San Diego Housing Market News and Analysis

Recent Comments

• elliemae: For the cost, you did well. I'm actually a little jealous of the trees. Mine are babies. :(...
• b_ellefson: $5,350 + $850 shipping? That's OUTRAGEOUS! I got my trailer for $500!...
• soeren: LOL, elliemae!!;-) You'll make a fine Realtor™ ;-) It's certainly easy to make fun of(heck, *I* do it all the time;),...

Recent Comments

• elliemae: For the cost, you did well. I'm actually a little jealous of the trees. Mine are babies. :(...
• b_ellefson: $5,350 + $850 shipping? That's OUTRAGEOUS! I got my trailer for $500!...
• soeren: LOL, elliemae!!;-) You'll make a fine Realtor™ ;-) It's certainly easy to make fun of(heck, *I* do it all the time;),...

Recent Comments

• Patrick: Posted for reader D: Patrick, If you want to see something insane take a gander at this place: MLS 80925167 Wh...

Recent Comments

Recent Comments

• waterbaby: I mentioned the 'third wave' looming to a realtor today, asking why some of the silly prices arent lowered for sales bef...
• tomlin1: Disclosure: I'm not a RE agent and I think like the fact that they make 4-6% on the sale of an average home is too much....
• waterbaby: Speaking for a diff area that ive been following....seeing prices that once sold for 3x the now asking, and knowing that...

Recent Comments

• EgoRidge: Nothing wrong with buying cash as long as you have other money saved for emergencies....
• Brand: Expectation of inflation (if that's your macro interpretation). Maybe they might have other deductions, but then again,...
• HeadSet: memaesm, If one puts down 75% on a house in Houston it is unlikely to generate any federal inccome tax benefits. Rem...

Recent Comments

• WillyWanker: Buy in cash. That is what I have done. Buy a foreclosure or some other bank owned property and try to strike the best...
• justme: Consider buying a tent? ;-) But seriously, what thread are we in right now? I'm confused by the proliferation of th...
• thomhall: Consider buying gold and rent....

Recent Comments

• OO: OT http://latimesblogs.latimes.com/culturemonster/2009/05/green-prefab-firm-michelle-kaufmann-designs-is-closing.html ...
• coretexity: IMO buy a house if and only if: * You plan to stay for 7 years or more * You do not want to go with fancy financing,...
• Patrick: Wage inflation would hurt the banks, since their mortgage debt would be easier to pay off. The Federal Reserve is own...

Recent Comments

• coretexity: IMO buy a house if and only if: * You plan to stay for 7 years or more * You do not want to go with fancy financing,...
• Patrick: Wage inflation would hurt the banks, since their mortgage debt would be easier to pay off. The Federal Reserve is own...
• Lost Cause: We have deflation now. You won't see inflation until the economy overheats, and right now it is on life support. I have...

Recent Comments

• Brand: You know, I haven't heard anything about Iceland in months. Are they still hosed, or have they managed to stabilize or...
• WillyWanker: The western world does not appear to value gold as highly as it once did. Gold ornamentation is very old~school. Peopl...
• ulvy1: The value of gold depends on how much money the local government is printing. Therefore it differs from country to cou...

Recent Comments

• Brand: You know, I haven't heard anything about Iceland in months. Are they still hosed, or have they managed to stabilize or...
• WillyWanker: The western world does not appear to value gold as highly as it once did. Gold ornamentation is very old~school. Peopl...
• ulvy1: The value of gold depends on how much money the local government is printing. Therefore it differs from country to cou...

What an eventful week. We got David Lereah's confessions to Cheney's unrepentant ways. Making it that much harder for an addicted blogger to walk away.

But anyhow, I did promise you guys I'll try to finish "A Tale of Three Closings." We'll start things off with San Elijo Hills since there's been much talk about it getting close to the bottom. The community didn't really get started until 2001. But lots of folks bought pre-construction and therefore 2001 pricing may actually reflect 2000 pricing. Let's take a look at three homes that closed in late 2001:

1682 Archer Rd, San Marcos, CA 92078
--4 beds, 3.5 baths, 2,482 sq ft
--11/2001: from builder at $387,000 ($156/sqft)

1475 Crystal Ct, San Marcos, CA 92078
--5 beds, 3.5 baths, 2,975 sq ft
--12/21/2001: from builder at $480,000 ($161/sqft)

1440 Misty Sea Way, San Marcos, CA 92078
--5 beds, 4.5 baths, 4,100 sq ft
--12/2001: from builder at $645,000 ($157/sqft)

Despite differences in size and location, these homes all sold within the range of $156/sqft to $161/sqft. Let's check out just how close recent closings are to these prices.


1566 Glencrest Dr, San Marcos, CA 92078
--4 beds, 3.0 baths, 3,173 sq ft
--08/29/2002: bought from builder for $476,000 ($150/sqft)
--01/06/2009: purchased as REO for $555,000 ($175/sqft)

The purchase price here for this REO is a mere 10-15% above 2001-2002 level. Recall the crazy yesteryears when similar homes in the same neighborhood went for $302/sqft, current pricing is just 8% away from that elusive 50% decline from peak.

But are everyone scoring good deals in San Elijo?


1692 Trenton Way, San Marcos, CA 92078
--4 beds, 3.0 baths, 2,978 sq ft
--07/14/2004: bought from builder for $920,500 ($309/sqft)
--12/29/2008: purchased as REO for $650,000 ($218/sqft)

Yes, the house is upgraded with the typical stainless appliances, granite, and travertine. But at $100k difference? This is a typical example of buyer falling in love with the upgrades and willing to give up that $100k to get that house.

So far we looked at two REOs, with the barebone REO on Glencrest driven within 10-15% of 2001 pricing but the loaded REO on Trenton managing to distract the buyer into paying $100k more.

Now what about the builders? There is no question builders are hurting these days. So some of the best bargains may be from a builder. This next closing is a sale from the builder Richmond American:


887 Chandelier Ct, San Marcos, CA 92078
--5 beds, 3 baths, 2,493 sq ft
--12/19/2008: bought from builder for $579,000 ($232/sqft)

Wow, talk about complete lack of ability to bargain. Here is a builder hurting and stumbling along the way (Richmond American started this tract just as the market went bust), with a home that they've built but can't seem to find a buyer. Yet this guy walked in, bent over, took the asking price and allowed the builder to pad the sales price with a couple of overpriced options.

Guys and Gals, you see how important it is to have that historical prospective on the neighborhood of your choice. Knowing what you know about 2001 pricing in San Elijo Hills, why in the world would you pay $232/sqft on a standard tract home on a 4,396 sqft lot? The seller, be it a builder, a bank, or a homeowner, are in direct competition with each other. Insist on a price that you are comfortable with and make them an offer they can't refuse. If they won't budge, just walk away. It really is that simple.

I saw the latest Case-Shiller Graph posted on Calculated Risk over the weekend and thought this was extremely timely to once again discuss why "inflation adjusted 1997/nominal 2000 pricing."


You see from my altered graph here how real estate started to increase in typical cyclic fashion in 1997 to 2000. This is why inflation adjusted 1997 pricing is important. The reason why nominal 2000 pricing is picked is for two reasons. Number 1, after accounting for inflation from 1997 to 2008, we actually get roughly 2000 pricing. Number 2, it is typically still ok to buy at the peak of a "normal real estate cycle." Recall a few years back during the bubble peak a lot of folks were using the prior cycle and said, "well, we bought at the peak then and we did ok." Well, that is because the swing from bottom to peak was not very high and after just a few years inflation compensates.

Take a look at this old favorite from Jim the Realtor:


You see how even if someone bought at peak of the "normal cycle" back in 2000, after adjusting for the last 8 years of inflation things are "ok" for them now. Even folks that bought in 2001 should be ok as inflation will soon bring their purchase price back into the typical pricing trend line. But obviously we can't say the same for the folks that bought during the Great RE Bubble once it was fully unleashed. IrvineRenter did a excellent analysis in his book and figured if someone bought at the peak of the Great RE Bubble, it would take about 20 more years for inflation to bring them back in line.

A long time pigg sdrealtor said on piggington.com that if someone purchase even at 10% above bottom, he view that as a win. I would agree also. Because if you set your bottom pricing at nominal 2000, then 2001 pricing is right about within that 10% mark. If you factor in future inflation over the next 2 years, 2001 pricing should be perfectly fine.

Jim the Realtor's latest post is on purchasing strategy. It matches up to my strategy in my purchase quite well. Given that he pretty much said everything that needed to be said on the subject, do visit the link and give the post a good read.