A February Beatdown for the Size-Adjusted Median

Submitted by Rich Toscano on March 7, 2008 - 6:55pm

Both median-based price indicators were thoroughly abused last month. Between January and February, the size-adjusted median price declined 5.7 percent for single family homes and 7.7 percent for condos. That's in one month, friends. Brutal. (The vanilla median was even worse, fwiw, which isn't much).

So much for that burgeoning spring rally.

I wrote a little more on last month's action over at voiceofsandiego.org and I will try to put up some more charts here in the next couple days...

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Submitted by SD Realtor on March 8, 2008 - 10:16am.

Rich what we may finally be seeing is the effect of the distress sales finally making a greater presence in the price median. Some of the short sales that received offers in October and November are now getting through the pipe and actually getting closed. So now not only are foreclosures helping to push the median, but short sales are as well. Both of these property types are growing in numbers.

Also I am going to hold off until May/June to make an official pronouncement that there was no spring rally. That may or may not happen from a pricing perspective (and due to the credit crunch it is definitely swinging towards may not happen) however from a number of sales perspective I am still willing to bet more properties sold in these months then say the summer/fall months.

Still this is all very encouraging to see!

SD Realtor

Submitted by pfflyer on March 8, 2008 - 11:43am.

While it is refreshing to see some return to normalcy, I'm still not seeing these drops in areas I'm watching. The Pt Loma, La Jolla, Del Mar, and RSF areas still seem to be either holding on or in serious denial. I'd like some feedback as to when we can see some movement in these areas. Thanks.

Submitted by SD Realtor on March 8, 2008 - 3:20pm.

Hi pfflyer -

Yeah I have a few clients who are under the same umbrella as you... It is funny because sellers in these areas are actually not oblivous to the market crumbling around them. Yet they seem to think that for some reason the homes they have for sale are indeed going to fetch the premiums they are demanding. Let's see what happens after another year or two.

SD Realtor

Submitted by pfflyer on March 8, 2008 - 5:05pm.

SDR, I attempt to read as much as possible to decipher what is actually happening right now. When we see numbers like 5.7 in one month (in an election year) with all the other turmoil it leads me to believe this will shake out faster, possibly by 12 more months. Whether these nice areas hit a reasonable price point by then is debatable. I'd hope it doesn't take "a few more years." Hopefully this thing will be fully recovered (top to bottom) in 3 years. Wouldn't that put us halfway there?

Submitted by Fearful on March 8, 2008 - 6:14pm.

Hopefully this thing will be fully recovered (top to bottom) in 3 years.

Not a chance. If you look at the Case-Shiller curves, you will see that if anything, the decline is slower than the increase. Sadly, this implies that the bottom will be reached somewhere around 2012.

On the bright side, the bottom is long and shallow, so we should end up within 10% of the bottom somewhere around 2010.

Also, to confirm the common sense observation, the high end of homes rose a lot less and is falling slower than the low end.

Nothing to do but cool our heels and wait.

SD Realtor, thank you for your ongoing contributions.

Submitted by SD Realtor on March 8, 2008 - 7:58pm.

Thanks Fearful... I do tend to agree with you but am always hopeful that there will be a larger shift that will give us the downward chunks that we want. I think there is a "possibility" of some of that happening in the middle tier of locales like Scripps and Escondido and similar communities. However the most desireable locales like the ones you guys are offering up seem to be more down the road.

Lots of equity mixed in with stubborness. There will be some individual cases of people giving in sooner but those will be good deals rather then great properties. (stolen from sdr)

SD Realtor

Submitted by North15 on March 8, 2008 - 8:20pm.

pfflyer-

My thoughts on Pt. Loma, Del Mar, RSF etc.....

1) Higher credit worthy ownership

2) Greater equity balance partially as a function of the age of the homes or average length of ownership

3) High end of pay scales for San Diego

4) Much less exposure to the new home 2004-2007 build-out in inland areas with associated over leveraged ownership

However......

1) There will be must sell inventory that is in direct/indirect competition with 50% off inland properties. Must sell from employment relocation, unemployment, deceased ownership, and other life issues.

2) There is over leveraged ownership scattered among these areas that will not be able to hold on much longer. Ownership linked to real estate, construction, property flippers, etc.

Submitted by Carlsbad Renter on March 8, 2008 - 10:10pm.

I think the biggest misconception about why depreciation hasn't started to hit the MLS for coastal "upper" areas has to do with income.

I agree that it has something to do with it, but I know I am in that upper income bracket and I know housing is extremely out of whack. You can not have that many homes for $500,000+ because there are simply not that many people with that kind of income. Your looking to having to make at least $150k per year minimum (if you are lucky not to get hit with the AMT in taxes).

I believe that the truth is more in the type of financing. I believe the less desireable areas had more subprime loans with resets that occur in a shorter amount of time, which were 2- or 3-year resets.

My personal theory is that areas like Carlsbad, Encinitas, Del Mar, etc. have far more interest-only loans with resets at 7 to 10-years after the date of the origination. In fact, one of my coworkers has the seven-year version (he owns in Carmel Valley area), which resets in another 5 years. That means he is going to be hit in 2013. This could actually be a long, long drive.

Carlsbad Renter

Submitted by AN on March 9, 2008 - 1:47am.

Carlsbad Renter, I agree that loan type does and will affect how this thing play out in the mid to high end. Also, most likely, people who bought in the high end are not sub-prime people. There had their kool-aid taken away last March which is starting to show in the end of last year, which shows up in closed sales now. However, the mid to high end, I think are more affected by the jumbo factor. Those only got their Kool-aid taken away in August, so we still have a way to go before it funnel through the system. Also, some of the mid to high end demands are from move up people too, so if they can't sell their low end houses due to sub-prime, there goes a portion of the demand on the high end as well.

In regards to the high end, if the bottom end keep on falling through the floor but the seller of high end are not budging, we might see sales dry up completely eventually. I think Bugs explained it best in one of his post before, that all areas are interconnected. So IF the high end gets disconnected and no one there need to sell, then they'll stay put and buyers won't buy and sales will go to 0. This is an extreme scenario of course.

Submitted by Bugs on March 9, 2008 - 6:17am.

I realize the level of impatience on this boared is high but some of you guys really take the cake. The rate at which these prices are falling is as unprecedented as was the rate of increases that preceded it.

Be patient. It'll happen but it's going to take a while. It's a supertanker, not a speedboat.

Submitted by Mr. Drysdale on March 9, 2008 - 12:19pm.

I agree with Bugs and would like to add, as much as I've said it will happen, rest assured it will,but will be much worse than anything anyone was expecting. It's not something to wish for, but I agree it has to happen. I know alot of people (some personally) that were very foolish over the last five years with regard to the run-up in values, with cash out refinances every year for 5+ years, but alot of other people who had nothing to do with contributing to this mess will regrettably suffer as well.

Submitted by CA renter on March 10, 2008 - 12:30am.

IMHO, one of the factors keeping the higher-end home prices high is that bubble buyers were using equity from homes they sold in the lower-end markets. In many cases, they could come up with $300K++ down payments. We have to get through that level of equity before we see distressed sales.

There were certainly some people who bought with 100% LTV loans, but they were not as common in the higher-end areas as in the lower-end areas.

Been doing some research on the $1MM home market in North County. While some did come in with significant down payments, others had only had 0-10%. These people have been living off of their equity in many cases (cash-outs and HELOCs), and we WILL see these areas fall back to pre-credit bubble prices in due time. They do NOT have the income to support their mortgages.

I think the higher-end areas will not see good buying conditions until after 2010 (if that). Just MHO.

Submitted by Mr. Drysdale on March 10, 2008 - 5:26am.

Actually, the buying opportunities are here. I've seen buyers offer Countrywide and others with huge REO portfolios 25% of the REO asking price and getting countered at 40% to 50%. The REO asking price is well below the prior market price. The counters were $200,000 even on 3-BR, 2-BA SFRs with yards. These are not townhomes. You have to bid 20% to 30% of the asking price and no more. The opportunities are with those with large REO portfolios. Ignore homeseller listings. If they have to sell, they will eventually they will become REO because the current REO comps will not support the prices they need just to cover their mortgage.

Submitted by baruza on March 10, 2008 - 7:12pm.

I know things are bad, but that doesn't jibe. Those sales would still be listed with the county and comps would be going crazy if that were true.

Submitted by SD Realtor on March 10, 2008 - 11:53pm.

sandiegobanker I would be quite interested in some details on some of these deals. I have been submitting several offers for reo properties for some clients and have had not seen any results that remotely match what you have stated. Are you referring to large portfolio sales or individual homes. If you can provide some addresses of homes I can verify.

SD Realtor

Submitted by Mr. Drysdale on March 11, 2008 - 6:45pm.

SD Realtor, privacy laws and covenants of confidentiality prevent me fro disclosing more detail, but rest assured the comps will appear soon enough

Submitted by SD Realtor on March 12, 2008 - 12:16am.

Once they do please let me know as I would like to see them.

SD Realtor

Submitted by JC on March 12, 2008 - 7:24am.

sandiegobanker

yes, please do share when you can. i have been having a heck of a time with offers on REOs. i'm not trying for the deal of a lifetime, just a first time homeowner looking for something close to being affordable. thanks, much.

Submitted by davelj on March 13, 2008 - 6:17pm.

I realize that prices are falling across the board, but isn't one of the reasons that the "reported stats" are declining so rapidly is because a larger percentage of sales are foreclosures that are taking place at below $400K? Maybe I'm stating the obvious, but it seems like if the lower-priced homes are moving much faster than higher-priced homes, and foreclosures make up a disproportionate amount of the total lower-priced home sales, then the rapid decline in the "median" sale is disproportionately due to what's happening at the lower end, as opposed to the rest of the market. Although clearly the Case-Shiller data suggest that all three tiers of prices are moving down at a pretty good clip...

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