Are houses selling fast now?

[Ranjan]

Hi,

I am a wanna-be home buyer who has been sitting on the fence since 2004.High price tag as well as un-certain state of san diego housing market has rightly influenced my decision.

From what I have gathred so far, by watching the trend of home sales as well as tracking few homes, it had been consitently taking long to sell a home and most of the homes were just sitting in the market.

However, since last couple of weeks, it seems homes are selling faster at-least in the area I have been interested in.

For example this home: LS #: 066096261
Address: 14624 Carmel Ridge Rd
Listed for $569k

It got listed in 11/16/2006 and it’s already in escrow.
I don’t know what it sold for but may be near the list price.

Does it suggest that the market has bottomed out and will not correct further?

Would appreciate your comments.

[powayseller]

My friend says his SIL sold her Poway home in 1 day. people are still buying and selling homes every day. However, the prices are dropping. The SIL sold for about 15% less than one year ago. The values are dropping because demand is falling and supply is rising.

Months inventory = 10, meaning that it will take 10 months for all homes currently on the market to sell, and this is a very high number. It means that every seller has a 10% chance of selling, and that only 1 out of 10 homes will sell in any given month. This high supply/low demand puts downward pressure on prices. As long as months inventory is over 6, prices fall.

However, even in a falling market, homes are bought and sold every day. We are selling over 2000 homes every month.

So the home sold quickly because it was either in a very desireable area, or it was priced well. How much was that home worth last year?

There is a tendency for a pickup in sales this time of year, even though the fall/winter are the slowest time. This is all in my graphs which I will have on my website. I have to interview some realtors to understand why this occurs.

[sdrealtor]

In Spring 2005 these golf course view homes were selling between the mid 600’s and low 700’s. At today’s prices they have already dropped 15 to 20%. Anyone who thinks prices are falling slowly, need only look at numbers like this to see the descent has been rapid. I would expect a further decline but wonder how quick and how far it will fall. IMHO, there probably is another 10 to 15% drop ahead but you will have to wait at least 2 years more to get there.

When to buy is your decision but I would say you have definitely been rewarded for your patience and this portion of the decline was relatively easy to forsee. What happens next is not so easy to to foretell.

[PerryChase]

You’ve been waiting since 2004 and we are now back to 2004 prices. You should wait more. If you buy now, then your fence-sitting would’ve been in vain.

Think 2000 prices.

[sdrealtor]

Think again PC! We are 15% below 2004 prices. The 2005 prices and the 2004 prices were pretty much the same.

This is where its gets fuzzy. 2003 prices for these homes were in the low 500’s with the last sale happening in Late Summer. Price jumped about $100K between Sept 2003 and Feb 2004 with very low volume. Jumps like this happened just about everywhere in SD County so very few people actually paid prices between a fairly big range (in this case between the low 500’s and low 600’s). If we get back to the low 500’s in this case we will be about 30% off the peak in nominal terms. Throw in 4 years of inflation and the real decline is a bit more. Waiting for 2000 nominal prices will leave you a renter for life IMHO. I’m not saying jump now but I believe these houses wont see the low 300’s (2000 prices in nominal terms). That would represent a real decline of over 60%.

[Ranjan]

Thnx for your inputs.

From Zillow’s database, I am seeing one consistent trend in the market valuation chart of 5-yrs for any SD county home.
The price incline was rather linear until Jan-2004. Beyond jan-2004, the incline was steep and sharp until it went flat and started to correct downwardly.

Now that it’s on a decline, will it be fair to assume that decline would stop when rate of incline becomes linear again?
(Didn’t speculate what that normal rate of incline could be)

For example, for the above mentioned home i.e. 14624 Carmel Ridge Rd, a decline to the level of 450k-500k would restore the home back to the previous slope.

Can I generalize the trend like this or my novice observation is flawed?

[sdrealtor]

You are correct in assuming than Jan 2004 was a major inflection point and we are already below that point in most cases. My personal opinion is that you are on the right track. I believe the 500 price is very realistic but am not so sure about the 450. It all comes down to how long it takes to get to 500. If it takes 2 or 3 years to get there, you need to continue the trend line for 2 0r 3 years keeping you close to the 500.

The bottom line is NO ONE knows what will happen. Your novice observations are as likely as anyone’s more educated ones. The best time to buy is when it makes sense for you personally and financially. Not before.

[powayseller]

This is a method I would use to see where a house price will end up. Select a house with a sales history before 1990, preferably back to the 1980’s or before. Chart all the sales, draw a trendline to 2000 (because that’s when the bubble started), and extend it out to 2015. What should be the price of that house now, and in 3 years? For the median house, the price should be in the high $200’s, not in the mid $500s.

The decline has been very rapid, considering we haven’t even had any loan resets yet. Next year, 25% of all mortgages in the US will reset at higher interest rates, and my opinion is that over 75% of those will default, thus adding to foreclosures and distress sales. The biggest price drops will come in 2007 and 2008, IMO. Besides foreclosures, we’ll have massive layoffs in realtors, construction workers, retail, and high tech workers, anybody and everybody will be affected by the loss of MEW and the recession.

[Anonymous]

"However, even in a falling market, homes are bought and sold every day. We are selling over 2000 homes every month."

 That goes to show the stupidity of people here….they are really, really stupid. If you choose to live here, you'll have to deal with that type of competition.

[barnaby33]

If no-one were buying or selling then you have an illiquid market. Better to have a sucker or two paving the way down than none at all. Thats when things get scary for EVERYONE.

Josh

[davelj]

PS, let me get this straight… you’re saying that 75% of all mortgages that face a reset in 2007 are ultimately going to default? Figure out a way for me to take the other side of that bet and we can definitely do business – I’ll bet on under 50%. (I’ve asked you to do this before but you didn’t respond.) Weren’t you recently saying that the default rate was going to be 90%? Are you becoming less bearish?

On a separate note, the December SoCal medians are going to be interesting. I wonder if we’ll be down 10% YOY by the end of the year. I hope so.

[powayseller]

I think that the majority of mortgages taken out in 2004 and 2005 will default when they reset, because the borrower probably has no equity. We are back to 2003 to 2004 prices, so 2004 and 2005 borrowers lost their equity if they financed at 0% down. I think that about half of refinancers since 2003 will default. So yes, that is my best guess. I am not in the camp of believing these borrowers can just sell or refinance. Perhaps the mortgage industry will come out with some new products to help these people, and then my guess will have been incorrect. Sorry if I missed your question before. I think the default rate could be 90% or higher – it’s hard to tell without knowing the exact number of 0% down ARMs. The subprime market default rates are very high in states that are ahead of us in this bust, like FL, Ohio, Michigan, Colorado, and Texas. We’ll be next. I did take that bet already, davelj – I sold my house.

[Mexico Resident]

PS, I love your posts. Very well written. However, your prediction of 75% (or 90%) default rate based on the fact (assumption?) that people have no equity in their home is a stretch. There are many factors that go into a default, but one big one is if the owner is unable to make their monthly payments. To say that 75% of owners are unable to make their monthly payment would require a bit more analysis beyond what you said. I would like to know the answer. But, the current default rate I believe is in the low single digits.

[no_such_reality]

You may want to clarify if you’re talking dafault = NOD or default = foreclosure.

As for how many, it’ll be interesting, of the interest only ARM segment, I think she’s probably right. Of the rest, she’s way off. Now, I know SD has about 80% ARM ratio in the last year or two, but it’s not clear how many are suicide loans.

From the Bank side, have a feeling the they will get creative with holding back on the actual NODs. I foresee refinancing to 40 years… A reroll to another interest only ARM with sub-prime interest rate pushing out the devil’s due another 3 years. Allowing the banks to restrucutre their responsibility on default.

[powayseller]

Ok, here’s my reasoning. BTW, remember I didn’t come up with the term “neutron mortgage” – the home is left standing but the buyers are gone.

Buyers qualified at 0% down, 33% – 48% DTI in 2003 – 2005. So they’re spending 33% – 48% of their income on their principal and interest plus more on taxes and insurance. Traditional is 28% for all 4 of those items. They’re already squeezed before the first mortgage payment. Loan resets. Now what? Come up with 50% more in mortgage payments, when you’re already at 33% – 48% DTI? You think about refinancing, but you’ve got some problems that no lender will touch: 1) negative equity, and 2) your income qualified for a loan at the teaser rate you got in 04 or 05, but not at today’s higher rates, 3) you don’t have the equity to pay for the closing costs nor the $10K to pay the prepayment penalty to get out early from under the neutron mortgage. Borrower is f*cked, basically.

So the question we have to ask is this: what is the likelihood that someone who got a 100% loan in 2004 or 2005 at 33% or greater DTI can handle a 50% – 100% jump in payments, or refinance out of the mess? I’d be surprised if more than a few could do so.

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