whatever the bank can wring out of you at settlement.
Are you the option premium is this low under the new BK laws? I guess it depends on your circumstances (income, tax bracket, etc.).
That’s exactly what it is: a highly leveraged call option for which the risk premium is beginning to erode slowy but surely. Of course, you can’t just walk away as with a security option. This is the major disservice being done to the public at large. Total lack of risk awareness by homedebtors and little or no guidance on the potential risks from the lendors. There is a very small percentage of the total population that has an even rudimentary understanding of securities options, let alone the risks posed by the equivalent in the housing game.
But Housing always goes up, at least this is what the unscrupulous lenders will have these homebuyers believe when they inter an I/O loan.
Plus on your call option, they are counting on simple supply and demand and that is beginning to work against them to erode prices.
So if prices don’t go up? They’re screwed!
>>>>An I/O loan is intrisically a call option on future appreciation—a leveraged bet on market direction.
Good observation. The only problem is that the borrower’s don’t know they are buying a call option that has a lot of risk associated with it. The Realtor marketing machine has convinced them it’s a one-way ticket to a better life.
Robert Campbell
mo money
Read through the article you posted and it sounds like wells fargo is getting very desperate. Same old rhetoric from the buy cheeleading squad. I think owning is definitely better over the long run. I really think most of the people on this blog would rather own. I just think people here are smart enough to see through the BS and look for value in what they are buying. Pateint people who make rational decisions are rewarded over the long haul.
Exactly
I have two questions.
1) Why can’t sales of new units be separated into condos and SFRs like resales are?
2) What would explain the discrepancy between the inventory of 14,847 quoted by the Association and the 16,600 I see on ziprealty?
Thanks to anyone who can explain this?
NAR used to break the two out.
I believe last Summer they collapsed the two with no public justification.
I think that it made their numbers look better. Once Ben gets his archives back up it would be worth a search. Hopefully, Wordpress does better search than Blogspot.
i’m looking forward to housing tracker update today.
There are a good number of reviews on Amazon slamming the book. I bet he doesn’t mention the upcoming housing surplus due to baby boomers dying off.
OT - But probably less risky than buying a condo. While looking for a new sailboat on Ebay I stumbled on this listing. It seems to me that this would be quite a bargain relative to condo prices.
The yacht is located in the heart of downtown San Diego. It is designated as a live-aboard, and is more than big enough to accommodate an entire family. She has 4 bedrooms, 2 bathrooms with showers, all working.
EBAY item #4612972201
I just got the housing listings the realtor sent me this morning. I saw there are 12 condos on the same street–Scripps Ranch Blvd on the listings, all coming out today. What is wrong now? They are all panic?
“‘I think all the buyers are waiting for the bubble to burst,’ she said.”…
well, maybe not ALL buyers, just the ones with common sense.
I agree. Lots of them are still buying like there is no tomorrow.
His example is buying a 200,000 house… where the hell can you find a 200,000 dollar house in California? Enough said.
There lots of Houses in Kern County that are under 200k. No jobs but there is cheap houses.
Here’s a fabulous little residence in Bakersfield for $200K
http://tinyurl.com/df47g
Comfy old couch on the porch and a swamp cooler on the roof for those lazy 110 degree days of summer ahead. This little dollhouse is 50 years young, 2 bedrooms, and 840sf of pure pride of ownership in a neighborhood with possibile future gentification. Must see to appreciate! Please check your weapons at the door and don’t let the dogs out. Thanks!
National Geographic: California Cows Fail Latest Emissions Test (pdf format)
It’s a rare chance to be close to the energy source of the future. Be inventive and find a way to convert the gas to methane and become a Texas oil tycoon of the new centuray.
When I say you can’t find a home in California for less that 200k, my expectations is 2000 sf., not a 800 square feet pos in Bakersfield. I’m having a good day
Here is a link to the Lake Isabella, market (Kern County). No crime, good folks, beautiful area, just no jobs. There are a dozens of homes that are active and under 200k.
http://www.listingpreview.com/22rep1b.html
In my neighborhood (Rancho Bernardo). Look for the sign twillers on every street corner: “Condos from the low $200s.”
Love them signs! Only, last summer they said “high $200s,” and - no kidding at all here - they said “mid $200s” in the fall. I should’ve taken pictures of them!
Right on. A house here in LA that rents for 1500/mo., as he refers to in the article, sells for 450-500K. He has no clue.
There are average houses in just above average SF neighborhoods where someone will dig underneath it and put in a one car garage for $200,000 - perhaps that’s what he’s talking about.
Have you guys noticed that homes sales by zip on Melissa Data has not been working for days? What’s up with that?
Mo Money pointed (as catsipt1 did in previous thread) to Bach’s millionaire article and I’ll repost (with edits) of my reply:
I’ve read it and it’s sad to see that David Bach doesn’t disclose the downsides:
1) leveraged losses are even more painful: it can zero out your equity or end up with negative equity! [When we lost $50K last year, at least we didn't have to bring a check to the closing table -- but a loss is a losss.]
2) tax payments will go up! (Even if appraisals go down, don’t be surprised if your tax rates go up even higher — that’s what they did here in Austin, TX after the dot com bust)
3) And if you lose money on real estate, you can’t deduct it from your taxes (unlike other capital losses). See the details at: http://www.irs.gov/publications/p523/ar02.html#d0e684
[I was a bit surprised to find this out. No realtor told me about this bomb in the tax code.]
reality times fights back
they have a place that like, maybe isn’t like, going down
http://realtytimes.com/rtcpages/20060214_mrktconditions.htm not so cocky now
Nice link. I really like the links along the side, though. Especially the “Ask George…”
replacewithyourtitle
There are new number out from the Northern Virginia Association of Realtors. Avg Sales Price declined 8.5% from December 2005 to January 2006. More details on my blog.
David
Bubble Meter Blog
Great to hear that the word “Bubble” was used by that agent. I wonder how it went from “Real estate never goes down” to “Well, it’s because of all the competition and inventory” to “Well, people expect too much” and now to “Well, the bubble is scarying a lot of people and you cant expect houses to fetch what they did two years ago.”
Uh - didnt you say real estate could “never go down”? What about “we dont have a bubble”? What a load of crock.
“‘Prices were higher than what they should have been,’ said La Mesa agent Carol Bostwick. ‘But now I’m seeing properties sitting on the market for 60 days and price reductions from $30,000 to $70,000. It may be that people are saying, ‘I want to get what my neighbor got two years ago’ for their house.’”
The market clearing price *has* dropped, whether house sellers price accordingly or not. If they don’t reduce their asking price, then their house sits until inflation erodes the value. They can’t escape it. Even if they keep the asking price the same, the real value will fall due to inflation.
The real market clearing price of houses has fallen. It will either get there quickly or slowly, but it will definitely get there.
“Even if they keep the asking price the same, the real value will fall due to inflation.”
Scratch inflation; substitute deflation.
Actually, we need to scratch both of these comments. Neither inflation nor deflation affect the real value of things, only the nominal prices. If you buy a house for $500K today, it drops to $250K sale price tomorrow due to changed market conditions, followed immediately by 100% inflation the next day, you will have gotten back to your nominal purchase price but have still lost 50% in real value (the amount of other goods and services that can be exchanged for your house). No amount of inflation is going to save your investment, although by devaluing your debt it might enable you to get out from under it as your income rises with inflation.
“Actually, we need to scratch both of these comments.”
Thanks for superceding them with your expert opinion that neither inflation nor deflation matter. I hope Ben Bernanke is reading this so that he can incorporate the consequences of your observation into Fed policy.
Mr. Showley omitted an important column from his table:
Change
PRICES Dec 05-Jan 06
S-f resale 0.8%
Condo resale 1.3%
New* -19.4%
Overall median -5.0%
SALES
S-f resale -23.4%
Condo resale -18.6%
New* -58.8%
Total -35.2%
Months of used home inventory at Jan sales pace:
16,659 / (1,487 + 647) = 7.8 months
Lots of big negatives in the MOM numbers!
(Inventory from ZipRealty.com)
“The San Diego Association of Realtors said the number of active listings as of yesterday stood at 14,847, compared with 8,500 in February 2005.”
Could somebody please forward them the ziprealty.com link so they can figure out why their count is low by 16,659 - 14,847 = 1,812 homes? Of course the actual picture is probably worse, as I don’t suppose ziprealty includes FSBOs, homes sold on Craig’s list, etc, not to mention the pending effect of all those empty new condos and McMansions which are either currently under construction or held by non-occupant owners.
helpusell lists 17999 as of yesterday (I think its helpusell.com/caminoreal) We are very close to the 19.5K or
so peak of last year. To quote Captain Kirk: “This is going to be
big, really big”.
Actually, the 19.5K inventory number you reference was 19,280, to be precise, last seen in 1995. But you are right about the “big, really big” part.
I’ll have to check my numbers when I get home, but the peak was probably 18.5K last summer/fall. I put 19.5K down because its hard to fathom passing last year’s peak so early in the year - very anomalous. I’ve been tracking inventory numbers since I put my house on the market in late February of 2004, and there usually isn’t much of an increase at all in the first quarter. Obviously with so much inventory and abysmal sales “this time its different”. I’m racking up the good quotes today!
Yeah, looking over my numbers I have 18240 for SD inventory peak last year from one site, and 17981 from helpusell. This
was mid november. Bottom line, lots of people rushing to the exits all at once.
“But new-home prices took the sharpest month-to-month dive ever recorded by DataQuick for the San Diego market, a loss that was not so much good news for homebuyers as it was a reflection of building-industry marketing practices.”
They are right. The good news is still 4-5 years off, when the 40% off sale starts.
“‘I think all the buyers are waiting for the bubble to burst,’ she said.”
I think there is no bursting bubble, but what qualified buyers are left plan to wait five or so years for the slow leaking of air out of the balloon to end.
Here’s an example of the mentality of San Diego real estate “investors”. First a little background information. My brother-in-law is an Orthopaedic surgeon and did a fellowship in S.D. in 2002. He and his wife(my wife’s sister) rented a place on the beach for $1600/month. It wasn’t that nice but they are from Michigan so living on the ocean for a year was a good experience. Fast forward to 2006, b-i-l wants to go back to S.D. for a medical conference and vacation. They decide to stay for a few weeks so they call up their former landlord to see if they can rent their old place. Turns out the landlord never found another tenant after they left at the end of ‘02. He also states the rent will be $2000 for the month since “rents have gone up in S.D.” since ‘02. I told my s-i-l this was not true, rents have actually fallen and S.D. is in a real estate bubble along with much of the country. She said this was untrue, her former landlord said he actually made more money not renting the place because it appreciated so much every year. That’s right, this guy said he made more money not collecting any rent than collecting some rent. I think his pride will not allow him to be cash flow negative.
The worst part of this story is my s-i-l believed the landlord and will probably pay this idiot $2K for a months rent. I emailed her some S.D. links from this blog, hopefully she will read them.
I take your point on the “investor” mentality.
On the other hand, $2K for a one month vacation rental on the beach is a genuine bargain. Your s-i-l isn’t likely to get anything remotely equivalent any cheaper for that period.
Just got an e-mail from my ziprealty agent:
“Hi there,
I came across this article and thought I’d share it with you. Very interesting!
http://www.voiceofsandiego.org/site/apps/nl/content2.asp?c=euLTJbMUKvH&b=486837&ct=1797801
According to By RICH TOSCANO - Thursday, Jan. 19, 2006: “It’s easy to understand, given the above, how people would initially conclude that San Diego has an undersupply of housing. But the data speaks loud and clear: there is no housing shortage in San Diego. There never was. And take a drive around downtown sometime — given the amount of building taking place, there certainly won’t be a San Diego housing shortage any time soon.”
Call or email me anytime…I’d love to earn your business!
~Sheila”
This article was on Professor Piggington’s site (Rich Toscano). I can’t believe she did this…or perhaps it was identity theft and someone is spamming using her e-mail??????? Wow.
Sheila Anderson
REALTOR (R)
Licensed in California
My Profile: http://www.ziprealty.com/agent/sanderson
I think Sheila is smart. Sheila knows the tide is turning and wants to be ahead of the curve.
There might be a price to pay in the short term as a few ‘gotta have it now’ buyers get scared off, but she’s betting they are already the minority.
Her honesty will earn credibility with all those zip realty tracker types who are waiting…
What bubble? Bush doesn’t see it in his crystal ball. lol
Do you know if he made those reassuring remarks about the housing market on shipboard?
I posted this before, but don’t see it. Forgive me if it turns out to be a duplicate.
Just got this e-mail from ziprealty Realtor today:
________________________
“Hi there,
I came across this article and thought I’d share it with you. Very interesting!
http://www.voiceofsandiego.org/site/apps/nl/content2.asp?c=euLTJbMUKvH&b=486837&ct=1797801
According to By RICH TOSCANO - Thursday, Jan. 19, 2006: “It’s easy to understand, given the above, how people would initially conclude that San Diego has an undersupply of housing. But the data speaks loud and clear: there is no housing shortage in San Diego. There never was. And take a drive around downtown sometime — given the amount of building taking place, there certainly won’t be a San Diego housing shortage any time soon.”
Call or email me anytime…I’d love to earn your business!
~Sheila”
Seeing I bank with Wells Fargo, I called them today and said that because if they are so desperate as to align with this moron by giving away free tickets to his seminars, that they can basically kiss my future mortgage business goodbye.
After all, why would I give my business to a company that by affiliation is calling renters “losers”?
motorcityjim - Beach rentals are very expensive. My friend from Phoenix rents a beach house in Del Mar every year, and pays $2K - $2.5 K WEEKLY. This would be a 4 br house within 1/2 mile of the beach. Vacation rentals are priced higher than long-term rentals.
Regarding the U-T article: prices went up from December to January! The new-home decline is only due to cheap condo conversions. Yet we see price reductions, and my own house closed escrow in January for 5% below a very competitive listing price. The numbers are not telling the story. We need at least one realtor on a blog to explain the numbers!! How can median price increase when us sellers are getting lowball offers, our list prices are reduced over and over?
This is how I know without a doubt that prices for everything housing related in California are completely screwed up.
$9K or $10K per week can get you a large house (at least 4 bedrooms), sometimes on the water (with yard/pool, etc., as well), in the Hamptons, the Cape, the Vineyard or on the coast of Maine during the month of August.
And people are willing to pay a quarter that to be a half mile from the beach for a week in Del Mar?
Del Mar?
Del Mar? Spare me.
ziprealty inventory is up to 16,767 (up by 108 from 16,659 earlier today).
HAPPY VD, SD SELLERS!
We’ve paid $1K for a weekend house rental each time we’ve gone to Mendocino in the last few years.
I wasn’t specific enough in my earlier post. Sister-in-law is not renting a nice 4 br house on the beach, but a 650 sq/ft run-down place. All this for only $2k/mo.