General Market Observations
Chuck Ponzi January 22nd, 2008
This last weekend, my family and I packed up and headed around the area for a few open houses. We were able to see a number of well-priced homes, and there were a couple of observations that we made throughout the day.
1. If it was well priced, it was a short sale
2. Bank owned properties are not that great of deals yet.
3. There were a LOT of people out looking at well priced homes, but none seemed committal.
4. Any offers that had been given to agents we talked to were lowball offers (all were more than 10% below the silly range pricing that some agents have chosen to inflict on their listings)
For as much as we’ve seen the local market in shambles, the open houses we went to were packed. All of the agents had said that while they had a lot of lookers, none of the people were committal in making an offer.
On the flipside, it seems that higher-priced listings are just not even getting lookers. Everyone, it seems, is a bottom feeder now.
It would be useful to put these observations in some context. In orange County:
1. 42.7% of all listings below 500K are either a short sale or a foreclosure.
2. For detatched homes, it’s 56.7%
3. There is a 14.27 Month supply of Condos
4. There is a 15.14 month supply of detatched homes
Keep in mind that anything over 9 months’ inventory is considered “deep buyers’ market”, and the current over 14 months’ inventory signals actively falling housing prices. Basically, any purchase made at this point in the housing cycle serves as a comp for future prices to negotiate below.
The bottom-end of the market is deteriorated, prices are falling, and there is no equity. Therefore, there can be no move-up buyers. It’s only a matter of time, likely this year when higher-priced homes see substantial deterioration. We will likely see many more foreclosures and short-sales in moderately priced homes (600K to 1M) that will bring prices down substantially as they compete for a dwindling number of buyers.
What other local market observations do you have?
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My wife and I went to a few open houses in Brea. Out of the 4 we went to only one had another couple walking in as we walked out. We were the lone lookers on the other three.
I went to 10 open houses in Aliso Viejo over the last few weeks. Only once did I see any other potential buyers. The last one was a short sale condo bought at the peak for 589K now asking 417. A review of houses sold over the last few years shows so many bought from June-Dec. 2005. I agree, there will be many more people throwing in the towel with payments going up and no way to refinance.
Condo for $400k in Aliso. The market has a long,long way to fall…
Be sure to tell the agent that you were interested in making an offer on the house but that the range pricing scared you away. you don’t want to try to deal with an agent and seller who don’t know what their house is worth. Would they be willing to take a check with a range price in the amount box? Fine here’s one for $0-$fullprice. Try and cash it.
The people who are looking now are establishing baselines for possible purchases in 6-10 months.
Chuck,
What does the bank use for comps in all of this?
The REO and short sales are such a large portion of the sales. I remember the mantra that distressed sales are not used for comps. I don’t know if that is an opinion or legal requirement.
When does that change in a market like this?
I’d guess just stricter loan requirements and higher downpayments.
REO are not, but every REO I have seen is selling below it’s acquisition cost to the bank. Those sales are not excluded. Short sales are not excluded either.
Distressed or not, the markets here are in complete and utter freefall. There is no support whatsoever that I can see. The only purchases out there are knife catches.
Chuck Ponzi.
The bank hires brokers to handle their REO sales. Those brokers do a “Broker’s Price Opinion” (BPO) and submit it to the bank as a guideline as to how to price the property.
Right now the banks are coming back with listing prices below those BPO’s to get the properties to move. Chuck might not have found “deals” in the REO properties he saw this weekend but of the two OC REO properties I have clients making offers on, both have multiple offers.
We offered about 10% off asking on each listing and I doubt we’ll get either of them because other agents will be telling their clients what great deals they’re getting. That is the only thing that has kept the market afloat the past 6 months. Koolaid drinking agents.
The banks are getting killed on both of these properties. Fountain Valley property is offered at $625K. The last sale was $880K in December 2007. That’s a $300K hit after costs. Anaheim Hills property is offered at $641K and the last sale was $885K in July 2006. Another near $300K whack.
I tell all my clients, “Just wait, There will be more and better deals in the days ahead”.
Brad or WeHelpU – Do you have any counterparts up north in the Santa Clarita/Valencia area?
I don’t have any associates in that area but I have other clients I’m working with in that area. I’ve got MLS access up there too.
You can contact me at brad@wehelpubuy.com
Hey all, I am from up North (Calgary, AB to be exact) and my wife and I are looking to move to the LA area in the fall 2008. I know that no one can predict housing, but what do you guys think the market will looking like at the end of this year? We were thinking about just renting until we know for sure we aren’t sinking our hard earned cash into a bottomless pit known as the bubble crash.
Thanks for the site, there is alot of info on here that I find very usefull. DO you guys have any thoughts on the negative appreciation in 2007, I guess the first median negative annual appreciation in decades?
For housing prices, just looking at arm reset charts, which will keep dumping bank-owned houses on the market, it doesn’t seem like late 2009 before that starts to ease off. The other concern, though is interest rates. You have to keep an eye on those too. They keep talking recession, but inflation is also pressing in.
I made a graph:
http://public.fotki.com/Wezvog.....graph.html
Notice that the total cost of a 400k loan at 6% is the same as the total cost of a 300k loan at 9%. People are trying to hold out for the price bottom, but the total cost bottom… who knows where that is. Just something to keep in mind when everyone is obsessing over purchase price… course if you are paying cash you are golden and can wait for the real bottom.
RH: “moving to ‘LA’ is like moving to New England. Lots of variation. Presuming you mean greater urbanized Los Angeles then you absolutely need to rent if only to get a feel for areas and commutes.
I just discovered your blog. Great!!! I visited a couple open houses in the Silverlake area and just flat out told the agents the properties were great but I simple could not afford it. One Lady acted like she didn’t understand what I said. Another agent looked at me like I had killed his dog. As soon the the Agents and sellers are willing to price their properties at an appropriate level to incomes then homes will sell again. But seem to me that another 15 to 20% drop needs to take place for that to happen.
Rob Dawg,
I will be attending Musicians Institute in Hollywood. My wife and I have done research on all the sub communities West and North of Hollywood, we were told to stay away from the East and South of Hollywood.
We are planning on renting for at least a couple months to see what the areas are like and to get a better idea of what we should be doing.
Rent for a while.
Hollywood is kind of a dump.
Lots of drugs, homeless, gang members exc. I assume you don’t have children as its not a real child friendly area.
I don’t know what kind of commute you can stomach. If you go up in the hills or perhaps Pasadena or San Marino its not to bad. There are some trains and light rail.
In general things are nicer near the beach.
Buyers are in a panic mode right now, the economy is not as strong as it should be. So, even if buyers can afford the down payment and purchase of the property, they would rather hold on to their cash and see what the market is going to bring next.
Bottom Line: The average Joe six pack is a baby boomer quickly running out of time. His single largest asset, his primary residence, is deflating rapidly. This single largest asset is also the primary collateral for his single largest liability. His balance sheet is rapidly deflating as all his assets, from his home to his equity portfolio, all simultaneously deflate while his debt outstanding may actually still be increasing. His debt servicing are costs not dropping, despite aggressive rate cuts, and may actually be rising. It has also become damn near impossible to refinance certain mortgages as easy credit evaporates. On top of that, Joe six pack should now be seriously concerned about his job security. So when a cheque for $300 to $1500 arrives in the mail, Joe six pack is not going to spend it on a $200 steak dinner or a new computer or on a vacation. Got it people?
More on the stimulous package: (http://benbittrolff.blogspot.c.....ckage.html)
TheFinancialNinja
I’ve been to a number of open houses relatively recently in South OC. No other buyers in sight. Common for RE agents to say “don’t even look at the asking prices…if you like it, offer what you think it’s worth.” All the places I visited a number of months ago are either still on the market of voluntarily removed their listings.
A few agents have said they don’t expect anyone else the rest of the day, so they’ve offered to take us around to other vacant listings in the neighborhood (not theirs) or to some other of their listings.
It seems to be a divided market.
After last weekend, I went to some “regularly priced” open houses (meaning not short sales or bank owned). No one.
Not a soul. Agent’s reps admitted it was worthless way to spend a Saturday.
That’s the opposite of what I saw at the lower-priced end of the market. The ones I saw were in South OC. AV, MV, and SC. It’s a bloodbath in Orange County nearest I can tell.
Chuck
Hey there – I live in San Pedro and went to 4 open houses last Sunday. In all, I was the only one to walk in and out – didn’t see another soul. When I expressed this to my agent, she said the exact opposite,”People are tired of waiting on the fence, they want to buy, things are picking up.” It’s intriguing to hear how realtors put a spin on everything to make it seem like, “Now’s the time to buy!!!!”
She went on to say that I should be “open minded” to a 5 year loan. After all, it would be “fully amortized”! And in our local paper, the More, this morning, an article by a realtor encouraging to have buyers put a “I’ll sell my house to you, only if I find one myself” contingency. I can tell you first hand, that we’ve tried that and no one will even bother looking at your house with that on the contract.
One final thing, with the new MLS system, has anyone noticed that we no longer get a date for when the property was listed? Or a days on market? Or culmative days on market? I think this is intentional, so that, we, as buyers don’t know if a house has been sitting for a long time. What do you think?
I wonder why the agents don’t just tell the sellers to either price it right or there will be no listing.
What’s the point hosting a house that you know will not sell or will not even have buyers visiting? So that you can have some time for yourself?
Until those agents give up their real estate job there will be a stand-off.
Hey Chuck,
This site has been a real pleasure to read during the last year. I am seeing similar situations in North Orange County (Yorba Linda) where open houses see little to no traffic. Their are 7 houses on my block of about 30 (can we say 25%) that are on the market of which probably 3 or 4 are selling due to financial hardship… the others waited to long to catch the big money. I really enjoyed the government looking to raise the jumbo loan amounts thinking this was the reason for the sagging market??? If people can’t afford a 0% or low, low interest ARM loan without stated income, then what’s the logic behind a higher loan amount on a standard fixed interest rate. Their will most certainly be more downturn in the market as the housing to income ratio is still out-of-line. My estimate for how much the S. California market corrects…. probably about 40% tip-to-tip (highest selling point).
New Conforming Loan Limits to Artificially Support SD Market.
First, I like your website…
Second,
How do you think the conforming loan limit ($417K) revamp to higher limits will affect the San Diego, L.A. and other high price real estate markets and it’s revaluation/correction?
My initial response to this is it really stinks for those millions of us that live in high cost areas (like L.A. and San Diego) that have been waiting for this market correction so prices will come down into an affordable range. Now this bailout comes along and props up the mid to high price range properties because more people can afford them again, and it bails out all the speculators from high interest jumbo loans.
Correct if I’m wrong but I’m thinking, “what a crappy system!”
What are your thoughts on this?
I fully agree. I have been waiting for prices to come down to buy our next “step up” property. We bought at a reasonable price and only bought what we could afford. So, here we are, qualified buyers with excellent credit, waiting for prices to come down and BOOM! Now all those people who made bad choices before will be doing it again, keeping prices inflated for the rest of us, who bought RESPONSIBLY!
Buy a house if your in the market dumb dumb. Such girly men. You my Friend ARE THE HERD. Sell at the bottom buy at the top. dumb as nails joe six pack. sorry.
I live in Laguna Beach. You inlanders are totally screwed I would get the hell out if you can and move to the coast. Inland is the worst situation but the people suck and totally deserve it.
Yeah, you really proved your point by making such an ignorant statement.
Make sure you’re sitting down before you fire up these cahrts.
Really Scary Fed Charts, Why Bernanke Will Cut Furiously
TheFinancialNinja
We have neem looking for houses in the North Orange County area. We found a bank owned house in YL listed at approx $860K. The last time this house sold for $1.2M during 2006. I’m pretty sure we can get it for approx $780K. How much more do you think the market will go down? Do you think this would be a safe buy?
It all depends on what it would rent for – that determines the floor. Economists refer to this a ‘intrinsic value’. It’s not the market to speculate on any value other then rental value for the property.
Here in Newport Beach the prizes are still high and no takers, some of the high price houses in Newport Coast go lower now, still to expensive, the brokers are happy when 1 or 2 people show up at the open houses, there are a lot of owners afraid for the next months because they are over the real value in their loan amounts and most of them have arms. I believe it will need another 20% price dip before people go buying again. Cheap loans is one thing, making it tougher to get them is almost the same as making them more expensive. If you cann’t get them it does not really matter if you can afford them.
Boy, things really look bad out there in Ca. In Massachusetts, it’s slow and ugly. Very few listings in my town, and the surrounding towns, but what’s selling is 20 – 30% below the market high. My zillow value has gone from $600K (in 2006) to $469K today. I’d say that’s pretty ugly. We’re not planning on moving, so I guess it doesn’t matter. In cities like Lowell, Worcester, Lawrence, etc it’s a full fledged foreclosure disaster. We had a really severe downturn in the late 80’s (to 1995) and this one could end up like that, especially if we go into recession and people lose their jobs. Before this ends, I think my home value could fall to $400K. Such is life….
Any comments on Lakewood area? My wife and I have been floating around distressed properties and very hesitant to make offers at this point. Agents on both sides seem to be selling the mantra of “it can’t get worse, look at how much it’s been reduced already.” If we don’t see at least 60k reduction in price from previous year, we don’t even walk in. Great site.
Lots of foreclosures in Florida and Georgia and for the person who can afford it be a great time to buy a second home for vacation and maybe for retirement. The inventory is high and the rates are good and interest is lower and supose to drop again next month. What a great time to visit these areas and check it out.
It is a good time to actually find homes reduced in price allowing you to get more than you would normally get for that price.
New construction is good in these areas also. Many builders offering reduce cost and incentives.
Escondido market in northern San Diego market is in freefall:
See:
http://gweston.wordpress.com/2.....ice-drops/
It seems that many people assume that 400K is a good price. Given that not everybody makes close to 200K a year, many people are probably thinking in ‘ranges’.
Nobody seems to even think that prices might fall to high 100’s. However, think again.
Wages will not rise (did you get 10% raise this year?) and inflation will make simple things (like food, gas and clothing) much more expensive. And how much raise do you need to get close to 200K?
Government is mulling plans to make future walk-aways very ‘uncomfortable’.
I know many of you think that prices will rise again soon, or wages will pickup (inflation eating payments), but consider that some people much better informed than you believe otherwise.
Buying now may make you a financial slave for ever, ruin your marriage and maybe even your health…
On the other hand if you don’t believe me, go right ahead, buy that great deal of 500K….