Finding the shallow water in the San Diego housing market.

I just spent the last week in 2003. For a moment, somewhere around noon on Saturday I believe, it even felt a little like 2005.

My little real estate world is but a small subset of the bigger picture, and maybe it’s not indicative of the broader national market or even the regional San Diego market at all. But maybe it is. In any event, this past week, which for me consisted of 10-hour work days, more than one incident of the dreaded dead cell phone battery and so many pizza delivery orders that the driver ultimately just pitched a tent in our front yard, took the wind out of my sails.

You see, ever since returning from the Inman Real Estate Connect conference in New York a few weeks ago, I had been planning on sharing the bar-the-barn-door, sobering Cliffs Notes of Robert Shiller’s presentation. Bob Shiller, you may recall, is one of the Case-Shiller Home Price Indices twins. Their monthly indices report changes in home values for the major national markets using a repeat, or “matched pairs,” sales pricing technique. He is also an economics professor and noted author. To a left-brain real estate broker, watching Mr. Shiller speak is as much a thrill as a trip to Yummy Yogurt is to my daughters. In other words, it is huge.

Now, Mr. Shiller’s brain lives in a different dimension than mine, but every time he said something I could sort of understand, I scribbled it down on my complimentary Marriott notepad. Given that the room was dark and I couldn’t find my glasses at the time, I now doubt he really said, “We need government intervection to dress pessicism” but here is what I am able to decipher.

  • He sees the ultimate cause of our current (housing, banking, economic) crisis as complacency. We were told, and we came to believe, that another “rare” event like the Great Depression could never repeat.
  • He used the “D” word unapologetically, and said that we could be heading for a depression (if we aren’t, in fact, living one).
  • He said that all of the fancy mathematical models being tossed about to predict bottoming of housing prices and recovery timing are flawed. They are flawed in that they neglect to take into account that event of rarity (insert “D” word).
  • He noted that while the stock market recently saw losses of close to 50%, the Great Depression saw market losses of 80%. And he pondered, “That’s what I’m worried about. Maybe it’s not over yet.”
  • The boom was psychological, Mr. Shiller said. We were not rational. It was a social epidemic that is now being corrected. As he so eloquently put it, “We all need psychotherapy.”

He went on to talk about big, economist-guy ideas like housing hedge funds and continuous work-out mortgages, but I know my limitations, so I won’t venture there. What I will tell you that this is a guy that can suck the air from a room of people who make a living in real estate.

And then I came back to San Diego, and I was reminded of the tired “real estate is local” mantra. Admittedly, we, along with so many other high-priced Sun Belt cities, were on the leading edge of housing price climbs. We also lead when prices reversed course. I also readily admit that we haven’t seen the end of declining values. But here is what I am seeing locally.

  • Buyer demand for the “affordable” segment is fierce. Multiple offers are back with a vengeance.
  • Buyers are out there, and they are ready to buy. Many, having tired of the short-sale waiting game and having “lost” a few opportunities in multiple offer situations, are now coming to the showing loaded for bear. Sure, we still see offers on a $600,000 property coming in at “$17.95 and seller to pay closing costs,” but these are fewer. Mostly, we are seeing serious buyers willing to a offer a price more on par with today’s value and less based on anticipated value next June with contingencies factored in for a terrorist strike, another potato famine, and an unexpected direct hit from an incoming asteroid.
  • Sellers are generally more realistic. I am seeing less fear of the market and more acceptance - which is leading to more appropriate pricing.

Short-sales and foreclosures, or “bank-controlled” sales, are still a growing segment of even our local Scripps Ranch market, and they continue to set the tone, but based on the competition we are seeing for these, I think we may be dipping our toes in the shallow water now. And we are seeing a positive phenomenon occurring. Move-up buyers and sellers are reappearing.

Recently, Steve and I were discussing the importance of the move-up buyer in a recovery. We believe they hold the key. When a buyer purchases a bank-controlled home, it is a notch in the old sales statistics belt, but it is a dead end of sorts. The seller will not be buying another, not at least any time soon. But these days, a listing agent need only begin his MLS remarks with “Not a short-sale!” and it’s like firing a starting gun. I know. One of our listings this weekend had 17 showings and four offers in 12 hours. Three of the four offers I know were from buyers who just wanted to be done after having wasted too much time and too many contracts on distress sales which didn’t pan out. Now the seller will buy another. In the traditional sales we will find our recovery.

As a final anecdotal note, Steve sat an open house on one of our listings yesterday, and this home happens to be in the higher price segment. He confessed to losing count but estimated that he had 25 groups through, most motivated and most serious. Even as he was removing his signs at the end of the day, people driving by were flagging him down with questions about the neighborhood and values and inventory.

Most everyone (myself included) believes that we are in for an “L” shaped recovery. When we get to the bottom, we will spend awhile there. When we will get there, however, remains the question. I may be wrong, but at least this past week in San Diego, it sure didn’t feel like 1929. We were leaders on the way down. Maybe we will be leaders in finding that shallow water.

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