(Pictured: Daughter Number 1)
This is what the scene looked like on Thanksgiving as the nuclear Bergs attempted some forced family fun away from the mother ship in our little Lake Arrowhead A-frame. Ah, the memories!
Today, back in Scripps Ranch, we are thankful for many things, including:
- A mountain neighbor’s unsecured wireless account;
- The “cloud” which allowed a new listing to debut online moments before the turkey hit the table;
- Pre-cooked turkey; and,
- Daughter Number 2’s successful submission of college applications three days before deadline, suggesting that there is now an outside chance she will not be living at home when she is forty.
Judging from the scene of dishevelment, where power cords outnumbered people, it was a just your typical Thanksgiving for a family where the tally board showed Realtors (little ‘R’) and teenagers in a dead heat. But, what a strange year it has been.
I was chatting with a cousin on Thanksgiving day about (brace yourself) real estate as he was noting quizzically how in his California Bay area community, sales are up, listings are down, and yet prices are relatively flat. This bucks the typical laws a supply and demand, but then the current housing market dynamics are anything but typical.
Take the San Diego I-15 Corridor two-year snapshot:
And, yes, our prices remain relatively flat.
The Wall Street Journal reported last week that approximately one in four homeowners are underwater, owing more on their mortgage than their home is worth. Meanwhile, Zillow.com reported that approximately one-quarter of homeowners think their home values have increased this year while 84% believe that their home values will hold or increase over the next year.
There is a lot of weirdness going around. From my view in the cheap seats, there are three significant factors contributing to our current craziness:
- Too many distress sales at the lower price points mean that the move-up buyer pool is small. Someone moves into the home which was a short sale or bank owned, and there is no one moving out. This dead-end street continues to plague the move-up market.
- Appraisers are establishing market value, not buyers. The majority of our appraisals are now “missing” – coming in below the contract price – this, in many situations, despite the fact that we have multiple offers. Case in point, in one recent transaction, we had twenty offers. Even though the sellers accepted something in the middle (not the highest offer, rightly fearing the wrath of the appraisal Gods), and even though the appraisal came in within striking distance of sale price, the lender arbitrarily knocked another 20% off of the appraised value at the last minute “just ‘cause.” Today, a home is not worth what a ready, willing and able buyer is prepared to pay; it is worth what the appraiser and lender say it is worth. Period.
- “Underwater” means that homeowners who might otherwise have moved are, at best, staying put. In too many other cases, they are throwing in the towel and helping to feed the dead-end sale cycle.
But then, who’s to blame them?
As reported this week by, well, everyone, a University of Arizona law school professor tells us it is not only not immoral, but fiscally responsible to stiff the lenders and walk away from our debt when the balance sheet has rotated on its axis.
According to the LA Times, Brent T. White even goes so far as to suggest that homeowners should consider defaulting “strategically” by purchasing “all the major items they’ll need for the next couple of years — a new car, even a new house — just before they pull the plug on their current mortgage lender.”
Meanwhile, California Association of Realtors President James Liptak says this of the 2010 housing outlook:
After experiencing its sharpest decline in history, we expect the median (home) price to rise modestly next year. 2010 will mark the beginning of the “new normal” for California’s housing market. This “new normal” likely will feature a steady stream of sales driven by distressed properties in the low end of the market, coupled with moderate home-price appreciation.
I hope the appraisers get the memo.
CAR Chief Economist Leslie Appleton-Young, apparently having read Mr. White’s academic paper, has this to say:
Although it appears at this time that lenders are closely monitoring the flow of distressed properties onto the market, there could be an exertion of downward pressure on home prices should a heavier than expected wave of foreclosures come to market next year.
Ya think? So, my prediction is at least another year of nuttiness. Sellers who can sit out this dance will; many others will heed the advice of Mr. White and take advantage of our trending return policy. And, particularly at the lower price points, there will continue to be competing demand as buyers endeavor to get it while it’s hot. As for values, you’ll have to ask the appraisers.