At the Super Bowl party yesterday a stranger asked how the market was, and I said “Great,….”.
But before I could get in another word, he fired the obligatory blast, “You realtors always say that”. He then went on to tell me his prognostications, the main one being that he thought the higher-end was going to tumble further.
When conversations go that way, I usually shut up, and just nod my head quietly. People have strong opinions about real estate, and realtors, and I’m not going to change them in one chat.
But if I would have said something, it would have been: “The banks would have to start putting more foreclosure pressure on the high-enders to trend downward in price.”
Foreclosureradar provides some nifty graphs to follow these thoughts. For those who might be thinking the same thing, here are the San Diego County foreclosure stats for December:
The high-enders are going to be more adept at finding ways to keep their house for as long as possible. To compare, in December 2010 there were 65 notices of trustee sale issued on loan balances over $1,000,000, and only 29 have been foreclosed.
When I meet a realtor I usually just ask a simple question or two. I can usually tell in about 30 seconds if they are a “Its a great time to buy” type. If they are a “Suzanne” I usually avoid them at all costs. Good realtors will give you the lowdown on whats happening (good and bad)… and usually have a good story or two.
Jim The Realtor is always the #1 authority in local real estate, IMO. It is that guy’s loss that he wanted to yak rather than listen to the one who is the real expert, who could give him information he can actually use.
I personally think the buyer pool is more important to prices than the seller pool. 2007-2008 was basically a bid less market. There were no buyers left. Even you if wanted to buy you couldn’t get financing so there was no leverage available in the market. As long as there’s a pool of willing and able buyers I don’t think you’ll see a major decline.
The problem is it’s hard to judge the size of the potential buyer pool. Jim can probably gauge something based on his buyer client list, but the rest of us really have no idea how deep the pool of buyers is.
At the Super Bowl party yesterday a stranger asked how the market was, and I said “Great,….”. -JtR
Jim, I have an update from the question you asked me last week. How’s my market doing? In the next subdivision, all the homes being built are already sold. In my sub, a neighbor told me she talked to a current builder. One of his homes just closed, and he’s building another one. He also has another pre-sold that he hasn’t started yet. There is one other home on the same street that is under construction by another builder.
Here’s the kicker > The builder said he has sold four homes in the last month, and that’s more than he sold all of 2011.
Yeah, the health of my local (Boise) market can’t be based on one builder’s experience, but I’ve also noticed a ridiculous amount of potential home buyers when I go out to do my daily mileage.
Yesterday, that guy missed an extraordinary opportunity to actually learn something from a true expert in the San Diego real estate market. Too bad he didn’t just stop talking and listen to you…
What is not addressed is that there is a significantly larger disincentive in a 35% downturn for a bank to foreclose on a $2mm home than a $500k home.
Given the bank does not have to recognize the current home value(no mark to market) there is an incentive to keep a $2mm loan on the books longer rather than foreclosing and recognizing the $700k loss. The banks cost of capital is near zero so why foreclose and take the loss and decrease the asset base. The trend shows that banks are holding on to the asset for the maintainence cost while waiting for price improvement and/or low inventory.
Individuals living in a $2mm home generally have or are adept at finding additional assets to float the home payments longer even if income has stopped. This supports the data that suggests the higher end market always falls last.