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Are O.C. homes priced low to draw higher bids?
April 2nd, 2008, 3:01 am · 49 Comments · posted by Jon Lansner/O.C. Register columnist
Redfin brokerage CEO Glenn Kelman followed up on our recent chat (READ HERE) with some more thoughts about what his shop sees in the O.C. market …
• Our deals over the past two months have been closing at 96.2% of list, a full 2% higher than where the buyer the started. Agents on both sides of the deal have plenty of work to do to bring the parties together. As listing agents price properties more aggressively, there’s less room to negotiate.
• One of our best agents, Erin Eckert, noticed new teaser pricing: low-priced listings attracting 8 or even, in one case, 13 offers. Some buyers bid on these properties assuming they can still ask for a further discount, but the listing agent priced the property to create an auction; the final price is often actually a premium to list price. Maybe this means we’ve found, for now, a bottom. Or maybe not.
• Buyer activity has certainly increased. Since our last update, Orange County traffic on our site is up 110%, faster than any other that Redfin serves. In part, this is due to more buyers, but, in part, it is due to more activity from those buyers: properties (5.91) evaluated on each visit to our site is up 16% over the past month, a fairly steep increase. Generally, Orange County buyers visit more properties online than any other visitor on our site.
• Comparing February 15-through-March 14 to January 15-through-February 14, visitors making offers on Orange County properties is up about 13%. A nice increase, but hardly corresponds to the 110% increase in online search activity. This tells us a lot of O.C. folks just kicking the tires. Two weeks ago, we as an 83% percent increase in offers over our per-week average for the past month, but this may be an anomaly, not a long-term trend.
• Buyer we are seeing is unlikely to stabilize prices: over the past two months, 50% of our offers have been on short sales, where house is listed for less than the owner owes the bank. February data in the MLS serving Orange County shows 23% of the listings as short sales, but only 11.6% of pending deals are short sales. These properties are much more difficult to buy and sell, mostly because the bank dawdles on approving the deal while the owner continues to pay his mortgage. It seems like buyers haven’t really figured this out yet.
• Excluding those short sales, where it’s perilous to count any chickens before they hatch, our close rate on deals has remained around 20% since our February posting here. Of all the markets Redfin serves, none has a lower close rate than Orange County. We think it’s a reflection of a rapidly changing, high-anxiety market.
April 2nd, 2008 at 6:47 am
Heck, I’m even starting to check the foreclosures online as many of them are 30-40% off their peak price already. But as the article suggests, many of those watching the carnage and very interested in how low prices are getting on these distressed sales are not actually making offers on homes either because they can’t qualify or because they are terrified prices will drop further.
Just imagine having scrimped and saved to put together 75K in savings. Would you put that down on a home right now as a first time buyer? All that sacrifice over many years will be wiped out in 12 months if prices continue in this trajectory. And how many first time buyers even have the 75K down payment as opposed to 75K in debt? Very few.
The other folks looking at the foreclosure listings are perhaps owners who are concerned about how far they are from being underwater on their mortgages, but with these, I would think the more common approach would be a head in the sand, who really wants to know that prices are now off 33%?
At some point the increased online traffic will be producing increased bids, but we’re not there yet.
A bubble is a psychological phenomenon, very similar each time it happens. This is the “stunned silence” phase in which prices drop precipitously. Too many people still have faith in housing. When all hope is lost, that will be the bottom, as it always is. Then will be the time to buy back in.
April 2nd, 2008 at 7:08 am
Some positive news that the market is slowly improving. If your a speculator (Ponzi, Nano, etc) now id probably not the time to buy your next flip. If your tired of renting a shoebox for your family and plan on staying put for the long haul, now is a great time to buy.
April 2nd, 2008 at 7:13 am
Bottom.
April 2nd, 2008 at 7:23 am
Thoughtful, I must say I agree. We may still have a bit more downside median pricing but as the higher end picks up steam, that will reverse soon.
April 2nd, 2008 at 7:29 am
Positive news? This REO is getting priced at 40% off so a few bids will come in to compete to push it up to 38% off?
Really?
When all faith is lost. That will be the bottom.
April 2nd, 2008 at 7:32 am
Good news is like kryptonite and holy water.
April 2nd, 2008 at 7:49 am
The bottom is from 3 to 5 years away……………..take a look at this cnn article and you will see where the next wave of distressed properties will come from……………
http://money.cnn.com/2008/03/31/news/economy/copes/index.htm?cnn=yes
The coastal communities are next……and the drops will be huge…..
April 2nd, 2008 at 7:58 am
Well, what do you expect him to say? He is a realtor. Of course he is going to tell you that things are improving. The truth is, the correction will continue for at least a couple of years.
http://www.nationalbubble.com/home-prices-hit-new-low/
April 2nd, 2008 at 8:00 am
Hey thoughtful, I thought the bottom was mid-January? Or is that just your latest failed prediction?
April 2nd, 2008 at 8:01 am
nano. This is an article about one couple who worked in the mortgage industry. That’s hardly a trend. Besides, 9 out of 10 residents of Newport Beach are SC grads who are doctors, lawyers and tech company presidents, The other 10% are Hollywood vacationers.
Sunset; not that expensive
Huntington: not expensive
Laguna; Old money
Dana Point: New developments may be in trouble.
San Clemete: Little old houses with hippies.
The coast will be fine.
April 2nd, 2008 at 8:01 am
Nano,
I like his remark in the article “you pay a lot for your home and you can’t get what it’s worth now”
If you can’t get what it is worth then it is not worth as much as you think it is. You can always get what something is worth if your willing to accept that price.
April 2nd, 2008 at 8:07 am
Tom,
Yea, this guy paid 1,000,000 for a house that is really worth about 400,000. It will take him a few years to figure it out, the market will set him straight.
VoR,
Sounds like you know more about the beach than I do. Your comment about SC graduates is sort of funny…….is it true?
April 2nd, 2008 at 8:10 am
I agree with the bears here…timeline:
—unscrupulous people that never had good credit simply walk away
—overleveraged speculators went out quick
—hardworking overfinanced wage earners went out next
—rate adjusted loans went out next
—the general public learned about short sales, now half the market is short sales and are going out
—the more expensive homes had larger helocs…the ones that stopped allowing draws against it will bottom NOW
—the people that were good with their money until they got suckered into an overpriced refi, but were able to adjust their lifestyle enough to buy time (losses each month) are going to go down as well NOW
-the other more expensive homes with refis that were taken out and used as cash reserves to buy time are going down this year…I speculate that this number is larger than most would like to consider.
Most people I run into live in a cash flow based world where they spend based on their flow rather than with an eye to the future…the homes created large inflows of cash that mentally they began to considered part of their income…that is gone, their bills are not…game over.
April 2nd, 2008 at 8:13 am
History will show that January marked a turning point in buyer psychology. You heard it here first. It can take a few months to find, and close on, the right home. We will begin to see considerable improvement within 3 months.
April 2nd, 2008 at 8:23 am
For the first time perhaps ever, I actually agree with thoughtful. I think we have reached the bounds of a bottom. We may slide a litle more 1 or 2 quarters, but I think we won’t see much more dramatic activity. I expect perhaps 3 - 5% more at the outside.
I do think we have reached a psychological turning point here. From this point, I expect to see stabilization. We may not return to equity growth for a number of years (perhaps even 3 to 5 years) but I do think we will see an end to the continued fall we have been in.
April 2nd, 2008 at 8:26 am
Why thank you, Thomas. Didn’t you at least agree with me that the MASSIVE decline in ARM indices will provide some relief? Come on……show me some love.
April 2nd, 2008 at 8:27 am
Every home I made an offer was bought by investors. They now all have for rent signs in front of them and have been sitting empty now for close to a year for sale. And empty for rent for at least 3 months, one has been up for rent for 6 months and still empty. Very irksome.
April 2nd, 2008 at 8:33 am
Thoughtful,
I’m betting that if January thru the next 3 months has any significance it will be that it represents the Bear Rally portion on the following chart:
http://www.irvinehousingblog.com/wp-content/uploads/2008/03/psychological-stages-of-a-bubble.jpg
In fact Truthi, I have a lot of money on this bet, that means cash…… not debt money.
I have my doubts though that the next 3 months will have any significance at all………..
April 2nd, 2008 at 8:40 am
nano. I was being a little facetios, but it’s not too far off. NB is known as USC South. I was cruising the bay last year (in my semi-adequate 20 footer) and saw a yaght with 10 or 15 members of the SC marching band and some cheerleaders cruising around playing the SC fight song.
April 2nd, 2008 at 8:47 am
“In fact Truthi, I have a lot of money on this bet, that means cash…… not debt money.”
How much is “a lot”? Would it be “a lot” to the rest of us?
Or “Peanuts”?
April 2nd, 2008 at 9:00 am
I have to agree with thomas and thoughful.
I posted awhile back that I’ve been aggressively looking for a SFR in the Anaheim Hills and the Orange Park Acres area. Mid February I have tagged 40 houses, that meet my criteria, in these areas as favorites on RedFin. As of today, of the 40 houses, 12 have sold and closed Escrow, 9 are taking backup-offers and 19 are still active.
I can’t speak for any other areas in OC, but I have to believe it’s not much different. It proves to me there is some select buying going on and that good, clean and aggressively priced homes are being purchased.
April 2nd, 2008 at 9:07 am
RK - and how many new ones have come on the market to replace the 21 that are no longer there?
April 2nd, 2008 at 9:10 am
From 2000-2003 the billionaire bunch created systems that would allow for anyone to get loans for almost any amount.
during that time they purchased massive amounts of RE.
then with the market ripe at the start of 2004, they sold property to each other for insane markups, they sold property to others and falsified selling prices higher than reality to drive comps.
then with the suckafish on the line, they sold, sold, sold.
they simply underestimated the number of copy cat transactions which drove the bubble out of control.
the billionaire bunch effectively turned the housing market temporarily into a commodity market for their own pleasure and gain.
they have left the market for now and the game is over.
if you invest 100 in the stock market and lose, you are not a fool.
if you invest 100 in the stock market and win, and think you know why, you are a fool.
April 2nd, 2008 at 9:11 am
I can’t truthfully answer that question. But I’m sure quite a few. I can say though, there’s only been a couple that would meet MY criteria.
April 2nd, 2008 at 9:22 am
An SC grad myself, I was similarly surprised at the number of fellow alumni around OC - the license plates say it all. For every Ucla/Michigan/etc. plate, there are about 5 SC plates around it
April 2nd, 2008 at 9:35 am
Dig, that’s quite a conspiracy theory. The whole plot seems to rest on this part: “they sold property to each other for insane markups, they sold property to others and falsified selling prices higher than reality to drive comps”. They would have to have had a lot of help from agents, title, escrow and notaries. That’s a lot of co-conspirators committing fraud, forgery, tax evasion, etc. Do you really think this happened??
April 2nd, 2008 at 10:12 am
@NationalBubble: first of all, I am not a Realtor, but someone with a background in software. As such, I take care to avoid making predictions about whether the market will increase or not. The information we sent Jon is data from our site and our business, which is subject to interpretation but not really dispute: online real estate traffic at Redfin is higher, but more people are looking rather than buying, and much of the activity is around short sales, which we have already noted will not stabilize prices.
If you are going to accuse us of drawing a conclusion to promote our own self-interests, you should be sure that we drew that conclusion. Redfin’s self-interest lies in establishing its credibility as one participant in the Orange County discussion about real estate prices; we wouldn’t screw that up by telling people that now is a good time to buy or to sell when no one can make such broad claims with any certainty.
April 2nd, 2008 at 11:00 am
Frycook Says:
April 2nd, 2008 at 9:07 am
RK - and how many new ones have come on the market to replace the 21 that are no longer there?
Inventory has remained flat during this time that typically sees a big spike. So to answer your question, Not many.
April 2nd, 2008 at 11:24 am
I think the bottom was reached in mid February. From what I can see via MLS, there is a definite sign of stabilization. For the last 4 month I waited and waited for an avalanche of REOs to hit the OC market, and thus far, it hasn’t materialized. At this point, I don’t it will. Some homes are priced to create a bidding war. Buyers are looking over their shoulder to see if other buyers will swoop in a trash their offers. The buyer competition for discounted houses is definitely there. Prices may actually be on the march up by as early as this summer.
April 2nd, 2008 at 11:34 am
Every day is a new bottom.
This is getting funny….. the same people who were denying prices would drop are picking the new bottom daily.
Geeeeez, why don’t you RE boosters go buy and sell some homes before prices begin their mad ascent again soon?
You don’t want to miss the bottom — jump on while prices are low. Too funny.
April 2nd, 2008 at 11:42 am
We’re not calling a bottom. We called it in 2001 and 2004. We’re out of that business.
But for those looking to buy or sell this year, we have seen multiple offers for the lowest priced homes, so be prepared.
http://www.myocliving.com/blog/?p=168
April 2nd, 2008 at 11:45 am
PDU, the resident angry old man has spoken. When backed into a corner he falls back on the “everyone is a realtor” argument. I don’t think anyone was denying prices would drop. The writting was on the wall. We just don’t agree with your extremem predictions. It’s funny how anyone who doesnt agree with the 50% decline is called a bull. And yes, prices will stabilize soon. Late this year in my opinion.
April 2nd, 2008 at 12:23 pm
For all of those who claim that “coastal” communities won’t take a hit, look at the new federal map (link on padilla’s blog). Looks like Newport Coast has the least amount of arms to reset here, but look at CDM, wow Jimmy- I think the CDM crowd with the loads of millions in their pockets aren’t there. Check out the 90 day late and arms to reset. CDM isn’t looking too great in the next year. Also, when that happens- the price point will pull down those in Newport Beach right along with it.
April 2nd, 2008 at 12:25 pm
Lets get real folks. Home prices in california are still completely divorced from incomes. We still have a long long way to go. Bottom will be 1999 if not early pricing. Folks who buy now either haven’t educated themselves about this housing market or they are silly rich and don’t care if their home loses another 30% of its market value.
April 2nd, 2008 at 12:37 pm
Hey shockg,
I got no anger, I’m leaning back, eating popcorn, watching the show and having a laugh at those who have been so wrong for so long and still actually believe that they have anything of value to say.
Sorry, but I don’t predict, never called a percent drop, just knew it was inevitable.
Why, I still wonder, didn’t you?
I didn’t say you were a realtor. I hope you’re not.
Why, I also wonder, is it so important to you that the market bottom out?
The market will do whatever it will, so relax. It’s not all about you.
April 2nd, 2008 at 12:50 pm
OCTrojan, i’ve got a coworker who drives around in a honda civic with an SC license plate. Trust me, he’s no SC grad, just a huge SC fan.
April 2nd, 2008 at 12:52 pm
keen eye Mom in CDM
April 2nd, 2008 at 12:56 pm
The bottom is still 2 full years away. Spring 2010 should just about do it.
We’re still being patient.
April 2nd, 2008 at 1:03 pm
How funny are these people that have license plate frames advertising where they graduated from? Who cares? Most of them are living on the edge, if they are still working. I know plenty of people who are doing more than exceptionally well in their businesses and investments and never talk of where they went to school. They worked extemely hard to get where they are today (no cheating, drug dealings or anything illegal), made great investments and kept their spending habits well below their belt. They chose to live life cautiously, never stepping beyond their means. They’ve had their ups and downs but always managed to stay afloat without any help (never borrowing from parents or friends). They are now reaping the seeds they had sown and are living Very comfortably.
Being greedy gets you knowwhere.
April 2nd, 2008 at 1:10 pm
VOR dude if youre going to try and impress
us with your extensive vocabulary at least
learn how to spell the words correctly
otherwise it makes you look like a fool
for those of you who are calling this a
bottom please show us your posts from
last year—- I know what I was saying and
it transpiring just like I said it would…..
April 2nd, 2008 at 1:21 pm
rants, got anxious and forgot to run spell check. otherwise, I’ll take that as a complimunt.
April 2nd, 2008 at 2:45 pm
“new teaser pricing: low-priced listings attracting 8 or even, in one case, 13 offers”
These games are at the top not the bottom, people in OC still aren’t believers but they will be, just ask your cousins in Corona.
April 2nd, 2008 at 2:58 pm
Frycook: Good one.
April 2nd, 2008 at 3:10 pm
Get Real: I’m sorry, I don’t understand. You haven’t seen an avalanche of REO’s hit the market in the last 4 months you so you don’t think they will… however, doesn’t it take the trigger of thousands of ARM’s to reset between now and the next year or two to come before we see that, and wouldn’t it be reasonable to expect it? I’m sorry, I just don’t see how anyone look at that and not expect to see more REO’s to come even if the last few months you haven’t. Not criticizing - just trying to understand your POV better.
April 2nd, 2008 at 4:22 pm
There are bidding wars going on for bank owned properties. These buyers are just crazy.
Say you can buy nice fully upgraded, move in conditioned, home for $450 from an owner, and down the street there is a bank owned property, listed at $300. That property is a mess and it would take $50 -$75 thousand dollars to fix. But buyers are attracted by the low price so they fight over it and bid it up to $450.
Once again, these buyers are morons and just wait, a year from now they’re going to whine and cry and scream for a bail out just like buyers who bought a couple years ago.
April 2nd, 2008 at 5:19 pm
The University of Texas LOVES usc. Hey Pete…that was Vince Young on 4th and goal that you knew was going to take the snap and you ALL knew he was going in untouched.
The amount of personalized plates and niche plates in this state is moronic. 10% income tax for the state is not enough for you all…give them some more by paying to the charity fund of the day from tahoe, the whales, etc.
If you want to enter the short sale marketplace, good luck. I know you know that the bank takes at times MONTHS to make a decision, all the while the home is still on the market.
These low priced homes which draw multiple offers catapult to their fair market price…priced low to get the attention, then they sell at $50,000 above asking.
When is the bottom? Only a fool would try to call it…it will be in your rear view mirror once it happens.
April 2nd, 2008 at 6:07 pm
VOR at 8:01, yes, I am a resident of Newport Beach; yes, I am an SC grad, and yes, I am a lawyer — but no, there’s pretty much still nothing I could afford in Newport Beach.
April 3rd, 2008 at 7:47 am
Thomas. I was definitely exaggerating. But, 3 out of 4 ain’t bad! Wait till you hear the one about Traveler thowing back a couple at Woody’s!
April 3rd, 2008 at 9:03 am
Couple things. First, there are real investors who are credible and have made millions in real estate and every single one of them is saying we haven’t even come close to a bottom yet. Basically, as in every past bust in home price, you haven’t seen the worst yet until people advertise in the newspaper that they will pay you to take over their home. When you see that type of advertisement we will be getting close.
Second, I am friendly with a SoCal REO agent. He is a whale and closed hundreds of sales last year. He knows what he is doing and is very smart. Currently he is gearing up to be a FHA sales company (forgot the exact terminology) for FHA repo’s. He believes that this current crop of buyers are going to end up being the next crop of FHA repo’s in a couple years. I don’t think we are close and based off friendships and what the real smart guys are doing I’m confident to be calling a bottom right now is crazy as hell.