If, like me, you are living in Scripps Ranch, you are living in a gray area. All things considered, that is a good thing.
The San Diego Union Tribune published a heat map this morning showing foreclosure activity by zip code for San Diego County communities. Make no mistake, we are all effected to some degree by distress sales and while this map reflects bank-owned properties, it excludes another, arguably larger component of the distress sale market - the short sale.
Having said that, most of the “gray areas” (areas with the lowest percentage of foreclosures during the first quarter of 2008) are intuitively obvious. Coastal communities always tend to hold their value better than their inland counterparts when the pendulum swings. This has to do with their proximity to that big blue wet thing. It has long been a local mantra that “there’s no life east of I-5.” Admittedly, this is the battle cry of those living to the west, and the poor inland cousins (among which I proudly count myself) will tell you that life is just duckie, thank you, even though we can’t exactly smell the salt air from our driveways.
Or can we? Notable in the graphic is that Scripps Ranch and Tierrasanta stick out like a couple of proud thumbs up, gray areas of relative stability amid a sea of more challenging markets. We are still feeling the pinch of declining prices, and sellers in these communities are not immune to the negative influences of bank-owned and bank-controlled sales, but it could be worse.
And, it just may be before it is all over. From DataQuick’s Marshall Prentice:
The main factor behind this foreclosure surge remains the decline in home values. Additionally, a lot of the ‘loans-gone-wild’ activity happened in late 2005 and 2006 and that’s working its way through the system. The big ‘if’ right now is whether or not the economy is in recession. If it is, the foreclosure problem could spread beyond the current categories of dicey mortgages, and into mainstream home loans.
Recession or no, the big question is whether or not we have in fact worked through the worst of the troubled loans. Most agree that another wave of resetting adjustable rate mortgages is on the summer horizon and, once we get past that undertow, we will be moving toward calmer waters.
{ 3 comments… read them below or add one }
Jakob
04.23.08 at 12:13 pm
Seems to me it is only a matter of time before declines slowly start to ripple through areas NOT hit with massive FCs.
If I were in the Scripps Ranch market, I might also look at Chula Vista, which has been racked by foreclosures and nearly half off. I can get 4000 sq ft for $600,000, down from $1m in 2005. Since I believe there is competition between zipcodes, these “safe” areas are in for another leg down.
Keith
04.23.08 at 2:49 pm
Kris,
It seems like Scripps Ranch low end pricing is getting hit hard (condos and town houses) while the high end is holding up a little better. The question, I think, is whether the low end drags the high end down. Foreclosures are definitely starting to occur.
Sven
04.23.08 at 5:51 pm
There was an article on Marketwatch about this recently. They anecdotally profiled some homes in San Fransisco in the $2mil+ range have been still selling really well. It’s specific though. The homes in that article that were doing really well were very prime pieces of real estate in great locations in the middle of San Fransisco.
In any real estate downturn, it’s only logical that the areas to get hit the hardest first will be the regions that are the least desirable to live in (Long commute, far from the Ocean, or close to Mexico). Downtown is only being hit so hard because the builders literally flooded it with units. Even then the more-desirable units downtown have felt a fraction of the impact that the less-desirable untis felt. North county got hit double because of rampant building and because of the long commute. I’m hearing stories of places selling for half what they sold for in 2005 up there.
Why does Scripps feeling a reduced impact so far? I’m not sure. We’re not even at the middle point of the housing downturn though. We’re finally seeing sizable discounts from before, but the prices have yet to return to fundamental values. What’s going to ultimately stop the real estate drop is going to be investors doing the math on the cost of the properties vs their rent value and diving in to get a stable income source from it.
Let me give you an example. There’s a couple of units in the Plaza that is for sale for about $240k. These units sold a couple of years ago for between 280k-320k. That’s a nice discount, but let’s do the math on it. The 1bdrm units in the complex rent for $1250 a month and pay about $300 in HOA fees.
Annual Expenses:
$3600.00 in HOA
$3000.00 in property tax
$1200.00 in repairs and insurance (conservative)
Total: $7,800
Annual Income:
$15,000
Net Profit: $7,200
7200/240000 = 3% annual ROI
This is barely over even today’s pitiful CD rates which have 0 risk. With the property downturn, real estate is a risky investment. Now, what happens if the price gets reduced a few more times and our investor picks this place up for around $150k.
7200/150000 = 4.8% annual ROI
That’s a lot better. Suddenly the investment starts to make sense if you think about gradual rent increases and the chance of a turn around in real estate prices. It looks like a decent investment now.
Soon as it adds up, the investors will create a bottom in the market and things will start improving. Prices just aren’t there yet.