June 2012 Resale Data Rodeo

Submitted by Rich Toscano on July 15, 2012 - 6:40pm
It was more of the same last month, as months of inventory remained very low:



...and prices (as measured by the median price per square foot) continued to rise:



These two trends are tied together on this next chart, which shows that months of inventory (inverted on the blue line) has done a good job of predicting price changes (red line):



While we are now approaching the weaker part of the calendar year, the trend towards tightening inventory continues:



...and months of inventory as pictured in the first chart remains near multi-year lows.  Unless something rather drastic changes, this implies further upward price pressure in the months ahead.

More charts below...



















(category: )

Submitted by sdrealtor on July 16, 2012 - 1:48pm.

The things that jump out to me are

1. the inventory decline that has been going on virtually uninterupted since mid 2010

2. the rapid inventory decline over the last 12 months

3. the overshoot in late 2009

4. the flat market for 3 years thereafter

5. the undeiniable signs of recovery in every graph

Time for all the naysayers to pipe in with talk of manipulation, abnormally low interests rates and whatever fodder they choose for the day. I think we still have a good ways to go to undo all the damage but we sure have come a long way.

Submitted by spdrun on July 16, 2012 - 1:53pm.

All I can say is: here's hoping for a major war in the Middle East combined with more mess in Europe. I actually *like* when the economy is slow.

Submitted by heywood on July 16, 2012 - 2:03pm.

sdrealtor

I'd add that sales volume is higher than previous years (despite the low inventory).

Submitted by FormerSanDiegan on July 16, 2012 - 2:45pm.

spdrun wrote:
All I can say is: here's hoping for a major war in the Middle East combined with more mess in Europe. I actually *like* when the economy is slow.

Never mind any human suffering, as long as we can all be happy about a slow economy and the accompanying low interest rates

Submitted by The-Shoveler on July 17, 2012 - 6:17pm.

What I take away from this is the data that is not included in the above.
The % underwater home owners and the average amount underwater.
This is very important info that is not included as it is the reason we are and will remain always on the verge of another great recession/depression as long as this condition remains.
Just one step from disaster, How many more years ?

Submitted by sdrealtor on July 17, 2012 - 9:58pm.

For all anyone's criticism, I take a stand and stick by it. I don't flip flop by the day like other realtors. I don't own any real estate that is hundreds of thousand of dollars underwater. I make predictions stand by them and have been proven correct in nearly every case. Some day I'll post on all garbage I have documented posted by some other guy. Safe to say Angelo's biggest critic these days used to post how he was the smartest guy in the business. That he was the one who would save us all. I have that documented too with screen captures. I don't post 2007 sales and call them peak prices either. You know who you are. Feel free to keep bringing it on.

Submitted by sdrealtor on July 17, 2012 - 10:07pm.

Shovel
If I let go of my bias and look at those graphs objective everyone of them reads positively for SD housing. Yes we have lots of underwater homeowners out there? I know lots of them and most still in their homes are doing fine. I have clients who did short sales 3+ years ago who now have mid 700 Fico scores back and 20% down payments because they heeded advice to tighten their belts for a few years when their day would come.

The current mess will not clear itself completely in a year or two. That will take years to happen. But as I have maintained for the last 5 years time will heal all wounds eventually. Prices down a bit, rates down a bit, inventory down a bit, nominal incomes up a bit and time passed. Some day sooner than many think we will wake up and be past this. When? I don't know, but it will be sooner than anyone imagined 5 years ago myself included. You can take that to the bank.

Submitted by Jazzman on July 23, 2012 - 10:50pm.

Sdr, you're always bragging about your predictions being right, but what are they exactly? You say"[s]ome day sooner than many think we will wake up and be past this." Be past what, and when is sooner than many think? That is a little wooly for a prediction don't you think? Most of us agree on the most important issues, and as a Realtor most probably understand where you're coming from. Do you understand where your "naysayers" are coming from?

Submitted by sdrealtor on July 23, 2012 - 11:37pm.

Jazz
My detractors said we probably wouldn't see peak prices again in our lifetime and certainly not before 2020. I called a bottom in 2012 and I made that call back in 06/07. I predicted no more than 30% decline in general price levels for NCC and we never hit 25%. We are already heading back. I can provide links to hard numbers for specific categories of homes in specific neighborhoods that I posted on this blog. They have stood the test of time and were probably even a bit pessimistic at the time. I took more than my share of bullets. Most of the infantry has vanished when it's my time to crow but I know they are out there wondering how I knew what they couldn't comprehend. To me it was never rocket science and never will be. Just keeping ones eyes and mind open.

Submitted by Ace23NY on July 31, 2012 - 9:41am.

You are so cool SD Realtor. Some day I too hope I can vaguely predict things that at some point might happen.

I'll start now: I guarantee that within the next 90 days there will be at least a couple days in San Diego with sunshine. Bring it on naysayers! In 90 days I will prove you all wrong! I'm taking screen shots as proof and when it comes time to pay the piper, where will you all be then?!

Submitted by sdrealtor on July 31, 2012 - 10:24am.

Dude
My predictions were anything but vague. In 2007 when nearly everyone was calling for 50% plus drops I stepped out and put my money behind predictions of 30% being absolute Armageddon. In 2 months I will be collecting on a bet specifying not only the level of decline but specific neighborhoods, specific tracts within those neighborhoods and specific floor plans within thos. e tracts all of which is documented in the archives of this blog. How much more specific can one be?

As for the screen shot comment, that was directed at a specific guy who's taken a few shots and me both overt and thinly veiled on his blog.

Submitted by deadzone on July 31, 2012 - 5:01pm.

Outside of poway seller, who was calling for greater than 50% drop?

But regardless, don't pat yourself on the back too hard sdr, this thing ain't over.

Submitted by sdrealtor on July 31, 2012 - 5:11pm.

Go back and read the archives from 2007. There were dozens of posters who were. My bet was with CAR and in two months it is over. The houses in question are now at roughly rent vs buy parity with 20% down. Prices would have to drop over 30% from current levels inNCC for us to hit 50% off. That part of this is over.

Submitted by deadzone on July 31, 2012 - 5:48pm.

Can you give some examples of good quality NCC homes that are rent vs. buy parity? I'm skeptical of that.

Submitted by sdrealtor on July 31, 2012 - 9:36pm.

I will send it to you PM

Submitted by deadzone on August 1, 2012 - 10:59am.

Thanks for the PM sdr. But without a specific example I am not entirely convinced. Specifically, you are making the case that a home that sells for 725K in your hood would rent for 3500 per month. I am VERY skeptical of that, in fact I don't believe it unless I see it.

For $3500 a month rent you could live virtually wherever you wanted..

Submitted by spdrun on August 1, 2012 - 3:52pm.

$3500 * 12 / $700,000 = 5.7% - 1.1% = 4.6%. Actually a pretty low cap rate. The home should either sell for less or rent for MORE than $3500/mo if buying it is to make sense.

Submitted by AN on August 1, 2012 - 4:24pm.

I went to craigslist and found this one: http://sandiego.craigslist.org/nsd/apa/3.... Then I went to sdlookup and found http://www.sdlookup.com/MLS-120036384-22..., which is down the street. The one for sale is 200 sq-ft smaller. Assuming you can buy a similar 3100 sq-ft house for around $775k, with 20% down, your P & I is $3,004.83. Tax and insurance is probably about $850 and HOA & MR should come out to be about $420. So, PITI + HOA + MR = $4200-4300, depending on if you go with 0 point loan or 0 cost loan. That's also before any deduction. So, it is parity even before deduction.

Submitted by spdrun on August 1, 2012 - 4:27pm.

Isn't exceeding parity the whole point of owning property?

Submitted by AN on August 1, 2012 - 4:41pm.

spdrun wrote:
Isn't exceeding parity the whole point of owning property?

Uh, no. The whole point of owning a primary resident is to live in a place that you want. There are plenty of places that exceed rent parity, but I wouldn't want to live there. Rent parity would be a good enough sign to buy a primary resident. There's a huge difference between rental vs primary as well. Also, I said, before deduction. Depending on your tax bracket, I'm pretty sure for most, after deduction numbers will exceed rent parity.

Here's another example:
http://sandiego.craigslist.org/nsd/apa/3...
http://www.sdlookup.com/MLS-120014748-69...
Rent = $3800, PITI + HOA + MR to own = ~$3300. Again, that's before deduction.

If you're talking about investment property, ROI anywhere in SoCal is not as great as the ghetto in places in Fresno. There, you can get a 3/2 house for $70k and rent it for about $900. That's about 14% cap rate. No way you can get that kind of cap rate in SoCal, not even Temecula can get that kind of cap rate. I wouldn't want to live there, but I'd consider investing there. Another example would be, in my area, cap rate for condo is around 9-10% while cap rate for SFR is 4-5%. Does that mean you have to put up with condo as a primary resident just because the cap rate is higher?

Submitted by spdrun on August 1, 2012 - 4:43pm.

Even my apt in NYC is above parity before deductions, and NYC is notorious for a bad buy/rent ratio. And it's in a fairly nice (if not very trendy) area, across from a gorgeous park and in a beautiful 1910s building.

But the question comes up:
Why not buy 10 3/2's in Fresno, or a decent part of Poenis, AZ, or 5 of the same in San Ysidro and use the rental income to rent oneself a very nice pad in SD?

Submitted by AN on August 1, 2012 - 5:04pm.

spdrun wrote:
Even my apt in NYC is above parity before deductions, and NYC is notorious for a bad buy/rent ratio. And it's in a fairly nice (if not very trendy) area, across from a gorgeous park and in a beautiful 1910s building.

But the question comes up:
Why not buy 10 3/2's in Fresno, or a decent part of Poenis, AZ, or 5 of the same in San Ysidro and use the rental income to rent oneself a very nice pad in SD?


Uh, because you still have to pay rent for that "very nice pad in SD". Why can't you buy 10 3/2's in Fresno, or a decent part of Poenis, AZ, or 5 of the same in San Ysidro and use the rental income to pay for your primary resident, which is a very nice pad in SD? If the cost of buying your primary is cheaper than the cost of renting the same place, then why not buy it, use the rental income from those investment properties to pay the PITI of your primary AND saving money you would have spent to rent that same place. Having x amount of investment property doesn't change the buy/rent equation for a primary resident.

Submitted by spdrun on August 1, 2012 - 5:23pm.

You're assuming that there are unlimited funds for down payments on both. Personally, if the choice was between mere parity and decent cash flow, I'd choose the latter. At least it could carry me through rough spots, whereas a house at parity can't translate to income.

($750k * .08) - ($561k * .06) ~= $26k/yr INCOME = ~=$2.2k/mo or 1.5k/mo after taxes additional for a rainy day. Reducing effective rent on the same place by the same amount, and in a pinch, one could break the lease and rent something much cheaper.

One could argue that your rent on the rented place will go up. But so will YOUR rental income.

Submitted by AN on August 1, 2012 - 5:27pm.

spdrun wrote:
You're assuming that there are unlimited funds for down payments on both. Personally, if the choice was between mere parity and decent cash flow, I'd choose the latter. At least it could carry me through rough spots.

($750k * .08) - ($561k * .06) ~= $26k/yr INCOME = ~=$2.2k/mo or 1.5k/mo after taxes additional for a rainy day. Reducing effective rent on the same place by the same amount.

One could argue that your rent on the rented place will go up. But so will YOUR rental income.


You're right, I am assuming you can afford to buy your house and have the down payment. Again, my examples show's it is cheaper to buy vs rent when you count in deduction. Also, keep in my the the mortgage will be fixed for 30 years. Can you say your rent will stay put for the next 30 years? If you have good tenants, I wouldn't want to raise their rent. So, increasing rental income is not always a guarantee, especially if you have good tenants. Again, there's more to buying a primary resident than just pure numbers. How much is it worth to you to be able to customize your home? How much is it worth to you to not have to worry about being kicked out or having to move? How much is it worth to you to have a place in the exact area/lot you want? How much is it worth to you to not have to worry about cost of housing after you retire (assuming you have it paid off after 30 years)? Also, not everyone want to deal with investment properties. What if you have no inclination and desire to invest in rental property? Where would you put your money? Saving or CD at 1% or the stock market and take that risk (many don't know or don't want to take that risk).

Submitted by spdrun on August 1, 2012 - 5:31pm.

I'd put my money in a primary that could be rented for a profit should I choose not to live there any more, or should I be unable to afford same due to some exigent circumstance.

True: your rental income isn't guaranteed to increase. But neither is your landlord guaranteed to increase YOUR rent, for the same reasons.

Submitted by AN on August 1, 2012 - 6:00pm.

spdrun wrote:
I'd put my money in a primary that could be rented for a profit should I choose not to live there any more, or should I be unable to afford same due to some exigent circumstance.

True: your rental income isn't guaranteed to increase. But neither is your landlord guaranteed to increase YOUR rent, for the same reasons.


But you're at the mercy of your landlord, while if you buy with a fixed rate, you're guaranteed that your cost of housing will stay the same for 30 years and after 30 years, all you have to pay is Tax and insurance.

Back to the original example, PITI - deduction, assuming 31% tax bracket is ~$3300. If you rent the same property and assuming you stay in similar property, from year one, you're ~$700-800 under if you're renting. After 30 years, if rent increase average of 2.5% a year, your rent would be ~$8600/month. If you buy and stay put your tax and insurance would probably be ~$2k/month. So, maybe the number doesn't look as attractive on year one, it looks VERY attractive in year 30 year. When your income is much more limited. This haven't even consider the cost rent increase after you retire and if you stay alive for another 30 after that, your cost of rent will be HUGE compare to your tax + insurance.

Submitted by spdrun on August 1, 2012 - 6:07pm.

(a) you could move to one of your rental properties
(b) you could sell your rentals and buy something else
(c) why do you assume that your LL will increase rent, but you yourself won't be able to increase on your tenants?
(d) I said the other option was to buy a primary property that you could ALSO rent out for a handy profit if need be. It's not as if properties that are above parity are all that scarce, even in SD.

Submitted by sdrealtor on August 1, 2012 - 6:08pm.

Deadzone
$3500 is on the low side for houses like the one I sent you. A friend who moved up to LA and kept his just got $3900. I saw the new tenants moving in this morning on my run. There was a Benz in the driveway too. A friend with a slightly nicer one who moved up to RSF got $4500 for his.

I dont know when you last looked for rentals but the market went up substantially around her in the last 2 years. At least $500 on every decent 4BR with at least 2200 sq ft.

I will tell you what. I have a specific house you could buy in that price range. It would easily rent for $3500. Send me a PM with contact information, get me a pre-approval letter from a reputable lender and statements showing you have the money for the down payment. We can go see the house tomorrow morning and write up your offer on the spot! Do you want it?

BTW, in the example I sent you last night I didnt mention that the mortgage payment included $800 toward principal the very 1st month!

So do you you want it? If not, how about a $500 wager? I show you a house I can sell you in that range and show you rental comps inexcess of $3500. Is that not specific enough?

Submitted by sdrealtor on August 1, 2012 - 6:18pm.

Just a quick note. On the example AN provided that neighborhood has $250 higher MR and HOA then where I am. His tax and insurance estimate is $100 too high compared to what I actually pay.

His $3,000 P&I also includes over $800 towards principal. That puts us $1150 ahead before we talk tax benefits.

Submitted by spdrun on August 1, 2012 - 6:21pm.

Whereas having rentals capping at 7-8% will put you FURTHER ahead. Parity does nothing for you if you lose your day job, whereas with rentals or a primary that rents at a profit, you could at least have a trickle of income.

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