If You Waited...

Posted by Dave Fratello on Monday, March 31st, 2008 at 4:30am.

There are plenty of potential home buyers waiting on the sidelines, in MB and elsewhere. Imagine yours was one of the families that decided about 6 months ago to stop searching and reassess in the Spring.

What would you find now? Was waiting the right call?

Let's look at the big picture first, then the local market:
  • Housing market generally – There's not much debating the fact that the housing market continued its deterioration with a vengeance these past 6 months. The current Case-Shiller index shows a home price drop nationally of about 10% over 6 months (July '07-Jan. '08), and a drop of 14% in LA County. January was the worst for sales in all of Dataquick's 20 years in business, and February was only a trickle better.
  • The economy – Recession talk was largely confined to bears late last September (6 months ago). By mid-October, however, Treasury Secretary Henry Paulson began the now-familiar march to the podium by official bigwigs with the dual purpose of warning us of peril ahead and promising solutions. Now it's news if someone thinks the U.S. economy is not in recession already. What's more, it's shaping up to be a housing-led recession, which they used to say could not happen. (Time to rewrite the textbooks.)
There's as much foreboding out there now as there is a budding confidence that aggressive actions are going to come wherever the financial markets can be intervened upon to stave off disaster. Recession – sure. Meltdown – ummm, maybe not!?...?...?!? The import here is that recessions nearly always mean dropping home prices, regardless of how those recessions get kicked off.
  • Interest rates & loans – The Fed has cut its target rates sharply in hopes of stimulating borrowing and economic activity. At the same time, consumer CDs and money-market accounts are paying sub-inflation rates. Yuck.
What matters to home buyers is mortgage loan rates, and jumbos (30yr fixed and ARMs) are essentially even now with their early-October levels, after some dips and spikes during the past 6 months. The big news of this period is the congressional move to increase the "conforming" loan limits to almost $730k, which might help break some of the liquidity logjam in the mortgage finance pipeline, though the change is of little use to the average MB buyer.
OK, hypothetical family, you consciously took time off to see what happened in the world. Now, what has happened in your local RE market of interest?

Slowdown arrived – In MB, the first thing to note is that by Oct. 1, 2007, MB was entering a serious slump. As we reported in our MB Market Update for 9/30/07 (click for the story), there were no sales, none at all, of SFRs west of Sepulveda in the second half of September, and the month ended with just 6 sales (new escrows) west of Sepulveda that stuck. We're seeing a sales pace nowadays that is roughly half that seen during the bulk of 2007. Also:

Inventory – SFR inventory west of Sepulveda stood at 81, by MBC's count, on Sept. 30. Six months later, we count 94, the highest number we've published in a year-plus. That means more choice and, they told us in Econ 101, downward price pressure.

Chops – We looked back at the Sept. 30, 2007, Market Update spreadsheets (click to download and play at home) to see what's still around. There are plenty of listings with impressive price cuts (click addresses for details via Redfin):
  • In the Hill Section, 3 actives are down at least $200k from their Oct. 1 prices (811 Boundary [-$300k], 916 9th and 869 3rd, which is down $245k).
  • In the Tree Section, at least 13 listings are still lingering from Oct. 1. Some lower-priced homes have taken cuts, but the news is among new construction: 3305 Laurel cut 10% (-$360k), 570 27th cut 9% (-$300k) and 2509 Walnut cut 10% (-$250k). And so on.
Missed Opportunities – Alas, waiting out the market means missing out on some great homes and good deals. Among the examples (search the address using the search box in the upper-left corner for prior coverage) in which significant cuts were taken:
  • In the Hill Section, 911 Duncan was at $3.770m last October, but it sold for $3.190m (-$580k/-15%) in February.
  • In the Sand Section, someone saved $300k (-12%) off the Oct. 1 price on 420 30th, someone else took $150k (-7%) off 3617 Vista's Oct. 1 price and someone brought home a great deal overall on 209 42nd, which had begun at $2.3m and had neared its sale price of $1.830m by last October.
  • In the Tree Section, we count at least 19 sales from inventory active Oct. 1, 2007. In this period, we saw the first recent examples of new construction going for less than $2m (3104 Pacific [$1.950m], 2705 Oak [$1.95m] and 1901 Poinsettia [$1.999m]). We also saw a raft of sales that went for double-digits below their start prices (see "Early Warning: Ask-Close Spreads").
Plenty of other great homes came and went during these past 6 months, some with little or no discount. It's hard to capture all the costs of waiting. And yet, there were the savings...
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