1st Quarter ‘08 - Quick Stats for Scripps Ranch
Not too many years ago, when Kris and I would take our daughters, Becky and Emily, on an occasional road trip vacation, their famous question was the age old, “Are we there yet?” That same question is also the most frequently asked question of us today, but not from the girls.
If I had to select one word to describe the 1st Quarter results for Scripps Ranch home sales, it might be “capitulation.” This is not necessarily a bad thing. We all know that for the market to reach equilibrium and stability there needs to be a bottom. I’m not suggesting we are there yet but it’s starting to feel close. Here is the summary of the market performance in March and the Q1 (as always, from the SANDICOR Multiple Listing Service for 92131):
March, 2008
Sales: There were 19 sales in March, a 70% increase from the dismal 12 sales in February. But this also represented a 35% drop in sales as compared to March, ‘07.
Prices: The average sale price was approximately $750,000 or $288/foot. Measured against last month, the average sale price is about 2% less, but the average price/foot jumped about 8%. Measured against March, ‘07, the average price per foot is down almost 15%. That’s significant.
1st Quarter ‘08 vs. ‘07
Sales were down 38% from the same period last year. The average sale price for 2008 is $735,577, down 7% from Q1 last year and price per foot was down about 11%.
We’re Almost There
What will be critical and most revealing is what happens in Q2 and Q3 this year. There are several factors coming into play that could accelerate the market out of the current doldrums.
It’s an election year and there is no better motivator for our legislators in Washington D. C. than job security. Although most of the results will be more noise and less substance, the cumulative effect of throwing so much crap against the wall may start to show results.
Exhibit “A” - What should substantively help is the higher conforming loan limits (now $697,500 for San Diego County) and the FHA participation;
Exhibit “B” - Buyers are starting to see value and are coming off the sidelines. At one recent open house we held, there were more than 30 groups through. That property sold in three weeks with multiple offers. Another one of our recent listings sold in two weeks, again with multiple offers and our most recent listing sold in one day with multiple offers. So the question is, are we just that good or is this a trend?
As I used to tell the girls, “We’re almost there.” Now, the real question is, “Where is there?”
April 4th, 2008 at 12:50 pm
Steve, I’m curious if you are seeing any effects of tighter financing rules. There have been many reports out recently that lenders are upping LTV requirements. I would expect this would really limit buyers who in the past would only need 5% down but now need 10 or 15 or 20% to get a decent loan. A buyer who could afford a 900k house in 2006 might only be able to afford a 600k house in 2008. Based purely on financing. If so, this will kill house prices. What do you see out there? As always thanks for the insights!
April 4th, 2008 at 2:05 pm
Jakob - Great question. Financing is still somewhat of a moving target. I just got off the phone with one of my favorite lenders and he told me the following - Conventional (Fannie and Freddie) 5% loans are very difficult to find in SoCal. They are almost all 10% down or more and buyers need a FICO of 620 or better.
Somewhat ironically, the current FHA loans ($697,500 limit for San Diego County) only requires 3% down, also with at least a 620 FICO. You can get an FHA loan with a lower FICO if you have at least 5%, or more, down. Remember that FHA loans also require a 1.5% fee to go into an insurance pool, but the fee may built into the loan, though. My lender guy also mentioned that about 45% of the loans in the queue in our area right now are FHA. In the “old days” (one or two months ago) FHA loans represented about 1% of the loans in this area.
Personally our buyers have not had trouble getting financing because most are coming in with at least 10% down. Same on our listings. The buyers have all been coming in with plenty of cash. Maybe we’re just lucky.
Bottom line - There will be fewer buyers qualifying, as you suggest, due to the more restrictive LTV’s and credit reviews. We will have short term pain, home price-wise, but in the long term this is a good thing. If it had been this way all along, we wouldn’t be in the mess we’re in right now.
April 4th, 2008 at 2:36 pm
Steve — I’m getting a kick out of the whole FHA revival. My first seven years in the business I had exactly one (count ‘em) one client who used conventional financing. Everything was either FHA or VA.
Out of the blue comes FHA to the rescue. This is a great example of why I’ve learned to avoid the words ‘never’ and ‘always’. Wow.
April 5th, 2008 at 8:54 am
Hi Steve ~
O’m a numbers guy and I post monthly market stats on http://www.BoiseBlog.com and my other two blogs.
It’s good to understand that the comparisons (year-over-year or month-over-month) can be skewed because they are based on the MIX of what sold during a particular period of time.
If more higher priced homes were selling last year vs. lower-priced homes selling this year, the comparisons will naturally be lower this year.
The numbers can also be misleading when fewer homes are selling because it is not as representative a sampling ~ one BIG sale can dramatically alter the comparison if it is one of only a few sales.
April 5th, 2008 at 9:14 am
Phil - All valid points. We know that we can have fun with statistics. I look more at the general trend than the magnitude of the numbers. One quarter certainly does not make a year.
BTW, I just noticed the headline article on MSNBC that Boise was awarded the distinction of being the most vulnerable city in the U.S. to terrorist attacks. Congrats! What are you guys doing up there? I was actually planning a visit, but now reconsidering.
April 5th, 2008 at 6:44 pm
BawldGuy - Old is new again. I need to go out and buy some bell bottom jeans.
April 5th, 2008 at 11:54 pm
http://sandiegohomeblog.com/2007/04/11/365/
another 365 days, and boy am I glad I’m still renting.
April 6th, 2008 at 7:14 am
I found you on Inman after watching the interview with Kris. I like your insight on blogging and understand that some prospects may be turned off by what you have to say. I assume that means you write and report objectively.
I am in Raleigh, NC at the other end of I-40 and our market is a lot different than yours. I have been blogging for several years and recently graduated to WordPress and hosting my own blog, Raleigh Real Estate News.
FYI- I’m glad FHA is making it’s way back to the front. We have very few HUD forclosures here and I think it’s because the loans work without gimmicks.
Keep up the nice reporting.
April 6th, 2008 at 7:37 am
Jack -
If it is purely a dollars and cents decision for you to purchase, then so I am. We have been pretty forthright over the past two years about where we believe the market has been heading, and while we were not exactly wrong, you were more right. I will give you that one. What is your pronosis today?
Jason, Thanks for stopping by! Yes, your market is a little different. We currently have a client in the process of moving an investment to your area, in fact. Good luck with your “new” self-hosted blog.
April 6th, 2008 at 7:42 am
Jack - I forgot my manners. If that was a veiled early Happy Bloggy Birthday greeting, thank you! For whatever it’s worth, I enjoy Sees chocolate butter creams and, of course, cash.
April 6th, 2008 at 9:37 pm
a colleague that bought instead of waited has been working extra shifts every weekend for the past year for a house that is now $200k less in value. for that house, he has virtually no free time for his family.
so no, it was not a purely dollar and cents decision, it was a decision to ensure a sound financial bedrock for my family as well as the realization that family time is simply priceless.
April 7th, 2008 at 6:47 am
I like your priorities, Jack.
April 7th, 2008 at 7:37 am
Jack - Welcome back! $200k less? Did they buy a $1 million plus home? Regardless, the fact that your colleague’s home is worth more or less today would not have been the determining factor as to whether he/she could afford it (and the monthly payments) at the time of purchase (unless of course one could predict the future). Assuming a fixed rate loan, the payment of two years ago is the same today, so they knew exactly what they were getting into. If they opted for an adjustable rate loan with little or no down payment, assuming (and, in fact, betting on) a future refinance after the property appreciated, they obviously made the wrong bet, as so many others have.
Either way, your decision to wait worked for you, so congrats.
April 9th, 2008 at 7:41 am
[…] Are we there yet? No, not yet. […]
April 9th, 2008 at 11:58 am
200k losses are pretty common place these days even with sub-$1 million purchases (he purchased at $860k). it didn’t help that he bought in San Elijo Hills with its associated high mello roos.
and as a physician, of course he could have afforded the house. but through a lot of sacrifices such as taking on multiple additional shifts to make ends meet. that $1000 extra that he has to pay every month because he didn’t wait is basically loss of 2 weekends every month for many years to come.
April 9th, 2008 at 12:40 pm
Jack - I hear ya. So when do YOU think it will be time to buy? Just curious.
April 9th, 2008 at 10:03 pm
first, inventory is still at record levels. but the type of inventory has changed. it has now changed from market testers to overwhelmingly REOs and short sales, these will continue to drive the prices downward.
second, sales continue to decline, which will drive sellers that can hold on to try to hold on for longer. leaving the inventory to become even more dominated by the REOs. banks will be competing against each other, and often, a single bank will have multiple properties in the same development, driving the price down further.
third, as values drop, more buyers that purchased at the peak will consider walking away. if so, more increase in REOs to come.
right now there’s a backlog of postponed trustee’s sales, a backlog of REOs not even on sale, as well as delinquents that are not getting NODs because the banks are overwhelmed.
NODs and REOs will continue to increase through this year and next. as long as the NOD/REO numbers continue to go up, we are not going to see bottom.
expect 2010 as the earliest possible bottom, but more likely 2012.
April 10th, 2008 at 8:56 am
Jack - I see you are wearing your pessimist hat today. I agree that we are not through the cleansing process, yet. But, your look into the future may be a bit of an overgeneralization. You describe conditions that are valid in some/many of the submarkets in San Diego County, but certainly not all. For example, detached inventory in Scripps Ranch has been hovering at about 1.2% and has not exceeded 2% for the past 10 years (at least), including post 9/11. That is not what I would describe as a tremendous supply imbalance. There are many other submarkets sharing these same, not-so negative, characteristics. Your best point refers to the demand side. Sales are down signifcantly. But as prices drop, we are seeing some fabulous values, even considering your timeline for stabilization. We are also increasingly running into multiple offers for both our listings and our buyers.
Most of your references seem to apply to first time buyers. Another thing we are increasingly seeing is the existing homeowner who purchased more than 3-4 years ago, who still has a decent, if not significant amount of equity and wants/needs to upsize (or downsize). They are not in the bind of the “low/no down payment, peak period” buyer. They know that as prices adjust for the home they want to purchase, their existing home is adjusting in relatively the same manner. There is little incentive for these buyers to wait.
What’s conspicuously missing from the demand side are the first time buyers and investors, who remain patiently waiting (with you) on the sidelines. The flat-line business employment growth isn’t helping, either.
Thanks for your look into the future.