Comment to SDR on the short sale monitor

[barnaby33]

SDR I find it completely weird how what you are seeing runs so counter to what is happening in the credit markets. How many people bought using sub-prime financing in the last few years? (25% nationwide) What is happening to that financing market? (dying a quick death) Where will the buyers come from? (People with jobs good credit and little to no debt)

I just can’t see how you can predict flat to increasing pricing. This based on the sure and certain knowledge that sub-prime financing is quickly going the way of the dodo. Do you work in an area in which most people aren’t affected by the credit markets? Are your customers all cash buyers?

Keep your eyes on the credit markets folks, thats what determines what will sell and for how much.

I could be just as wrong as anyone else, but this thing is just too big to be stopped at this point. Maybe the first half of 07 is a dead cat bounce, there will probably be several.

I am not in any way insinuating that SDR is not being honest. I just find it very hard at this point to reconcile what he says he is seeing with the macro economic trends we are all seeing.

Josh

[SD Realtor]

Josh – Other SD Realtor here. I am seeing the same thing in certain zip codes and quite frankly agree with sdrealtors assessment. I cannot comment on the means with which people are coming up with the money to buy the homes. However nicer homes in more middle and upper middle class neighborhoods are moving. The I15 corridor, Scripps Ranch, north county coastal. The active/pending ratios are definitely swinging back to a more favorable market for sellers. Yes the NOD and foreclosure rates are definitely screaming upward but not enough to affect the overall market…yet… Let’s see what the ratios look like in July and August.

[sdrealtor]

Josh
As you can see I am not alone in what I am seeing and am just reporting on WHAT IS HAPPENING rather than what I hope will or will not happen. Please read my post again and you will see I am predicting a 5% decline not flat or increasing prices. What I said is that based upon what I am seeing right now, I wouldnt be shocked if prices held or crept up a bit this year due to constrained inventory. I need to keep my eyes open to prevent being blindsided by a change in the trends and try to be as objective as I can be. I’m sorry if you are not hearing what you want to hear but the reality is the market looks better today for sellers than it has in over one year.

BTW, Long term I am as bearish as the next guy.

SDR

[blahblahblah]

I wouldnt be shocked if prices held or crept up a bit this year due to constrained inventory.

Isn’t inventory triple what it was a few years ago? Around 15000 properties as opposed to 5000? Maybe I don’t have my numbers right, but if my memory is correct that doesn’t sound very constrained, especially since our (legal) population is decreasing.

This bubble won’t deflate until the weak hands are flushed from the market, and that won’t happen until traditional lending standards (loan types/DTI ratios, etc…) return. Prices have been artificially inflated due to a flood of buyers that, in normal times, would be denied entry to the market.

[PerryChase]

I agree that credit is what drives the market. There’s still plenty of easy financing out there. If a buyer wants a loan, he can. We have to keep in mind that buyers intend on buying a house, will go to lengths than us, Piggingtons, won’t even consider.

Just to get a feel of psychology, I just talked to my brother who doesn’t follow the market as closely as I do. He said that “really nice” houses aren’t going down and maybe he should buy now. I told him absolutely not! But he’s got a wife and a 3-year old child and they are feeling cramped in their townhouse.

Zillow also makes people believe that houses are “worth” more than they are.

The real bleeding won’t happen until psychology turns decidedly negative.

[sdrealtor]

Concho,
The inventory of 3 years ago was indeed 1/3rd of what it is but that was an extraordinarily low inventory level. In fact, it was that extraordinarily low inventory that caused the panic in late 2003 when we saw prices shoot to the moon. The level we are at today is not high by any measure and much of it is crap. I believe that there are about 150,000 homes in SD. Someone please correct me if I’m wrong but that would place inventory at 1% of the total market. If inventory doesnt start dumping onto the market in the next few weeks, we could be positioned for a Spring rally.

[PerryChase]

Want easy credit? $145k for $484/mo. That’s how easy credit still is. Check out lowermybills

https://www.lowermybills.com/servlet/LMBServlet?the_action=LpvFirstStep&typeOfLoan=LRE&TAG_ID=CB264A6130EABECD2C2EA442EEF98D571170797842499&sourceid=lmb-9704-17717-15412&moid=3856

I don’t think that we’ll ever get back the 20% down conventional loans. Easy credit is here to stay because lenders (the lightly regulated ones) and banks have a stake in easy credit. They generate tons of revenue from those easy loans. Revenue and profit are what drive the stock and executive bonuses.

The key is risk management. Lenders will have to charge everyone more so that they can continue to market easy qualify mortgages.

Think about the credit card business — anyone can get one regardless of default or bankruptcy. The easy to qualify issuers make more money than the risk averse ones. They make it up on the outrageous fees. In my opinion the same thing will happen in the mortgage business. They will begin charging for payoff statements, refunds from impound account, mail statements will cost $5/mo, etc…

[little lady]

"need to keep my eyes open to prevent being blindsided by a change in the trends and try to be as objective as I can be. I'm sorry if you are not hearing what you want to hear but the reality is the market looks better today for sellers than it has in over one year. BTW, Long term I am as bearish as the next guy."

 

So you are saying get out now if you can(if you haven’t already), but down the road it's probably gonna be allot worse, right?

[Anonymous]

I’ve been following some of the threads on this site for a couple of months, and have been closely following MLS listings in Scripps Ranch, Sabre Springs and Carmel Mountain Ranch for nearly a year. At the risk of serious buyers remorse (and receiving a heinous blog-flog from other contributors to this site), I closed escrow on a home last week. I find sdrealtors latest data very intruiging, I guess I am one of the idiots contributing to this bullish trend.

As everyone points out, market psychology is impossible to predict. And I take some serious issue with macro trends that are oriented towards averages and medians, when many micro-markets are probably driven more by the tails of the distributions. So I just thought I would provide some perspective from someone who decided to go for it:

I grew up in San Diego, and have had the distinct displeasure of watching the price of the modest run-of-the-mill house that I grew up in soar to seemingly unattainable levels. This happened right as I started a Doctorate program, and knew that I would be living on slave wages for the forseeable future. This was the most frustrating experience, because if I had just gotten a job with my B.S. and skipped grad school, I would have probably bought in 2000 well before the market went absolutely insane.

Since that time, I have basically accepted the fact that San Diego will *always* be an unaffordable market, just as the Bay Area has always been unaffordable ever since the inception of Silicon Valley. There is very little virgin land left, and my general feeling is that as long as the regional high-tech economy creates six-figure jobs at about the same rate that existing homes in “nice” (counting that Stepford-esque kind of way) neighborhoods come up for sale, these upscale neighborhoods will continue to remain unaffordable for the “average” San Diegan. Just because the median home price is well out of range of the median income does not necessarily mean that the prices in any particular market has to come down! There are plenty of areas nationwide with chronic affordability problems.

It’s no secret that areas of San Diego are way more overpriced than others, but some areas have already dropped substantially, while others may still have a ways to go. In Scripps Ranch, for instance, the prices have barely moved. There is alot of stale inventory though, so that may change. The Carmel Mtn Ranch area, on the other hand, has dropped at least 10% in many cases.

We watched these markets very closely for a year, and saved a lot of money for the down, while hoping to find the right opportunity. Our goal was to afford 4 bedrooms, or else we would grow out of the house right away, and I definitely do not want to be in a situation where I have to sell anytime soon, just in case! There was a house we particularly loved that went up in April, but was out of our leauge. When they slashed the asking price by 10% right during the holiday slumber, we jumped on it. We were a little too late the first time around, but it fell out of escrow due to the contingency sale. For whatever it’s worth, we got it for 25k under our appraisal, and 60k under the current ‘Zestimate’.

The other major factor in my psychology to buy is the interest rates. I found a house that I love, at a price I can just barely afford, but will be happy to stay in for 30 years with my fixed-rate mortgage if I have to. Had the rates been half a point higher, I couldn’t have done it. Although it’s generally better to get a good price at a high fixed rate than the other way around, a further 10% drop in home prices (which seems unlikely in areas that have already fallen 10%) would be largely cancelled out by a modest rise in long-term interest rates, which are still near historic lows.

If the prices do in fact fall another 10% while the interest rates remain steady, then I will definitely feel some serious buyers remorse. The current indicators tend towards stabilizing prices, although a significant rise in short-term rates would tend to squeeze the ARMs alot harder, potentially causing a more significant wave of foreclosures.

Given that the high-end San Diego RE market (above the median) is probably being driven by the economics of the wealithest 5%-10%, I personally think that a true meltdown in this sector would require some combination of high unemployment *at the highest income brackets* and/or a significant hike in the rates. If this high regional unemployment were part of a broader national trend, I don’t think Bernanke would allow both to happen simultaneously. Basically, I figured I would be better off getting into my dream home while I can afford it, rather than preying for an economic catastrophe.

What I forsee happening (and you can already see the signs of it) is basically an evaporation of new middle class homeowners in cities like San Diego. Hopefully the Dems can turn this around without taxing me out of affording my own house. This real estate bubble has helped create alot of wealth, which has furthered this disparity, but the short fact is that the rich are getting richer, and nice places to live (like most of San Diego) are really paying the price because of it.

In short, I think a lot of fools like me will rush in his year, as long as the prices and long-term rates remain stable, which will further help keep them so.

[surveyor]

congrats

congratulations on your purchase! i doubt you will be sorry (although others on this board will tell you otherwise).

[bob2007]

Hello,

I have been monitoring this list for the past 4 months and have found it very interesting. I would now like to contribute and hopefully give something useful back to the group.

I wish to congratulate FTB as well. I have purchased in scripps and will be closing in a month. I have a 10 year time frame, and even if the value does not increase (or decreases), I feel the lifestyle change is worth it to me.

Regarding financing, I put 20% down. I have 3 friends that have purchased in the last few months the same way, and a dozen more that could do so if they wished. I understand that I am fortunate to be in such a position, and only mention it to point out that many homes are being purchased without creative financing. This is especially true in certain neighborhoods as mentioned by SDR.

One important item I will take away from this discussion board is the distinction of what people “hope” will happen, versus reported observations (as in this thread). Some of the “hope” appears to target a benefit in the $50k range. In my opinion there are lots of ways to make money. Trying to target the bottom of the market to make this amount seems very difficult to me, and is the type of emotion that can color the way a person acts in all areas.

>Hopefully the Dems can turn this around without taxing me >out of affording my own house.

I would not count on this. In fact, it is more likely they would eliminate the the home mortgage deduction if they could get away with it. The rich will _always_ have ways around the taxes. I see it in action every day with my job. It is the middle to upper middle class that will pay the price. If the majority of your income is reported on a W2 and you make over 150k (or hope to some day), think about that before you consider the Dems. That is the demographic that will be paying for Edwards health plan (his $50M is protected). I used to be a republican. Now I don’t want to support either party.

[hipmatt]

I don’t think anyone should be targeting the bottom of the market anytime this year or even in 08. Once again, as history shows us, these things take years, usually about 4-6 years. So its been one year so far, so at least look for another 2.5 years to get close to the bottom. Yes, even if the guys on cnbc are telling you that the market has bottomed.

For those who have purchased lately with 20% down congrats, you will be much better prepared to ride out a large downturn in your homes value, and you are in the minority, most people I know of still use 100% financing. Hopefully this trend will change, and the concept of saving(s) will return.

[lendingbubblecontinues]

Thanks guys for sharing the viewpoints of idiots with all of us dumbasses.

I’ll wager my backside will be much less black and blue than yours in a couple years…have a fun ride, though.

LBC

[bob2007]

Thanks for proving my point.

[barnaby33]

No need to be crass LBC. I think it is very cool that two people who have bought recently have shared with the board. Just because I don’t believe what they have done was the right call doesn’t mean I would rub their noses in it.

Now to the matter at hand, the word “hope.” Its a very loaded word. Usually its associated with something that has no basis in rigorous analysis. There is very little in my outlook that is based on hope, almost none. I take comfort in the fact that what I am waiting for in an reversion to the mean, nothing more nothing less.

Easy credit may be here to stay, but its going to get expensive going forward because and this is a shocker, lenders want to be paid back.

Sales and pendings may be up these next few months, the short term I have no way of predicting.

What I hope comes out of this thread though is a discussion about the massive disparity between what is happening in the financial markets and what two realtors on this very board are reporting. Ok its happening, now lets figure out why.

Comments, suggestions, concerns?

Josh

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