Bouncing Along the Bottom with the Case-Shiller Index

Submitted by Rich Toscano on September 3, 2011 - 4:56pm
Last week's release of the Case-Shiller index showed an increase in aggregate San Diego home prices in June:



However, the seasonally-adjusted version of the index shows that once the typical early-summer strength is adjusted for, prices actually declined...

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Submitted by Jazzman on September 6, 2011 - 6:27am.

It could be argued that real estate is in the worst state it has ever been. I see comments over on VoSD point out the shadow inventory saga still has to be played out. Maybe, but one thing I have noticed more than anything is that whomever you talk to, the conversation invariably shifts to real estate, and everyone is either a struggling seller, in negative equity, is considering strategic default, or knows someone who is. There seems at last to be a nationwide consciousness that something is wrong. A year ago, you heard "now is great time to buy", "deals to be had", "historically low rates" etc. But this seems to have given way to an acceptance that none of the fixes have really worked. And the answer to that is quite possibly that many had either grossly under-estimated the scale of the problem, or were continuing to live under the allusion of a self-fulfilling prophesy willing the market back up. If human emotions can rock stock markets, maybe we shouldn't over-look the effects they have on real estate.

Submitted by CA renter on September 9, 2011 - 2:03am.

Good post, Jazzman.

Though we've known quite a few people who have bought this past year, none of them thinks they are going to get rich from their "RE investment." They all acknowledged the strong possibility of further price declines, but were at a point where they needed to buy or strongly wanted to buy for whatever reason.

The financial news certainly isn't very good this year, and I think the Fed is essentially out of (politically viable) bullets.

Submitted by Jazzman on September 9, 2011 - 5:17pm.

I'm not one of those who believes that we headed for further big price declines, but many sellers still seem unwilling to take even the smallest haircut, and just seem to be fishing. Brokers should be informing sellers that a fair price today, given that it is a buyers' market, may not be quite to 'fair' tomorrow, and that if you are not serious about selling, don't expect to receive serious offers.

Submitted by woodrow on September 13, 2011 - 12:00pm.

Falling prices for the "High Priced" section reflects what I'm seeing in the Pt. Loma/OB area. My guess is that a lot of the county wide price stability is based on housing prices having already bottomed in outlying areas (South Bay, Eastern SD). PPSQ FT in recent Liberty Station and Pt Loma sales are setting new lows. I would be sick to my stomach if I had purchased in these areas a year or two ago, and could get a much nicer home in a nicer area for the same or even less now.

I'll keep waiting.

Submitted by Jazzman on September 14, 2011 - 4:45pm.

You lose nothing by waiting, and chances are you may gain. I don't even hear Realtors contradicting that anymore.

Submitted by Rich Toscano on September 14, 2011 - 5:03pm.

Jazzman wrote:
You lose nothing by waiting, and chances are you may gain. I don't even hear Realtors contradicting that anymore.

You could lose a chance to borrow at unbelievably low rates.

Submitted by woodrow on September 15, 2011 - 3:06pm.

Yep - that's the conundrum Rich. I assume rates will increase as we get close to the Fed's 2013 movements, but I'm guessing we still have another year before substantial moves upward, no?

Submitted by Rich Toscano on September 15, 2011 - 3:31pm.

Unknowable imho... I strongly suspect that people will panic out of the bond market at some point, but I don't pretend to know when. (I do know that the Fed has no say in that question, though).

Submitted by AN on September 15, 2011 - 9:55pm.

One other thing you'll lose is time. Depend on where you are in life and depend on how the the government will drag this out, can you wait 5-10 years of flatness or very slow decline? I can see them pulling all the stops if we're going into another major decline.

Submitted by CA renter on September 16, 2011 - 1:49am.

AN wrote:
One other thing you'll lose is time. Depend on where you are in life and depend on how the the government will drag this out, can you wait 5-10 years of flatness or very slow decline? I can see them pulling all the stops if we're going into another major decline.

The political climate has changed, and most of the risks have already been shifted from the private market to the govt. They are largely out of ammunition -- see how the low rates haven't budged sales or prices? That's a tell.

That was the reason for the stall tactics -- to give them enough time to transfer the risks. They are now free to allow prices to fall.

It's all part of the plan, IMHO.

[adjusting tin-foil hat]

Submitted by sdrealtor on September 16, 2011 - 7:42am.

FWIW, I just checked the stats and sales are basically flat with median prices down from last year but still above 2009. Seems more like bouncing along trying to find a bottom. Doesnt feel all that different from last year to me but what do I know.

Submitted by Jazzman on September 16, 2011 - 9:07am.

sdrealtor, it doesn't seem that much different to me either in my price range, but I wonder why? So much has dictated a down market from high foreclosures to unemployment, to economic uncertainty, it's a wonder anything is selling. One thing I am finding is that many homes aren't able to offer discounts due to outstanding loan balances. These homes either sit and expire or eventually sell over FMV. I have also noticed more of a reluctance from buyers brokers to be aggressive in negotiating downwards. It's almost as if the 'bumping along the bottom', has been officially sanctioned and blessed by the RE community, as a way of (artificially) placing a floor on prices. Maybe the stuff of over-fertile imaginings, but I'm pushed to accept prices have hit a natural bottom.

Submitted by sdrealtor on September 16, 2011 - 10:45am.

You are correct that it is a mess and the reason there arent more sales is that overwhelemed, incompetent lenders are involved in much of the sales decisions. You have the wrong agent then. This year I sold a client a 4700 sq ft gated estate home west of the 5 on 0.4 acres for less than $250/sq ft. It had a pool and looked like a Wine Country Estate in the South of France. The day after it closed I got 3 WTF calls from others buyers agents and offers for my client to immediately resell for 6 figure profits. This morning I just got a short sale approval letter for buyers in Stonebridge for a 1/2 acre lot at $170/sq ft (prior low was $180). Two weeks we submited an offer on a short sale in PQ that was 15% below list price. The list price was wrong and our price was right. Its the only offer they got and will get because most people will ignore it as overpriced. I looked at the lender situation regarding the loans, how much and who the lender is which were all favorable. Its been submitted to the lender and I have no doubt the lender will accept the offer.

There is no magical time when every house on the market sells for some magical low number. It can happen anytime. Its up to you and your agent to make your own bottom!

The deals are out there, you just arent finding them. Get yourself better help. Dont listen to anyone who tells you they can do what no one else can or that presents critieria for evaluating agents that automatically is biased towards them. There are plenty of good agents out there who do what I do. Go find yourself one.

Submitted by FormerSanDiegan on September 16, 2011 - 2:23pm.

sdrealtor wrote:
This year I sold a client a 4700 sq ft gated estate home west of the 5 on 0.4 acres for less than $250/sq ft. It had a pool and looked like a Wine Country Estate in the South of France. The day after it closed I got 3 WTF calls from others buyers agents and offers for my client to immediately resell for 6 figure profits.

I like 6 figure profits.
Next time you see one like this will you PM me ;)

Submitted by woodrow on September 16, 2011 - 2:29pm.

No sh*t. One has to wonder why sdrealtor didn't consider purchasing it himself.

Submitted by sdrealtor on September 16, 2011 - 3:06pm.

It was a bit of miracle and neither of us can still beleive we pulled it off. It was very hard work to get where we did and we wrote many lowball offers on other properties that were turned down.

I love my house, my neighborhood and my $400K tax basis. I'm not moving and dont need a house that big. The buyer was a friend and we looked for years. FWIW, He is a bigger bear than anyone on this site.

Submitted by Jazzman on September 16, 2011 - 7:06pm.

I'm pretty resigned to it being a numbers game. View enough homes, make enough low ball offers, and eventually one will come through. However, finding enough quality homes that fit the bill is a challenge in itself. My search currently covers four counties in two states, so I'm not using one broker.

Submitted by CA renter on September 16, 2011 - 9:28pm.

sdrealtor wrote:
FWIW, I just checked the stats and sales are basically flat with median prices down from last year but still above 2009. Seems more like bouncing along trying to find a bottom. Doesnt feel all that different from last year to me but what do I know.

I've been watching the market around here for well over a decade. During that time, there was a strong correlation between the lowering of rates and stronger/higher sales and prices (even flat prices, when they are supposed to go down, can be considered strong or inflated). This is the first time I've seen rates drop this low without an obvious change in the market.

While "averages" might be above 2009 levels, prices of individual homes around here are not. For those who bought in 2009, it's very likely they are already underwater. I've seen more than a few of them. It depends very much on the individual house/lot/location, and only the VERY prime properties seem to be selling at or above 2009 levels.

What we ARE seeing is a lot more $1MM+ homes selling. I think that's because many of these homes are "true" million-dollar homes, and would have commanded these prices before the bubble really took off in 2001 -- the bubble is not nearly as obvious in the $1MM+ market. I've also seen a few $1MM homes that are selling well below 2001 levels.

We are also seeing places like Point Loma and La Jolla have more "distressed" or better-priced inventory. There might just be a handful, but that's far more than what we've seen over the years.

Just saw these two in "Nirvana" the other day:

http://www.sdlookup.com/MLS-110024742-29...

http://www.sdlookup.com/MLS-110047975-78...

These are both at around 2001 levels, especially when you take into consideration the landscaping, pool, elevator, upgrades, etc. They are still active listings, too! We've seen a few of these in the ~$1MM+ range, but not many at this high-middle range.

IMHO, change is in the air...

Submitted by sdrealtor on September 17, 2011 - 10:27am.

FYI there are issues with those you are likely not aware of.

Submitted by CA renter on September 17, 2011 - 5:16pm.

sdrealtor wrote:
FYI there are issues with those you are likely not aware of.

Doesn't matter. This is an example of TG's "popcorn effect." It starts with one or two of the least desirable houses (for whatever reason -- title issues, location, lot, condition, odd layout, etc.). Then, it slowly creeps into the better areas/streets/developments. Next thing you know, you've got a critical mass, and pre-bubble pricing becomes the norm.

As you know, some of the developments in the "coveted" zip codes have already seen significant downward pressure this year. It's happening, and there's very little they can do about it now. The political climate and political will to throw more money at the housing market has turned. Artificially propping up housing prices is clearly not the way to get out of the recession/depression.

Interest rates are at 0%, the default (with or without a NOD) and foreclosure inventory has been held at bay, and the time it takes to resolve these issues has been growing -- standing at hundreds of days, on average. At some point, we're going to have to face reality WRT what people can really afford to pay for housing.

There is no reason to believe that housing prices are going to move up from here. There are many, many reasons to believe they will continue on their trajectory to affordable levels, with the failed stimulus of the past few years only delaying the inevitable and increasing the costs to taxpayers. (Thanks, Fed/gov!)

Submitted by sdduuuude on September 22, 2011 - 9:51am.

sdrealtor wrote:
FWIW, I just checked the stats and sales are basically flat with median prices down from last year but still above 2009. Seems more like bouncing along trying to find a bottom. Doesnt feel all that different from last year to me but what do I know.

I agree - housing doesn't seem all that different from last year.

However, last year we had 2011 coming up and this year we have 2012 coming up.

2011 was looking to be the year of a soft recovery and flat conditions.

2012 is shaping up to be, economically speaking, much worse. European bank/debt problems could start to hit home and many recession calls for 2012 are coming out from the types of market-watchers who got the last recession right.

I'm not one to believe in the Tsunami. But the frog is sitting in water that continues to approach boiling and nobody has turned off the stove.

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