The "you know what" has hit the fan...the market is so biased to buyers that they are overestimating their power. The flippers are gone completely, the stated income, no money down buyers are gone (actually they were tossed off the bus by the lenders who started saying no to them) and the move up market is being hammered as folks have far less equity than they had just 18 months ago. These are interesting times to say the least. Foreclosures are a massive influence as are short sales. In one neighborhood in Oceanside 13 of 18 homes for sale are either foreclosures or short sales, and in one area I checked along the I-15 at the 56 there are 10 homes for sale and 8 are short sales...if you think we have hit bottom you're wrong.
The sellers market ended, we sailed through the "Negotiated Market" and we're solidly into a buyers' market. Buyers are being cautious as they react to the reality of a bubble which has DEFINITELY burst. Sellers are realizing that they will have to price competively to move their property. Inventories have ballooned. Buyers have seen a series of interest rate hikes that have upped the payments on their monthly adjustable loans enough to sober them...and they are telling their friends. In some cases I have seen low appraisals cause price reductions on sale transactions, and every deal I am in on is getting serious review of the valuations...that means review appraisals for every deal. Wow!
So who's buying? The buyers are still out there but they are being ultra cautious and the lenders have gotten more conservative. I have had three appraisals come back below sales price, that hasn't happened for many years. Next time you see a property go off the market and then come back on a few days later I bet you'll learn that the buyer didn't qualify for financing. The point is that the lenders are back to UNDERWRITING LOANS as they move to reduce default risk. Even very well qualified buyers (high credit scores and plenty of money) are being looked at with a microscope. If you are a seller now you need to price it right or be left behind...there will be a bank owned property for sale in EVERY neighborhood soon if there aren't three already. If you don't need to sell my advice is to hold on until the market turns to favor you...everyone else is advised that the next two years will be BRUTAL for all price ranges. If you must sell be ready for some pain.
In the resale market we are seeing BIG price reductions, seller concessions on sale terms and extended market times back to historical averages. Buyers are making demands for repairs and getting them. Listings are expiring, sellers are offering commission bonuses and incentives...in short we are back to a more traditional model where the deal points are negotiated to everyones satisfaction and sanity is restored. Of course there are exceptions to this new market...certain neighborhoods simply are in high demand and still sell fairly rapidly but only if the homes are correctly priced. Beach homes are an example...Cardiff or La Jolla have always enjoyed special demand and that's still true. There are certain places that people save their money to move to. Homes with trophy elements like golfcourse frontage, GENUINE ocean views and such hold appeal for everyone and any home where you can walk to the beach is still a hot commodity. Just about everything else though is lingering on the market until it gets priced where the buyers are comfortable. The speculators/flippers have gone home, and are selling their properties...most times at a loss! Of course there are certain sellers and their agents who refuse to accept the new reality and price their homes to sell in the current market and they are certainly making a bad business decison...overpriced properties are the speedbumps of our industry...they make the correctly priced properties that much easier to sell. Sellers are well advised to take a lesson from the Homebuilders and get ready to grant the concessons BEFORE the guy down the street does.
The continuing implosion in the sub-prime mortgage market will have deep and wideranging effect on the housing market as many buyers who used the insane Zero-Down financing products will get THEIR TEETH KICKED IN for the next 2-3 years. The fallout from the defaults will spank ALL price ranges as the owners have little choice but to go to foreclosure, ask for a short sale or just sell at a loss. The developing story, hot on the heels of the sub-prime debacle, is the distress in the Alt-A mortgage market...that's the market for folks with good credit but who need to get their loans with no questions asked...Liars Loans we call them...they will be defaulting AND WALKING AWAY FROM HOMES at rates that also negatively affect the market.
It's an old saying in real estate that you make your money the day you buy, not the day you sell...that's more true than ever in todays new market so choose your home carefully and you'll be fine. Use sensible financing and don't over-extend your self just to "get in" and you will be more likely to weather any market correction that we may see. Overpay, finance poorly or buy something where they're building the hell out of the area...you stand a good chance of getting spanked pretty hard as the market forces ALWAYS return to supply and demand. For an example of where not to buy look at downtown San Diego or Rancho Carrillo in Carlsbad...dozens and dozens of nearly identical homes for sale means dozens and dozens of ways for sellers to get pretty badly beat up on their sale. When there are 35 homes for sale, all pretty much the same as the rest, you can always be sure that SOMEONE wants out bad enough to dump it and that will stomp on all subsequent sales! Once you get past the casino mentality and start looking at your residence as a long term investment you will get a better vision of what to expect...3-5% a year is a GREAT return! It is unrealistic to expect that homes will rise in value 10% a year indefinitely.
Investment properties or apartments? That's a whole other topic...see the "Investors" link on the left for a discussion on that one, but remember this...a $50,000 gross scheduled income on an $850,000 property is a sucker bet unless you have a HUGE pile of 1031 money as the equity and even then it might be better to pay the taxes and count your loot, or even better look out of state for a better investment climate. Investors and speculators were the first to bleed when the market turned. Remember, investors...Pigs Get Slaughtered.
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