RIP: San Diego

[Bugs]

CFO/SDR

I realize you guys are getting ready continue down this tangent and I would respectfully ask that you both just let it go. The topic of this thread is inventory levels.

[sdrealtor]

Bugs,
No problem. I was confused by CFO’s post and now realized he meant sales targets set by the sales persons themselves. In my experience selling for corporate America the unrealistic sales targets always came down from the finacial guys not vice versa. His situation must be different.

[lindismith]

I log into Zip Realty weekly, just to watch what’s happening in my market, Mission Hills/Hillcrest. At the beginning of the year, a lot of inventory appeared on the MLS – condos, single family homes, and tri/duplexes etc. The trend I noticed is that the condos and homes have stayed on the market, most of them re-listing after 90 days (to manipulate DOM) but usually relisting at their last price range. Interestingly, the multis have not re-listed. It led me to believe their owners were most likely investors, who didn’t really NEED to sell, and were just “testing the market.” I know it’s only anecdotal, and I have no hard data/evidence, but it makes sense to me. So, for once I’m giving SDR a little credit and agreeing that we don’t know what % are just testing the market. It does make sense however that if I don’t have to sell, I would just see if I can at least get some ‘bites’.

[burger007]

Testing the market:

THat is what we did, had it listed for 3 months, took it off, decided to stay, we were looking for a bigger place 4 bedroom versus 3 bedrooms, but decided to stay put and wait it out. Payments on mortgage is not a problem(we do have an 5 year ARM at 4.5% and capped at 8%, even with that cap we can afford it when it does reset in 2009), just wanted to see if anyone would bite, but no one did, so we stay, just finshed doing some remodeling, and will just stay put…. We had 2 other neighbors who did the same and pulled theirs off a couple of weeks ago.

[lendingbubblecontinues]

I hope you are prepared to “wait it out” for a very long time. We have just witnessed a “generational” peak in real estate prices here in Southern California, one which won’t be surpassed for ten years at least, if not twenty years.

That’s a long time to wait for another bedroom 😉

[sdrealtor]

There is no reason they will have to wait 10 years for another bedroom as long as they bought more than 2 or 3 years ago and have siginificant equity. Moving up simply requires one to “buy the gap”. In a better market (by better I mean less inventory not necessarily higher prices) it will b easier to get their home in escrow and then search for the right home to “buy the gap” on. With lower prices the tax bite will also have less sting!

back to the point through….that right there proved my point. 3 sellers that were testing the waters, failed and are staying put. We dont know how many more like them are out there. It may or may not be significant but dont be surprised if we see inventory actually drop this Fall.

[sdrealtor]

There is no reason they will have to wait 10 years for another bedroom as long as they bought more than 2 or 3 years ago and have siginificant equity. Moving up simply requires one to “buy the gap”. In a better market (by better I mean less inventory not necessarily higher prices) it will b easier to get their home in escrow and then search for the right home to “buy the gap” on. With lower prices the tax bite will also have less sting!

back to the point through….that right there proved my point. 3 sellers that were testing the waters, failed and are staying put. We dont know how many more like them are out there. It may or may not be significant but dont be surprised if we see inventory actually drop this Fall.

[Anonymous]

These sellers only removed their listings at the advice of their agent only to relist later, or maybe they are just stubborn and will eventually have to list or, apriori,why did they list in the first place? To test the water? For what reason? To plan games with the Re agent? To hold out for a higher price only to relist later at a lower price due to deterioration of the market? When are they going to relist? 10 years from now? Why did they want to sell in the first place?

In addition, why would anyone buy the “Gap” at this level of pricing as it relates to property taxes? At today’s level of pricing and fixed rates, for homes generally at a million plus, the buyer will most likely be capped on the deductability of property taxes! I know. It takes income to buy these homes at this level of pricing an fixed interest rates. Most likely the buyer will be shocked at the fact that he can not deduct property taxes. Congress did give a reprive for 2006 but at what income level?

Anybody that buys a home with other than a fixed rate mortgage, in order to qualify, deserves to lose their money.

My home on zillow is only worth about $850K. I get capped on property taxes every year at this “low level.” I can afford a much more expensive home but it would be stupid for me to do so. I will be content to wait for the price of my home to drop to, say $400k (I need to live somewhere, it’s my home for my family), so that I can buy the home I want for $1,000 that currently lists on zillow for $1,600. It will happen and I will be here to tell you so if does or does not. In addition, I will find this home by myself without a realtor.

[burger007]

To play games??: ANswer: No, best friend is my realtor and my wife and I decided to pull it off the market, and NO PLANS TO RELIST….Please do not make assumptions. Also , we are expecting our first child in 4 months so the timing of things is not ideal for us, we like where we live and we bought a house to live in, the extra bedroom was more of a want(I wanted a movie/video game room,) not a need right now, so we will stay put, also if we got a new place just for the one more bedroom, property tax for my cse would double, so another reason why we took it off.. The other two houses have not been relisetd and it has been 1 month for one house and 6 weeks for the other. So that is my experiece.

[Anonymous]

Exactly, you got my point! Stay were you are. In two years you will be able to buy the house of your dreams. Depending on the interests rates of course! Good luck with your family. Don’t let the mortgage brokers or realestate agents sell you a bill of goods.

Sincerly.

[docteur]

I agree with SDR. In my experience (not a prediction of things to come, just what I have observed in the past), inventory peaks along with prices and then continues to rise as sales fall off. (Obviously, the less homes sell, the more the inventory will linger).

The more folks think they can “get” for their homes, the higher the percentage of those that list to test the waters. Greed is the motivating factor and I believe a lot of the listings out there are people who are late to the price run ups trying to squeeze that last dollar out of their homes (the old “darn, I should have sold yesterday” crowd).

Once a “pricing” threshold is reached and folks realize they can’t get what they “want” for their homes and they don’t sell at those lofty asking prices, inventory starts to fall off as those testing the waters simply pull their homes off the market (as opposed to inventory falling due to sales).

That’s why sales were falling off and prices were continuing to rise in some areas. Price exhaustion was being reached and now in most areas it has already has been achieved.

An inventory/pricing equilibrium will be created at some constant level of inventory and then a long period of flat sales will result, along with some price reductions from those that “have to sell.”

Then when everyone accepts the new pricing paradigm and readjusts to the cooling market, sales prices may then start to fall more rapidly because only “real” sellers will be in the market (those that must sell and if they do, inventory will decrease even more).

In my experience, folks who have to sell hate to sell in a falling market and wait to the last minute to sell because they keep hoping the market will improve.

But all that takes time (several years maybe). It won’t happen overnight and it won’t be an instantaneous crash. I would describe it as a long, hard, drawn out landing, where the market is skidding to a stop on a slippery runway.

When prices fall to a certain level (very low), inventory will also fall because many folks will refuse to sell at those “really low prices” (those that don’t have to sell anyway) and real estate will go into a holding pattern.

That was my experience of the last real estate cycle and is my experience so far of this market. Not a prediction, just an observation.

[Anonymous]

So Doctueur, the greedy sell their single family residence and move to were? a mobile home? maybe. Obviously these people, for the most part, would be of low income in the first place, and to give up a SFH? We all need a decent place to live. Belive me if you can get the pre-bubble price for your home and you have a place to take your family, by all means do it!

Prices are only rising due to the delay in the stats and sales mix.

Credit is being destroyed. The equilibruim you talk about is wishfull thinking at anything near today’s levels.

We all hate to sell at a lower level, especially when we have to! and the less fortunate of us will wait to the last minute and get even less!

This is going to suck for all but the top 10% of income earners in this county.

Myself as a “minority share” business owner will try and keep things going as long as I can for my employees.

[docteur]

CFO – I do not believe we will see equilibrium at today’s levels at all. My experience is that inventory is peaking and will fall off over the next several months as will sales. At some point, it will be a slow tradeoff of inventory and sales. Where that is, I haven’t a clue.

I agree with you some folks will be hurt but in my mind certainly not 90% of the income earners in this country.

I know of many people who sold at lofty prices and downsized or rented, taking sizable amounts of cash with them to other areas of San Diego and some even out of state.

Others who bought the big house, thinking they could do the same, now realize that they can’t so they will simply stay put and choose not to sell.

I believe the “have to sells” are a much smaller percentage than most. People usually sell their homes to move into a larger home or a different locale. Forced sales are a small amount of the overall market activity. And yes, the less fortunate will sell at the worst possible time. That is part of a free marketplace.

And no, it isn’t fair. But it is reality.

I for one bought the home I intend to die in and own it free and clear. There is no amount of money anyone could offer me to sell and no place else I would rather live. I have many friends who purchased their homes with that same state of mind. So, my experience of this market is obviously quite different than yours.

I commend your concern for those that will take the hit and your willingness to continue to keep as many as possible employed in what could be an ugly outcome. Maybe there are more “minority share” business owners like you out there that will soften the blow down the road and help this irrational market to unwind in an orderly fashion.

I for one am also creating opportunities for others to continue working and earn a decent living. I believe we all want this current situation to resolve itself with as little pain as possible and the uglier it gets, the more we will rise to the occassion.

I believe that we will adjust gradually and it won’t be as bad as some people think. After all, we are in this together.

Nobody has certainty on this and no one knows the outcome. So, I for one will continue to observe the markets, make adjustments as necessary and do my best to keep others informed as to what I see unfolding. I will also do my best to keep the emotion out of it and plan responsibly for the many contingencies that can arise in the future.

I can only tell others what I believe and what I intend to do based on my experience of similar situations. I cannot predict what will happen nor would I ever tender advice to others (except maybe that they spend some time on this website).

Thanks for sharing your perspective and for participating in this forum. Each point of view enlightens us all.

[Anonymous]

Check the increaee of sales volume during the dot.com bubble on wall street. Volume exploded, big gaps down..
Herd mentality leads to panic selling. Once the arrogant sellers get a whiff that their neighbors house just sold for $100,000 less than theirs, you will see the beginnings of s slaughter

[rankandfile]

This upswing is different, however. Nobody really knows if there will be a crash or a soft landing. My guess is that there will be a crash of sorts. No hard data, just a hunch. The laws of nature tend to reciprocate and reach equilibrium. If there is a slow and gentle rise, there tends to be a slow and gentle fall. If there is a fast and high rise, perhaps there will be a faster, harder fall.

The levels of inventory seem to boil down to the percentages of different people who are likely to sell and extraneous factors such as interest rates, employment, etc. Maybe we can try to create a breakdown of the percentage of those likely to sell in the next 6 months to 3 years, let’s say. This should include all sellers, even those who bought decades ago (old buyers). Here’s my stab at it:

Old buyers = 20%
Investment buyers = 25%
Unqualified buyers = 40%
Others = 15%

The Old buyers are those who are at or nearing retirement and are selling to move elsewhere or cash out for money to retire on. Investment buyers are tricky. Some might be willing to wait things out, while others will likely try to cash out before prices go too low…just as they do with stocks. The Unqualified buyers are those who used exotic loan vehicles to purchase b/c they couldn’t do so otherwise. These are the folks who might not be able to afford to ride the market out if interest rates rise or the job market cools down. The Others are those that don’t fall into any of the other categories.

This is just a start and is by no means complete or definitive…it’s just my own guess. Cross-referencing something like this with population and inventory figures (from San Diego and other markets), however, might help us to make a better guess on inventory and prices. Then again, it might just be a waste of time!

PS: Where is a good place to find data on homes? I see some of these posters citing statistics such as the percentage of reduced listings. I’d love to get my hands on this info.

[Author]

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