The permabulls are drooling all over themselves with glee about a recent study indicating that the median San Diego home seller in recent months collected a tidy 91% profit on his or her home. Of course, this doesn’t include transaction costs, improvements, or cash-out refis along the way… it is just a comparison of prior sale price and recent sale price. Even considering all that, though, 91% sure isn’t bad.
But this is all a waste of perfectly good permabull drool, because the statistic in question has nothing positive to say about the future disposition of home prices.
It tells us that home prices are higher than they were five years ago (really?). It also tells us that most of the owners who sold in recent months had bought their homes several years ago.
So it tells us, in short, that the more recent buyers have not yet pulled the ripcord. This is not surprising. With all the competing inventory out there, the successful sellers have been the ones who dropped their prices. And who is more willing to reduce their price — the multi-year owner with a healthy equity cushion, or the recent owner who may already be upside-down?
More importantly, this data point just shows that the marginal owners — the ones who have bought within the past two years, many of whom utilized option ARMs or other prone-to-reset-much-higher mortgages — are still out there. And they’re the ones we have to worry about.