What percentage of sellers in San Diego MUST sell?

[davelj]

I think this is the critical question as we pass the mid-point of the prime buying/selling season as such sellers will be the marginal sellers and thus set the prices, for all intents and purposes, going forward.

I’m sure there are plenty of sellers who would merely LIKE to sell their homes because of (1) downsizing (older folks), (2) a desire, but not a need, to move out of state, (3) a desire, but not a need, to buy another home in the area, and (4) investment considerations – the seller has a profit and wouldn’t mind realizing it, but isn’t under financial pressure to actually sell, or the seller is renting the unit at a loss but can afford to carry the property for several years.

Those who MUST sell include the following: (1) a new home is under contract to be purchased and the buyers must have the proceeds from the sale of the previous home, (2) the seller can no longer afford the house being sold, whether due to payment re-sets or other reasons, (3) the seller must move by August in order to get the kids settled into a new school in the new area to which they are moving, or by some other date in order to start a new job, and (4) the seller is an investor and cannot afford to carry the property being sold.

I might be missing a few categories here. My question is: What percentage of sellers do you think fall into the two broad categories above (that is, those would would LIKE to sell their homes vs. those who MUST sell their homes)? And how do you think this will impact housing prices going forward?

Bugs and sdrealtor, since you guys have been in the game for a while, maybe you have some thoughts on this issue with some historical perspective. Based on a lot of what’s been reported here and in other places, my suspicion is that there are a lot more people in the “must sell” group in this part of the cycle this time around than in previous cycles… but that’s conjecture to some extent.

[Anonymous]

Althought I agree with you that it’s an important concept “need to sell” to consider, several other factors override this in San Diego. First, the amount the prices and rate of sale fluctuates monthly in San Diego is a truly significant factor. The average purchase price for the county was down $15,000 last month. You NEVER see that high of a fluctuation value anywhere else in the country unless it’s the start of a recession. What this translate to is that even a motivated seller (as long as they are informed and understand the market) is much more willing to hang on to their property for several more months because when the buyer’s market does turn (as it always has) they can sell for much more than a panicked seller.

There are some great articles and insights on seasonal fluctuations in the rate of sale after a home hits the market and list price vs. closing price in specific areas of San Diego (Rancho Santa Fe and Oceanside have by far the highest percentage shifts) at: http://www.HomeGuideSanDiego.com

[JWM in SD]

“What this translate to is that even a motivated seller (as long as they are informed and understand the market) is much more willing to hang on to their property for several more months because when the buyer’s market does turn (as it always has) they can sell for much more than a panicked seller.”

Motivated Seller?? You mean a greedy ignorant seller is going to hold out until the buyers market becomes a sellers market again? If so, sorry, but the seller is going to be waiting a long time because it’s not yet a buyers market let alone at a turning point back to a sellers market. Hopefully I’m just misinterpreting your comments.

[Bugs]

All the action occurs in the margins, ya?

Right now, I’d guess that many of the sellers who are settling for less are in the “must-sell” category, either because they’re forced to or because they’re really nervous about the security of their equity. I think it takes some strong motivations for a seller to dial back on their profit expectations.

I don’t have any way of knowing percentages on something like this, but my perception (possibly because I’m concious of it) is that the phrase “motivated seller” or its equivalent is turning up on 10-15% of the listings. A year ago that would have been very rare.

[JES]

I have an old neighbor who listed his house 2 weeks after I listed mine this year. I listed at a reasonable price (NOT more than previous comps!), I monitored the comps/inventory/neighborhood like a hawk, had a great realtor and a discount plan with him wherby I ended up only paying 2% since I found the buyer and the buyer didn’t have a realtor. This allowed me to except a slightly lower price and still pocket more than someone with a full service realtor who has to pay the full %. My ability to go a little lower is what sold the house, along with my desire to not follow the market down. On the other hand…my neighbor did NONE of these things, went with an out of town realtor friend, and listed at 10k above previous comps. 3 weeks later he reduced his price 5k, again 10k a month after that, and just last week another 5k. Had he listed it for 30k less to begin with it would have likely sold right away! Now there are 10 homes for sale on his street wheras when I sold there were none, and all of them are asking 10-15 ABOVE comps and are just sitting!

My point here is that there are still a whole lot of sellers who have yet to wake up and realize that we aint in 2004 anymore! Whether they ‘have to sell’ or just ‘want to sell’ or are testing the waters, I believe that things are just getting started. Most sellers STILL think that the previous comp is what their home is worth, and they believe that if they wait long enough they will get that price. Just wait until November, December…reality will have sunk in by then and prices will really strat to drop. The psychology of it alone will be a driving force. Homeowners who have no intention of selling right now will take notice and more of them will decide to get out while they still can. Most of those homeowners are still sold on the soft landing scenario….for now!

[mycroft]

The average purchase price for the county was down $15,000 last month. You NEVER see that high of a fluctuation value anywhere else in the country unless it’s the start of a recession. What this translate to is that even a motivated seller (as long as they are informed and understand the market) is much more willing to hang on to their property for several more months because when the buyer’s market does turn (as it always has) they can sell for much more than a panicked seller.

I’m thinking that a motivated seller who is both informed and understands the market is going to take the first possible opportunity to get the heck out of his house. I can’t believe that this hypothetical person is going to believe that the “buyer’s market” is only going to last a few months. Rather, I think they’ll be asking themselves the musical question “If average values drop $15K in one month, how much will they drop in four months? If spring and summer are traditionally the time for folks to buy, how many buyers are going to be there in the fall? If the inventory was 8,000 last year, and it’s 22,000 now, how many homes will be for sale in September.” Okay, that’s more than one musical question, but the tune ought to be familiar to anyone needing to sell a house right now. I’ve got a feeling that their chorus is going to be “Motivated Seller, Looking at all offers, Sell Now!”

[Anonymous]

In a conversation today, a friend mentioned that her sister (i.e., third hand info) has pulled her house off the market “for a few months” to wait for the market to pick up again (even though she must move into a recently purchased home soon). This anecdote provides one example of the hypothetical “motivated seller” who believes that he or she can wait a few months for the market to turn. On hearing about this, I had two reactions:
(1) Folks on blogs like this who have some knowledge concerning fundamentals of the real estate market are a small minority. For the general public, the absence of information permits the sort of blind optimism that is drilled into people ad nauseum in southern California (and has been for years). I can’t count the number of conversations I’ve had with intelligent people who say “housing prices will always increase,” but haven’t considered that such an increase can be characterized by a “three steps forward-one step back” trend, and that the person who buys after step three can suffer serious financial consequences. (I also can’t believe the number of people that ignore the fact that if you buy a home at price “x” today instead of price “x – $100k” in a year, you lose $100k even if the price falls and then returns to price “x”.)
(2) The general lack of knowledge concerning market fundamentals makes possible irrational market decisions. The same people that have bought in the last year or two based on exotic loans with the anticipation of continued increases in housing values (and I know several) have the potential to buy into a “now we’ve hit the bottom” explanatory response/spin to a mild correction (which the real estate folks are bound to begin harping late 2006 regardless of what the market fundamentals are). Given this state of affairs, I wouldn’t be surprised if a slump over the summer were followed by a brief rebound.

Full Disclosure: I am not a realtor and don’t work in the real estate industry. I don’t own a home and don’t plan on buying one for several years.

[powayseller]

How can you get a rebound with the high inventory? What buyer would offer rebound pricing, i.e. a higher offer than need be? Realtors are helping their clients to lowball on every offer. As long as inventory is so high, offers will be lowballed, except in the most desireable neighborhoods. Even there, with multiple homes to choose from, buyers will offer below list price to try to get the best deal.

I agree that most people have no idea this market is sinking for many years. I’m thinking of a home-made bumper sticker that reads: Real Estate Market is Crashing – Sell Now and Don’t Buy Until 2008. Will anyone shoot me?

[sdrealtor]

Thats an awful long bumper sticker. You must have a really big rear bumper.

[powayseller]

Yeah, a super big rear, hahahahahahaha

[sdrealtor]

nice to see you have a sense of humor

[contentrenter]

Enough already. No dessert for either of you.

[kewp]

“The average purchase price for the county was down $15,000 last month. You NEVER see that high of a fluctuation value anywhere else in the country unless it’s the start of a recession. What this translate to is that even a motivated seller (as long as they are informed and understand the market) is much more willing to hang on to their property for several more months because when the buyer’s market does turn (as it always has) they can sell for much more than a panicked seller.”

I’ll disagree that we are in a buyer’s market. 1% off an asset that is 40% overpriced to begin with isn’t a bargain in my book.

Given that SD is potentially the bubble-capital of the US, were there to be a recession, I wouldn’t be suprised if it starts here.

So goes California, so goes the Country!

[Author]

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