San Diego Housing Market News and Analysis

EVERYONE there was Asian

 I thought this may happen After the devaluation of $. May be they are banking on the fact that $ will become funny money after Helicopter Ben is done with his droppings. A fistful of Yen/Won/Yuan may be all that will be needed to buy those homes. Kinda like we think about stuff priced in Pesos across the border.

I think the price has actually dropped a little. I'm looking at a price list dated on 4/23. Lot 828 plan 3365 was $751K, and from the lot map, they all have the same lot size, but 828 has two neighbors on the same side.

I meant comparing 828 with 837 and 861's $738, $744

Don't worry, they'll go lower. A little over a year ago, the exact same houses were selling in the mid eights to low nines, just with a different name. I'm confident we'll see these in the sixes. Be patient.

Even if these are close to their final phase (of which I have no idea), plenty more just like them will be built.

May be the 2901 plan would go in the sixes after accounting for incentives, but I suspect the bigger plans will stay over 700K. This is already a noticeable drop from the peak and at that price point, there seem to be plenty of buyers.

Don't hold your breath for these to hold up, the pain train doesn't have a scheduled stop in the higher end areas scheduled until at least winter and daily stops in 2008, but rest assured it's first stop in that demographic will be 4-S, it's all about the fact they were built during the bubble years. What was that saying about 40-4-4, 40% of the people who bought their homes in the last four years will lose them in the next four years. Biggest negative overshoots will occur in neighborhoods built from 2002 to 2006.

It would be very cool if we could somehow measure the fallout rate (over the next few weeks/months) of the most recent reservations/purchases that buyers make for this latest release. I believe it will be higher then in the previous releases. I would be willing to bet that a VERY high percentage of these buyers are floating their rates.

Piensa may not have to lower prices as they will just keep slurping up deposits.

SD Realtor

I thought it was kind of funny that EVERYONE there was Asian! What is up with that???

Perhaps because they have decent paying jobs, have money, and/or plan to live there for a long time.......

Good news about the dollar devalued, is that houses are becoming dirt cheap for some, especially if for example they float the yuan. $700k USD won't buy you anything decent anymore in shanghai for example.

I really don't think these are foreign Asian buyers. In all likelihood these are the folks employed in the IT sector around the I-15.

most of the newer immigrants do not know about how the bubble came to be, most don't evenr realize 5 years ago these same homes were more along the line of $400,000. A lot of these folks get their news from the Chinese World Journal, not the U-T and certainly not Piggington. What they do know is that these homes were $900,000 just a year ago. Plus culturally buying a home means you have made it in the good US of A. it's something to brag about to folks back home.

So armed with that, you too would be lining up to buy these homes.

we had a neighbor that bought a 1800 sqft detached condo in 4S Ranch for $650,000 in April of last year. he's a Chinese national that stayed here after he got his phd. the family keeps most of their lights turned off at night to save on utility, does his own trimming of the garden, drives a 15 year old Honda. I know this guy would never foreclose, but from the way it looks that 1800 sqft detached condo will be a forever home for this phd and that Honda will probably be in the family for another decade. But hey, at least he can brag about acheiving his American dream just right out of grad school!

Do builders actually keep the deposit if you can't get financing at closing time? Since they have their in-house lender qualify you before you can make a deposit, I would argue that would be a reason for them to give you the full deposit back if their lender can't get you the loan...

"I'm confident we'll see these in the sixes. Be patient."

I am confident these will be a tough sell in the Fives. Transactions larger than half a mil are hitting a stonewall (unless they are cash heavy).

"floating their rates."

Can you please explain this phrase. I don't think you are meaning ARM, are you?

"Do builders actually keep the deposit if you can't get financing at closing time?"

Seems possible if someone is stupid enough to sign a contract without contingencies. Any one who signs to buy without committed funds deserves that though.

BSR and JL -

The purchase agreements that the builders have you sign are MUCH more restrictive (is there such a word?) then the standard residential purchase agreement used in a standard resale home.

Indeed the contingency period is VERY short and varies from builder to builder. Also as purchases are filled with emotion many people do not think out numbers very well when they sign the docs. Furthermore they seem to listen but not fully comprehend the loan programs explained to them by the loan officer while the sales lady bobs her head in a hypnotic like fashion telling them that prices will only go up.

BSR floating the rate means the buyers sign the purchase agreement and they have not locked a loan rate for the loan yet. Thus they "float" the rate in escrow until they get within 30 days of closing and then they lock it. Again the overwhelming percentage of buyers of new homes float the rate.

Also when they sign they may indeed have the reserves... everything is fine when you are looking at the models and eating cookies in the sales office. Then as escrow close comes near and people really sit down and look at the budget with the monthly payment, the mello roos, the property taxes... reality hits....thus cancellation...

Remember, these people lining up are not dumb people...They are degreed, they have high paying jobs, they just... well they all have their own reasons for buying. That is okay...If they just all would run the numbers out from the beginning, and then lock a loan, and realize, fully realize what they are getting into, I think most of them would hold off... and those that did will at least buy knowing the real situation. Thus they would have a lower probability of losing the home or deposit down the road.

but many of them dont.

ps - many float the loans also because the lender will charge a little bit more to lock a loan for a long period of time.
SD Realtor

SD Realtor,

Thanks for that informative reply. I didn't know there is so much higher risk in new purchase. My concerns about buying a new house are more "engineering based" - let someone else do the "beta testing"; I am afraid of construction defects that may show up after a while, especially ground settlement/water related. (The house we owned & sold was involved in a similar lawsuit before we bought, and I was a little apprehensive at first looking at all the microfilms full of 'disclosure'). Especially, anything built in the last 5 years or so should be suspect quality wise. But you add a compelling reason why I should just stay away from anything newly built.

It's a double edged sword Bsrsharma, older houses can have their issues as well. The last five years the builders were making plenty of money so the quality was pretty good, the mid nineties saw very little builder profit so a lot of corners got cut. Todays windows, copper pipes, insulation and fireproofing are reasons to weigh newer vs older construction. S.D. is totally right about the emotional buyers in new developments but don't just assume that anything over 5 years old is better, always research the crap out of anything you get serious about. SD, isn't it true that if a buyer places a deposit based on the builder pre-qualing them and the loan program or the lender vanishes during construction that the buyer is usually refunded their deposit. I know of people who were given their money back recently because the 0 down programs available two months ago went away due to the lenders changing their rules, not the buyer changing their mind.

BSR I understand your concern about the new house. As tg says older ones have plenty of problems and can be WAY more costly to repair then anything that crops up with new ones... It is a tough call. I do think newer construction is of higher quality then older stuff but that is a speculative statement made without much analysis.

"SD, isn't it true that if a buyer places a deposit based on the builder pre-qualing them and the loan program or the lender vanishes during construction that the buyer is usually refunded their deposit. "

TG the case above absolutely is true and people will get the money back.

The case I was referring to is as follows. Mr and Mrs qualcomm engineers have 125k to put down on the 775k home in 4S. Now they end up going with the preferred lender because they HAVE TO HAVE those incentives. Thus they work with the lender and go with the lenders program... They choose the jumbo loan and float it because the rates are high right now and escrow cannot close until December because the homes will not be complete until then. They are prequalified, they sign the purchase contract. Now the loan package doesn't disappear at all... It stays in place but Mr qualcomm starts stressing out in November because he looks at his spreadsheet in earnest and thinks man I am gonna be paying almost 5-6k a month for my mtg, prop taxes, HOA, gardner, homeowners insurance, hoa... wowsers!

Maybe I shouldn't have signed that purchase agreement.

SD Realtor

Lots are not selling well in Pienza

As of 08/27, it looks like only 3 lots have sold.
Lot 804 (Plan 2901) - $755,990
Lot 805 (Plan 3212) - $789.490
Lot 806 (Plan 3365) - $792,990

3 lots that were previously "reserved," are back on the market

Lot 835 (Plan 3365) - $756,990 (Reserved)-available now
Lot 837 (Plan 3365) - $744,990 (Reserved)-available now
Lot 861 (Plan 3365) - $738,990 (Reserved) -available now

Also 2 lots that were not sold as of the last phase still are available
lot 802 (Plan 2901) - $767,490
lot 858 (Plan 2901) - $769,977

1 additional lot that was previously "sold" is coming back on the market

Lot 801 (Plan 3212) -price not available yet

So currently there are only 3 sold out of 11 available homes.

Pienza therefore is having problems selling any of its homes, not mearly the 2901 plan. The builder is not drastically reducing its prices or increasing the incentives...

Other neighborhoods in 4S with similar square footages and in the same price range also have unsold inventory...none of the builders seem to grasp the logicc that there are not many buyers out there for homes in the 700K-800K range especially with the rise in jumbo loan rates and the tightening of credit that has occurred in the last 2-3 weeks.

How long will it take builders to realize that the market has changed?

Perhaps winter? Also, has anyone had any success with using a realtor to make a lowball offer on new homes?

We are trying to hold out a bit longer before buying...

4spotentialbuyer,

Do you know why lots 835, 837 & 861 (3365 sq ft) are priced lower than lots 802 & 858 (2901 sq ft) ?

Per Pienza map, looks like lot 802 is larger and is across from a slope---no home across from it so it has a "view." 858 includes some upgrades...not sure if someone had fallen out of escrow (stainless steel appliances, granite, paint, and "many more")....

We are trying to hold out a bit longer before buying...

Try waiting at least a year (see my earlier post).

I am starting to despair that the really big price drops will only be out in some BFE crap hole neighborhood in east Inland Empire where I have to commute for 2hrs on $3 a gallon gas and that the places I want to buy like 4S/Scripps remain out of reach . . . people seem to keep buying there no matter the climate

Impatient renter

In search of a crystal ball . . . .

They've had really big price drops in 4S, so I don't know what you're talking about.

4Spotentialbuyer just be patient.

sdcellar seems to have a good strategy and more important is factually correct. Piensa has had price reductions compared to the past. It just takes time and the price you want or that is affordable to you may indeed not happen immediately. Try to take a long term view of the deal.

"How long will it take builders to realize that the market has changed?"

The builders know the market very very well. The problem is that they have tremendous margin built in. They will be aggressive when they have to. Think about it this way. Let's say they slashed all Piensa pricing by 50k. Would that make it all affordable? IMO not really, but psychologically to people on their mailing lists and such, it very well could make a huge difference. It is all relative ya know?

"Perhaps winter? Also, has anyone had any success with using a realtor to make a lowball offer on new homes?"

I have been out to Piensa with 3 different couples in the last year and have made lowball offers. None of the offers were negotiated and the sales office stuck to their guns. Now maybe we came on a busy weekend or bad timing or whatever because I have heard success stories of negotiating. Kind of hard to say.

What needs to happen is more foreclosure activity in 4S so the resale pricing will come down as well and add more pressure to the builders. Resale pricing up there is CRAZY high and makes absolutely no sense to me.

SD Realtor

SD Realtor, Thank you for the feedback...we will continue waiting as I think the builders need to cut the price by at least 50K...I am aware of the reductions in 4S Ranch in the last year, however, the current prices are still too high...there are other builders in 4S Ranch with similar sq. footage homes and we will wait to see which builder reduces its prices...I think we are waiting until Winter 07, Spring 08, or at worse summer 08...while we know it would be better to wait until 2010, we are one of those buyers who want to buy a home to live in and not merely as an investment.

The longer you can wait the better... if you could even stick it out til the fall of 08 you will be better served then the spring of 08...

One thing to think about as well, which in my mind may be important but in others not so... the financing situation. If this is a long term investment then you need to analyze the long term financing costs of the home. What I am getting at here is that a difference in pricing over a long period of time should be analyzed against a difference in financing over that same period.

I don't ever disagree with the thoughts that a lower price home at a higher rate is better then a higher price home at a lower rate. This is true because of refinancing possibilities in the future and less risk of depreciation when you buy the lower price asset. Still, there is something to be said for running the numbers out if you think that over the life of you owning the home, the interest rate climate is not going to be lower.

SD Realtor

4spb-- Fall/Winter will generally be the best time to buy until things turn around, so if you can only wait until 2008, then at least wait until the fall, lest you find yourself kicking yourself in the head.

Sure, you'll probably still be kicking yourself in 2009, but at least you'll have a chance at 8-months or so of happiness.

That's about the best I can offer you (although I've *heard* you can actually rent houses in 4S Ranch). Crazy, eh?

I believe owners pull out of these deals when they hear news of further declines, which puts more pressure on the builders. My question is -- Is it possible for those who have already put a deposit down to get their price negotiated lower based on the new pricing?

It would make sense to me that they would hold onto a buyer rather than wait for someone else to come in, perhaps I'm being optimistic?

Well, on the plus side. My wife and I lived about 4 blocks from Pienza and saw them develop that area.

We really liked that area of Ranch Bernardo, even though it is not as desireable as many other RB areas such as homes around Bernardo Heights Country Club (where we also lived previously)

The weather is fanastic in that area. We only ran either AC or heat about 3 total days per year.

I love that Lake Poway park that is only about ten minutes drive to the East. When I was in good shape I used to drive over and fun full speed up to the top of Mt Woodson and then run back down to Blue Sky Ecological Reserve, about 9 miles. That was a great run, really wonderful.

stopthebubblehype that is a pretty good theory. You would think that the developer would let the buyers renegotiate. However that logic makes to much sense so I guess we shouldn't be surprised if they don't do that.

stockstradr if you ever ride mtn bikes the ride from the top of mt woodson down to poway lake is a fun one... except you need to pick up the car at the backside of mt woodson.

SD Realtor