Homebuyers have been caught by surprise by the current real estate market.
Months of restricted inventory has created fierce competition in North County for property priced $1 million and under. Multiple offer negotiations have become commonplace. The usual agent-to-agent question has changed from, "How motivated is your client?" to, "Do you have any offers?" and, "Is the property still available?"
Agents are advising their clients to be patient as more property often comes on the market in the summer months. But as the 2012 summer begins, new property for sale remains scarce and existing supply continues to dwindle. Sellable inventory moved from 2.5 months in February down to 1.8 months by the end of April. Those homes on the market are receiving three to four showings a day with multiple offers in the first month. The list-price to sale price has moved from around 96 percent in 2011 to over 98 percent in 2012.
Interestingly, the heightened activity is feeding on itself, causing on-the-fence buyers to move and enter the fray creating more competition.
Current homebuyers see opportunity in lower home prices and historically low mortgage rates. Buyers have watched average mortgage rates fall from 5.25 percent in 2011 to the current low 4 percent range. Recently, average fixed rate 30-year rates for conforming loans (loans under $417,000) dropped again into the 3.5 percent range.
Low rates create affordability and a powerful incentive to primary owners and investors alike to find a home and lock-in for the long term.
So where is the new inventory going to come from?
The source of new for-sale property has, since 2008, largely come from distressed homes, that is, foreclosure and short-sale homes.
Distressed inventory has made up 45 percent of North San Diego's resale market in the past 12 months. It is the foreclosure market that has supplied the inventory that helped push prices down 35 percent from 2005 peak housing price levels and given homebuyers an opportunity to purchase discount real estate.
But few, if any, are considering the inevitable end to this cycle's distressed real estate market and what will happen as a result of its absence. San Diego's large mortgage lenders, including Bank of America, are actively selling their distressed assets in bulk to investor groups. They are pulling assets that would have normally been on the open market, and selling them in property bundles to investment groups seeking 6-percent to 8-percent yields in the current low-yield environment. The result is fewer homes on the open market for traditional homebuyers to purchase.
What of the adjustable-rate mortgage (ARM) homes?
In 2008, as the financial crisis was in full bloom, the fear of a deluge of property from teaser rate mortgages resetting was to be the harbinger of a doomed real estate market.
However, with major indices (LIBOR) at 1 percent or lower, those adjustable-rate mortgages have reset lower to between 2 percent to 3 percent. Investors and owners with adjustable rate mortgages are finding their payments lower now than when the first purchased. And new government programs such as the "Making Home Affordable" plan are allowing those underwater homeowners the ability to refinance out their ARM into a low rate fixed-term mortgage. The danger is averted, but at the cost of new supply in the short-term.
What of new construction? Although building starts are up from 2009, building starts have been at historically low levels for several years. National homebuilders are not making any substantial moves to ramp up new construction. This leaves the traditional homeowner or investment property owner to supply the market with their property. Until home values go up substantially, most will sit tight with a low mortgage rate and enjoy ever increasing rents, waiting for a better market to begin.
Lund can be reached at [email protected].
Months of restricted inventory has created fierce competition in North County for property priced $1 million and under. Multiple offer negotiations have become commonplace. The usual agent-to-agent question has changed from, "How motivated is your client?" to, "Do you have any offers?" and, "Is the property still available?"
Agents are advising their clients to be patient as more property often comes on the market in the summer months. But as the 2012 summer begins, new property for sale remains scarce and existing supply continues to dwindle. Sellable inventory moved from 2.5 months in February down to 1.8 months by the end of April. Those homes on the market are receiving three to four showings a day with multiple offers in the first month. The list-price to sale price has moved from around 96 percent in 2011 to over 98 percent in 2012.
Interestingly, the heightened activity is feeding on itself, causing on-the-fence buyers to move and enter the fray creating more competition.
Current homebuyers see opportunity in lower home prices and historically low mortgage rates. Buyers have watched average mortgage rates fall from 5.25 percent in 2011 to the current low 4 percent range. Recently, average fixed rate 30-year rates for conforming loans (loans under $417,000) dropped again into the 3.5 percent range.
Low rates create affordability and a powerful incentive to primary owners and investors alike to find a home and lock-in for the long term.
So where is the new inventory going to come from?
The source of new for-sale property has, since 2008, largely come from distressed homes, that is, foreclosure and short-sale homes.
Distressed inventory has made up 45 percent of North San Diego's resale market in the past 12 months. It is the foreclosure market that has supplied the inventory that helped push prices down 35 percent from 2005 peak housing price levels and given homebuyers an opportunity to purchase discount real estate.
But few, if any, are considering the inevitable end to this cycle's distressed real estate market and what will happen as a result of its absence. San Diego's large mortgage lenders, including Bank of America, are actively selling their distressed assets in bulk to investor groups. They are pulling assets that would have normally been on the open market, and selling them in property bundles to investment groups seeking 6-percent to 8-percent yields in the current low-yield environment. The result is fewer homes on the open market for traditional homebuyers to purchase.
What of the adjustable-rate mortgage (ARM) homes?
In 2008, as the financial crisis was in full bloom, the fear of a deluge of property from teaser rate mortgages resetting was to be the harbinger of a doomed real estate market.
However, with major indices (LIBOR) at 1 percent or lower, those adjustable-rate mortgages have reset lower to between 2 percent to 3 percent. Investors and owners with adjustable rate mortgages are finding their payments lower now than when the first purchased. And new government programs such as the "Making Home Affordable" plan are allowing those underwater homeowners the ability to refinance out their ARM into a low rate fixed-term mortgage. The danger is averted, but at the cost of new supply in the short-term.
What of new construction? Although building starts are up from 2009, building starts have been at historically low levels for several years. National homebuilders are not making any substantial moves to ramp up new construction. This leaves the traditional homeowner or investment property owner to supply the market with their property. Until home values go up substantially, most will sit tight with a low mortgage rate and enjoy ever increasing rents, waiting for a better market to begin.
Lund can be reached at [email protected].