When people ask me, “How’s business?”, I often suggest they need only look to my roots (as in my hair roots). If I am a little too dark around the edges, that is a tell-tale sign that I am quite preoccupied. Today, one might suspect that I got my styling tips from Courtney Love. My modern day answer, of course, is check the date stamp of my last blog entry.
At my house we have enjoyed our share of seasonal overload, and I must pause for a moment of on-line shopping Zen here. Thank goodness for on-line shopping, and for my new best friend, the UPS guy. First there was the office party at a colleague’s home (the front yard nativity scene ultimately included several cocktail napkins and what I could swear was the Baby Jesus eating a chicken skewer), the high school sports banquet (which culminated with the coaches telling a room full of 14-year-olds not to expect to make the team next year, as it will be very competitive and we will have a lot of tears – Happy Holidays!), Steve backing into my daughter’s car in the driveway again (the first time it was me, but don’t tell her about this latest incident – no evidence that we are aware of), a sick cat, a sick child, a house with enough dirt to support commercial agriculture, a trash crisis due to cans filled with take-out bags (and boxes compliments of the UPS guy), and a partridge in a pear tree.
And true to December form, business is busy! Our one open house over the weekend produced eighteen groups of visitors, this on the day after a heavy rain (BIG news in San Diego) and on the very afternoon that the Chargers were clinching the Division title and LaDainian Tomlinson was setting a single-season touchdown record. Most of the open house goers were very serious, and contrary to conventional bubble wisdom, the people Steve encountered were largely discretionary shoppers; no impending need to move, just a desire. By the way, notice I said Steve. This is our personal version of horse trading. “I will trade you one Open House for a Volleyball Banquet”. “Throw in a Property Showing at 10:00 tomorrow, and you have a deal”.
So, what gives? December gives. For us, showings are up, offers are materializing, and we are seeing a renewed home buying interest. I talked about the benefits of offering a home for sale in December here, and this year is no exception. Take our little community of Scripps Ranch. Our inventory of listings finally dropped below 100 homes this week from a high of 158 homes several months ago. The absencee of buyers is not an issue for us right now, as we are working with many. The issue is becoming one of too little, good inventory. January will naturally bring a wave of more listings, which will on the face benefit the buyers, but with that will come heightened buyer interest and competition.
The market statistics we updated this past week for San Diego County and the I-15 Corridor communities show little or no change in prices or market times from our last update. We hear words like “normal” and “stabilizing” and “correcting” to describe our current real estate environment, and many like to challenge the use of these terms as simply an industry’s attempt to sell the public a myth. From my vantage point, the view is fine. I have no doubt that, at least in our San Diego market, prices will continue to decline over the next year, but I also believe it will be a relatively soft decline. If you are on the sidelines but really have the desire to buy, you had better be putting Interest Rate Stability on your holiday wish list. Prices and interest rates go hand in hand in the cost equation. And, if you are currently renting, you may be finding a lump of coal in your stocking. As reported in the San Diego Union Tribune this morning, average rents in the county rose 5.8% over last year while vacancy rates decreased.
Trying to time a market can be a dangerous game and result in huge disappointment. I often think back to the late ’90’s when the stock of our local Qualcomm was enjoying a ridiculous ride. I met many, many lucky lottery winners (Qualcomm employees) who proudly announced that they were in no hurry to purchase in our escalating housing market because they were confident that their stock would outperform housing. Guess what? Talk about your lumps of coal.
Today, we have one offer to dispense with, one closing to oversee, a handful of escrows to monitor, numerous buyers to follow-up with, seven listings to manage and two more on the way, and I will be updating the year-to-date market statistics through November (and I really mean it this time!). That is, unless the UPS man keeps ringing the stupid door bell.
ABOUT THE AUTHOR Kris Berg is Co-Owner and Designated Broker of San Diego Castles Realty. If not-so static web sites are your thing, go here at once where you will find loads of real estate information including homes for sale, market trends, floor plans and more. Kris's hobbies include fencing and spot welding. She likes kittens. 
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{ 11 comments… read them below or add one }
What a great view you must have with your head in the sand.
Anyway, here’s what the Union Tribune wrote yesterday about housing
Title: ‘Short sales’ called an emerging trend
http://www.signonsandiego.com/news/metro/20061211-9999-1n11sales.html
I’m not concerned about the interest rate just today the fed left it unchanged.
Since houses in SD are expensive as they are many people have turned to sub price mortgages. For the intiial loan and refi’s.
Here’s a nice link from bloomberg.com
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a.PuODESStLM
From the Article…
Some sub-prime mortgage borrowers with adjustable-rate or interest-only loans will find it difficult to refinance into cheaper loans when their payments are due to increase, Fitch said. Delinquencies, which have risen 50 percent from last year, should climb another 50 percent next year, it said.
Even you are admiting that prices will go down. Which anybody that has done their reasearch can see. Right now I think you are correct a lot of people are watching the market. But, all we’re watching for is a wounded animal that can no longer run with the pack.
The scare tactics about buy now or be priced out by interst rate increases is BS.
Your blog is bullsh*t if you don’t post all the comments. What I submitted yesterday was completely valid. People will see through your warped view of reality.
Funny thing is the only comments I’ve seen on your blog all appear to be from real estate agents like yourself.
Pass the Cool-Aid Kris needs another drink.
Shadash,
Let me first say that I just retrieved your comment from yesterday (which I was unaware had been swooped up by my spam filter). Spam is unfortunately a huge problem, and the way the software is set up is the following: The first time someone comments, the comment is held in moderation, giving me a chance to make sure it is legitimate (as in, not promoting Viagra). After that, ones comments are automatically posted, as are yours. The exception is another safeguard in that any comment containing more that one link is held in moderation regardless (this being a common indication of computer-generated spam). Unfortunately, your last comment fit this profile and, for some reason, was redirected to my spam folder to boot. I generally scan the spam folder once a day looking for “real” comments that might have been incorrectly flagged. You will see I found your original responase and restored it in all its glory. Apology accepted.
So back to your point. Yes, I read the Union article. As of November 20th, 55 out of 27,571 listings were flagged as being potential short sales. Not a huge percentage, I think you will agree, but I don’t discount that we are seeing more short sale activity than over the past decade. This is not unexpected in a market that shifts from one of double-digit appreciation to price decline. And, yes, creative financing has played an important part in the increase in loans at risk. We have said it here again and again.
I think our views on the market and the future are not all that different, just a difference of degree. My “warped view of reality” is simply my opinion based on being in the trenches every day. Sometimes, the impression you get from actually working in the industry and talking to the people that will ultimately drive the direction of housing prices is infinitely more valuable than a million statistics. Steve and I saw the correction coming based on this in-the-trenches sense of market psychology, and our predictions have been pretty accurate to date. The fact remains that neither you nor I knows for certain what the future holds, but another 10% decline in local prices is in my opinion not only not inconceivable but likely. I continue to say, however, that all factors should be considered, and price is but one.
I will take exception (mixed with a little offense), however, that you read my post to be a scare tactic to buy or be priced out. And, lastly, not all of the comments here are from real estate agents, although we do get our share of those. It is the comments from the consumers like yourself that are often the most entertaining and enlightening, “bullsh*t” comment aside. I can’t control the resume of those who contribute here, much like I can’t control the market.
It is worth re-emphasing that the one statistic that Shadash placed almost his entire argument on was the number of defaults and/or borrowers holding sub-prime loans that may now be in trouble (or will be soon). If my math is correct, the number of short sales (both sub-prime and otherwise) equates to 0.002% of listings. Stating that defaults are up 50%, while possibly accurate, distorts the reality of the magnitude of this problem.
Another point is that many borrowers burdened with the nastiest of these loans (the option arms w/ negative amortization and pre-payment penalties) are into the 2nd or 3rd year of these loans when the pre-payment penalties go away and they will be free to refinance soon.
From what we have seen, it appears that the vast majority of borrowers who are in the most trouble were the ones who purchased in the last two years and overleveraged themselves (95%-100% financing), literally banking on immediate and continued market appreciation. They bet wrong.
Thank you for posting my comments (both good and bad).
The point of a blog is to get comments from many different points of view. When you get views from both sides it makes it easier for your readers to make a decision regarding where they stand. Also, if you are correct your point of view will make sense to readers and they will stand behind you.
Moderating comments is a slippery slope. You have to take the good with the bad.
I apologize for the (bullsh*t) comment. It was out of line. I just figured if you weren’t going to post my other comments what difference does it make.
Shadash, You will get no argument from me there. And no offense taken. I just wanted you to know that we do not censor content – ever. The spam filter Gods have been duly reprimanded.
“Shadash placed almost his entire argument on was the number of defaults and/or borrowers holding sub-prime loans that may now be in trouble (or will be soon).”
Take a step back and think.
1. Foreclosures are going up
2. The mortgage industry is becoming more rigid on standards
3. The value of houses are going down
To me what this means to me is…
1. Houses will lose value
2. Mortgages/Refi’s will be harder to get (because of the more rigid standards)
3. More forclosures will occur
Throw in that IO and ARMs need to be refi’d out of every few years and you can see where I’m coming from.
Agreed. I just finished having coffee with a good friend (and real estate investor) this morning. We coincidentally were talking about the same mortgage issue as you have raised (i.e., too easy to obtain). We both strongly agreed that mortgage standards are too liberal and need to be stengthened. The 100% loans (or more) are, in my opinion, defaults waiting to happen in many cases. A buyer needs to have a stake in the risk profile, even if it’s just 5%.
The only thing we may disagree on is the magnitude of: 1. the decline in values and , 2. the total number of future foreclosures (not the % increase). While I agree that we will likely have more foreclosures next year, I don’t think it will approach a number that will significantly affect the overall market in San Diego. I strongly disagree with Kris’ earlier comment (which means I may be on the couch tonight…again) on this post re: a potential 10% drop in prices locally next year. Last December, I predicted an approx. 5.5% decline in sales prices for Scripps Ranch (the market where Kris and I do most of our business). According to SANDICOR 2006 year-to-date stat’s (up to and including yesterday) the average sales price (per sq. ft.) in Scripps Ranch was down 3.2% from the same period in 2005. Next year, worst case, I don’t think Scripps Ranch will be down any more than this, unless, of course interest rates head up substantially. This shows a surprising amount of tenacity in the current market.
This was just posted on signonsandiego.com
Housing prices hit by biggest drop on record
http://www.signonsandiego.com/news/business/20061213-1141-bn13housing.html
Shadash,
I just retrieved you from my spam folder – again! What’s up with that? I’ll check your link out in the morning, as I am off to an appointment.
I just came across your blog and found your views quite interesting. Interestingly, I just rented a house in Scripps Ranch. It seems to be a very nice community. Unfortunately, I cannot afford the kind of house I would like in Scripps, but I can certainly rent it. As a matter of fact, the house I am renting is going to cost me less than half what it would cost me per month to buy the same size house! If I factor in the tax and interest write-off, then these homes are overprices by at least 25-30% (or rents are underpriced)!
San Diego home prices increased at an incredible rate over the last few years to the point where the median price of a house is 10.2 times the median income. According to another site I read recently, this is the 2 highest rate in the world! I know San Diego is nice (that is why I just moved here), but is it that nice? And why wasn’t it that nice 5 years ago when home prices were 1/2 what they are now? Either I’m in the wrong profession or there are a lot of people buying houses they shouldn’t really be affording. As my wife and I are both professionals, I am going to choose the latter.
I am going to rent for the next year or two and buy only when the finances make sense. I understand that as realtors, you need to believe that prices are ’stabilizing’ because you need to continue selling homes to make a living. I have talked to a few realtors who simply do not want to hear anything about a bubble. They don’t want to hear or believe it, but it is certainly true. The drop is happening and will continue. Remember, when it comes to interest rates, one can always refinance later when the rates come down again, but you can’t rebuy your house at a lower price!