October 2008 Resale Housing Data Rodeo

Submitted by Rich Toscano on November 8, 2008 - 1:26pm

October saw an epic drop in the median price per square foot paid for condos, down 14.8% in a single month:

The plain vanilla median condo price was down an even worse 15.6%:

Single family homes, on the other hand, experienced a fairly typical monthly decline in both the size-adjusted and vanilla medians.

Clearly this is the result of a sizable shift in buyer activity towards low-end condos. We've all been discussing this trend for a while, but for whatever reason it made a dramatic impact on condos this month. The cheap stuff is apparently flying off the shelves.

My Case-Shiller estimate is, like the actual Case-Shiller index, calculated using only single family homes, so the wacky condo numbers didn't affect it. The projected drop in the Case-Shiller index for October is pretty in line with what we've seen recently. (Note though that if the changing sales composition starts to impact single family homes the same way it has condos, these estimates will become a lot less accurate).

Volume was brisk yet again...

...and inventory dropped as well...

...leading to the lowest months-of-inventory figure in years:

The decline in the months' worth of inventory accompanies another drop in foreclosure activity:

I thought last month's NOD drop was due to the new state law requiring an extra 30 days' notice, but SD Realtor thought it might be the start of something bigger as banks stopped initiating foreclosures while awaiting all the current and future bailouts. The continued drop in activity indicates that SD R may have been onto something. I will be very interested to see how these numbers look over the next couple of months.

While the supply, demand, and foreclosure trends are improving, this happens just as the employment picture is really starting to darken. Amidst these opposing forces we have the heavy hand of government pushing things around as well. How all these factors play themselves out remains to be seen, but the bearish factors are clearly winning out for the time being.

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Submitted by DWCAP on November 8, 2008 - 8:15pm.

What I find intersting is that inventory is holding steady while sales have doubled. Sales at the beginning of the year were roughly 1500/month while inventory was about 18000. Now sales are 3000/month while inventory is about 16000.

Homes are coming onto the market extreamly fast, but are leaving just as fast as prices keep plumetting. This tells me that things will not turn around quickly, if only because the sales are already near the max seen in the past few years, when employment and buyer sedement was higher.

Add in the new, lower, conforming limit that will be in effect as of Decemeber (they have to close by the 31st ) and I cant see prices turning around any time soon.

What I wait for is an inflection point. Sales will slow as declines in prices stop (prices declines are what are driving sales). Hopefully ill still be in a place to buy then.

Submitted by SD Realtor on November 8, 2008 - 10:41pm.

Well Rich the October numbers from Innovest were pretty staggering. Still way to early to make the call though on my theory. I think in the end we will both be proven right to some extent. I view the current regulations to act as a 4 stage FIFO where each stage is a month. So... I want to see what things look like come January. If we see that the December numbers are comparable to September or October then we have a major problem.

One way or another it is VERY disconcerting to me.

Submitted by peterb on November 8, 2008 - 11:01pm.

Rich, thanks for the update. Sounds like something is churning out there. Do you know the actual median price paid per sq/ft of the condos? I've heard lately that prices around $200K are bringing people into the market. Sounds like the data may back this up.

Submitted by HereWeGo on November 9, 2008 - 12:23am.

What didn't fall in price in October?

Submitted by Rich Toscano on November 9, 2008 - 10:52am.

sfrs: $365k, $215/sqft
condos: $190k, $186/sqft

Submitted by Arraya on November 9, 2008 - 1:02pm.

Sub 1000 sq ft is definitely in striking distance for investment properties. Probably a lot of cash pounding that market and a lot of banks eager for cash.

Submitted by peterb on November 9, 2008 - 10:45pm.

Thanks. Looks like $200K to $300K is becoming or already is the sweet spot for the time being. Or until the next leg up in unemployment.

Submitted by AN on November 10, 2008 - 10:24am.

arraya wrote:
Sub 1000 sq ft is definitely in striking distance for investment properties. Probably a lot of cash pounding that market and a lot of banks eager for cash.

A few weeks ago, I would totally agree with you. However, I just had my eyes opened recently to other areas outside of San Diego. You can buy a 1500 sq-ft SFR in Fresno, CA for around $75-85k. Your PITI would be around $450-550/month with 30% down and you can rent those out for $1000-1100/month. If I'm looking for rental investment properties, nothing in SD sound as lucrative as areas like Fresno.

Submitted by peterb on November 10, 2008 - 11:31am.

Asianautica - is that price from a realtor handling REO's. From the MLS?
I've seen some nice rental properties in Riverside going for $120K.

Submitted by AN on November 10, 2008 - 1:29pm.

I know someone who bought it for that price and that's the price they rent it out for.

Submitted by Arraya on November 10, 2008 - 4:32pm.

asianautica wrote:
arraya wrote:
Sub 1000 sq ft is definitely in striking distance for investment properties. Probably a lot of cash pounding that market and a lot of banks eager for cash.

A few weeks ago, I would totally agree with you. However, I just had my eyes opened recently to other areas outside of San Diego. You can buy a 1500 sq-ft SFR in Fresno, CA for around $75-85k. Your PITI would be around $450-550/month with 30% down and you can rent those out for $1000-1100/month. If I'm looking for rental investment properties, nothing in SD sound as lucrative as areas like Fresno.

I don't specifically agree with what I suggest could be causing the activity in the low end condo market, just possibly what the local sentiment is.

Personally I think the economic storm is a little to daunting to decrease liquidity yet.

I'm thinking rents will decrease as unemployment increases and deflation takes hold thus changing investment property numbers.

Submitted by 4plexowner on November 10, 2008 - 5:39pm.

I agree with Arraya - rents will decrease - I'm holding out for GRM multipliers in the 8-10 range before I even consider jumping in to San Diego rental properties again - I think we will see 8-10 GRMs on prime bread-and-butter units in good parts of town (yes, the same units that were selling for 14-18 GRM at the peak) - buying real estate before 2010 is definitely knife-catching

Submitted by peterb on November 11, 2008 - 10:53am.

Me thinks there's a little easy money in flipping the low-end. At least for a little while. No way would I buy and hold anything in this market.

Submitted by oxfordrick on November 11, 2008 - 5:17pm.

I know someone who is buying whole buildings of condos in bulk to rent out as apartments - says he is paying 30-40% of peak prices,
maybe some of these sales have recorded as multiple individual sales and are reflected in the 14% fall in condo values.

Submitted by patientrenter on November 15, 2008 - 2:24am.

oxfordrick wrote:
I know someone who is buying whole buildings of condos in bulk to rent out as apartments - says he is paying 30-40% of peak prices,
maybe some of these sales have recorded as multiple individual sales and are reflected in the 14% fall in condo values.

Have rents ever dropped by a large amount? If there really are a lot of investors buying condos for rent, and if employment continues to drop, we might see a very unusual drop in rents in the next 12 months.

Submitted by coxapple on November 20, 2008 - 2:06pm.

‘What I find intersting is that inventory is holding steady while sales have doubled. Sales at the beginning of the year were roughly 1500/month while inventory was about 18000. Now sales are 3000/month while inventory is about 16000.’

Do these inventory number include properties foreclosed but not on the market yet? If not and bearing in mind the long lag between foreclosure and mortgagor owned property being put on the market, it would not be surprising if there is a disconnect between sales and inventory since most sales would be form the the hidden inventory which has along tail. Any comment on this suggestions?.

Submitted by DWCAP on November 20, 2008 - 6:12pm.

No, nearly half of all transactions today are related to foreclosure in the past 12 months. I am not positive, but I would guess that this means that most foreclosures are making it to market, but they are selling fast once priced correctly. The "foreclosure inventory" is made up of homes either:
A) not priced well, or
B) Waiting to be priced, or
c) A trash heap.

Sales will eventually slow as either one of two things happen,

1) we exaust the foreclosure inventory
2) we exaust the available buyer pool.

My money is on #1 above, because there is almost limitless demand at the right price. As I have said before I have no interest in living in Santee, but id buy a house there and make my own indoor bowling alley/guys club if it was cheap enough.
But please dont think that means prices will go right back up again either. There is no demand at higher prices, they have to fall now to drive sales. So prices will fall until a new equilibrum is met, and considering the supports of that equilibrum are falling (unemployment, stock market, new company formation, capital inflows, taxes (they reset in 2010)...) I believe that prices still have a ways to go down.
The number 2001 pricing gets thrown around alot here. I think it is very close. But except for the nicest areas (sdr land) or very special properties, I think itll be non-inflation adjusted. That is for SFR's and we are not there yet. I think condo's will hit 1999 prices. I already have seen a few 2001 condos in MM, I am sure those prices are elsewhere too.

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