OurCity San Diego November/December 2012 : Page 30
BUSINESS & ECONOMICS RESIDENTIAL REAL EST BANKING INDUSTR Y A T E Bidding wars Government policies have made San Diego housing more affordable. But now a shortage of inventory stands in the way of new home buyers. By Jack Crittenden Six years ago, San Diego housing prices reached a peak, and the only way for many to buy a home was to take on a subprime loan. That, as it turned out, was a terrible way to make housing af-fordable. Thousands of foreclosures and short sales later, the San Diego housing mar-ket is again showing signs of life. In fact, lower-and moderate-priced homes are getting picked up quickly. But that pres-ents a different challenge for a market in desperate need of affordable housing. “California is pretty far along in the foreclosure crisis, and the inventory of foreclosed homes is shrinking,” said Jed 30 Our City San Diego | Nov/Dec 2012
Housing Bidding Wars
Government policies have made San Diego housing more affordable.
But now a shortage of inventory stands in the way of new home buyers.
Six years ago, San Diego housing prices reached a peak, and the only way for many to buy a home was to take on a subprime loan. That, as it turned out, was a terrible way to make housing affordable.
Thousands of foreclosures and short sales later, the San Diego housing market is again showing signs of life. In fact, lower- and moderate-priced homes are getting picked up quickly. But that presents a different challenge for a market in desperate need of affordable housing.
“California is pretty far along in the foreclosure crisis, and the inventory of foreclosed homes is shrinking,” said Jed Kolko, the chief economist at Trulia, an online home buyer resource. “That means inventory, especially at the lower end, is disappearing fast and that is pushing up prices.”
Foreclosures and short sales in San Diego have dropped from 52 percent of homes on the market a year ago to 15. 3 percent. The San Diego market had only 2.9 months of inventory at the end of September, and it was even lower — 0.9 — for homes valued at less than $330,000.
Economists consider it a sellers market when there is less than four months inventory and a buyers market when greater than six months.
“The inventory under $330,000 is very low,” said John Altman, a broker with JT Altman & Associates. “Bidding Between first-time buyers and investors is making the market crazy. You get multiple offers, which makes it difficult to get appraisals. So cash buyers have a foot up in the market because of unusual circumstances that we have never seen, at least in my career.”
The small inventory is a result of historically low interest rates and Federal Home Administration loans that allow first-time buyers to buy a home for as little as 3 percent down payment — or less than $10,000 for a $330,000 home. That’s good news for affordability.
San Diego, with some of the highest home prices in the nation, typically ranks poorly when it comes to home affordability. Trulia, for example, recently ranked the region as seventh worst in the nation for metros with the least afford Able housing. Based on average home prices and salaries, a San Diegan would need to save 10 percent of his or her income for 14.6 years to have enough money for a 20 percent down payment for a 2,000 square-foot home.
But an FHA loan drops that wait to only two years.
“If the federal government stays with their strategy, first-time buyers will have an opportunity that will roll through the end of next year,” Altman said. “But inventory shortage is the flaw.”
Altman said in most zip codes, buyers could acquire a rental property for less than the cost of rent after tax considerations.
“For young people coming into the market, the condo is an absolute godsend for them and they can hold onto it as rental property when they upgrade to a single-family home in the future,” Altman said.
Two-thirds of the lower-priced homes in San Diego are attached condos, with the unattached single-family homes in less than desirable neighborhoods.
But the housing market changes dramatically for homes valued at $697,500 or higher. These homes, which make up almost 40 percent of active listings, were at 6.3 months of inventory in late September. That is also a result of the federal government policies. The jumbo mortgage loan limit for San Diego is $697,500.
So, not all neighborhoods are a buyers market.
Andrew Nelson, CEO and president At Willis Allen Real Estate, said coastal markets are different from inland neighborhoods. For example, home values at up to $2 million are hard to find in Rancho Santa Fe and La Jolla.
He said prices have not dropped in the high-end neighborhoods because most of the sellers do not need to sell. Still, he said the mid-range is where buyers are struggling.
“We have a lot of buyers in the midprice range looking for good product and they don’t have it,” he said. “Our biggest problem is finding inventory for pent up demand in the marketplace.”
Altman said there is a great opportunity for mid-range property owners, especially those who bought homes between 1997 and 2002, to upgrade to a better home.
“Those people did not get the dream home, and they now have the opportunity to move to the $400,000 to $600,000 range,” he said. “The move-up market in this category should be very hot. But the public is holding off for some reason.”
He said when those owners do upgrade, it will create more inventory for new home buyers, helping to open up the market for new buyers.
Nelson said that while new buyers have to sacrifice location for lower pricing, new homeownership is important to the economy.
“Interest rates are very attractive, and it is nice to see that younger people have an opportunity to buy,” he said. “Ownership is still part of our free enterprise society.”
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