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Delaying a property sale might not make financial sense

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Lack of inventory isn’t the only factor keeping move-up and first-time buyers from entering the housing market — but the math behind their reasoning might not be in their interest.

San Diego real estate professionals discussed what’s keeping buyers from the market and other trends during a recent roundtable hosted by The Daily Transcript and sponsored by the Greater San Diego Association of Realtors (SDAR).

There’s a Catch-22 when it comes to move-up buyers and inventory, said Leslie Kilpatrick, SDAR’s 2014 president and branch manager and broker associate at Willis Allen Real Estate​. If move-up buyers put their homes on the market, then there would be more housing inventory, but they’re waiting for an increase in inventory so they can also buy a house and make that move.

Contingent sale transactions aren’t as easy as they used to be, Kilpatrick said.

“If you don’t have the same title company, the same escrow, the same lender, it’s very difficult to put those together,” Kilpatrick said.

And low inventory allows sellers the option of not accepting contingent offers because they know they’ll find a buyer who doesn’t have a house to sell, she said.

Kilpatrick said those buyers are holding back because of inventory, but Cory Shepard, general manager at Coldwell Banker West, said that’s not the only reason they’re not selling.

“My gut says that the move-up [buyer] is still on the fence, and they’re on the fence for a couple reasons,” Shepard said.

One is that interest rates might go down, he said, and another is the hope that the value of their own home will appreciate more before selling.

“What they’re not understanding is if they sat down and did the math, it’s nine times out of 10 you’re better to make that move right now because if prices move up on your home, the house you’re going to buy moves up as well, and that gap just got bigger for you to buy into,” Shepard said.

Donald Coleman, vice president of real estate member experience for USE Credit Union, agreed that people are waiting to sell not realizing the cost of delaying. He said he has seen clients who are thinking about selling instead taking a home equity line of credit to do work on their homes.

“We’re seeing them pull completely out of the market and do a remodel because they’re thinking, ‘If I go sell, my property taxes are going to go up, everything else is going to go up. I can stay here and save,’” Coleman said.

Chris Anderson, SDAR’s 2014 president-elect and Realtor at Town & Country Realty Inc., said she’s had similar conversations with her entry-level buyers. Her clients say they want to wait until they’ve saved more money before buying. She asks them how much they can save per year and if that amount is more than the 15 percent appreciation her housing market in the Ramona area is experiencing. Most of the time, the answer is no.

“I say, ‘Then you better buy now because next year you’re going to be priced out; you’re not going to be able to do it,’” Anderson said.

Anderson said she’s helped renters become homeowners in her area by showing them what they can get with a purchase versus a rental – and a mortgage usually comes out to a couple hundred dollars more per month.

Student loan repayments keep some entry-level and move-up buyers from entering the housing market in Poway, said Angela Ordway, SDAR’s 2014 vice president and Realtor with Berkshire Hathaway HomeServices California Properties.

“We have a lot of people who moved into the Poway area for schools. They have a nice house, kids went to school, kids all came home — and when they thought they were going to sell when Junior was going to get that job, nothing happened,” Ordway said.

Andre Kwan, vice president of mortgage lending at Guardian Rate, said home prices and student loans aren’t the only reasons why people are opting out of homeownership — he said it’s also a lifestyle choice. People don’t want to go through a housing crisis they way their close friends and relatives have, he said. Instead, they may decide to travel and pay for an experience instead of a house.

Kilpatrick said that’s a tough lifestyle choice in San Diego because rents are increasing. When factoring in increases in rent over time, the average renter will pay close to or likely more than $1 million over the next 30 years, Shepard said.

The group agreed that homeownership is worth the investment, especially in California.

“What the average person doesn’t even realize is in California since 1975, the average rate of appreciation on real property has been 6.67 percent,” Coleman said.

That means on average, every 11 years a house doubles in value in California, Coleman said.

“We have to get back to educating and informing people to know that when you buy real property, you are buying a solid investment and a place to live in,” Coleman said.

In addition to wealth, Anderson said, homeownership brings stability of family and a neighborhood, which a rental doesn’t usually accomplish.

San Diego County has seen a recent increase in inventory, bringing the supply up to about three months, Kilpatrick said, but that still isn’t a healthy market.

“You can say relative to when we had one month that we have so much more property to sell,” Kilpatrick said. “The truth is, we could still use more inventory and it holds back the market and it holds back the buyers who want to make that move up.”

Coleman said his company has several clients preapproved and waiting to buy, but who just can’t find a house.

Investors could help increase local inventory as they put the properties they purchased during the downturn back on the market, Kilpatrick said. Flippers have mostly left the low-end market, but are still buying high-end properties and fixing them up.

Properties bought as foreclosures three to four years ago have been rented, flipped and are now selling with multiple offers in Poway and Rancho Penasquitos, Ordway said.

Prices are continuing to increase countywide but at a slower rate, Kilpatrick said. While some may say that’s a bad thing, she said it’s “very positive,” because while there should be growth, affordability is also important.

“I think we have a market that wants to seek some kind of a sustainable equilibrium and that’s what we’re looking for,” Kilpatrick said.

Those buying real estate are also a sustainable group, she said, who are either paying cash or qualifying for their mortgages.

Coleman said he’s getting “fair, accurate” appraisals that reflect the market value. Kilpatrick said if the appraiser doesn’t see the values, there are back-up offers and buyers willing to coming up with more money to buy it anyway.

The neighborhoods in San Diego County — and even streets within the neighborhoods — each have different trends, Kilpatrick said.

In Coronado, Kilpatrick sees second-home and retirement home buyers, who tend to come into the market each summer.

Home values are appreciating enough in the Ramona area to allow people to refinance their FHA loans and get rid of their mortgage insurance, dropping their payments by about $500 per month, Anderson said.

She’s also noticed that developments that went on hold during the downturn are now starting to move again, meeting with the water district and getting ready to come in during a housing shortage. A friend at the Building Industry Association told Anderson that she has about five to seven years to sell resale homes because new homes are coming back into her market.

Home prices have hurt South County’s affordability a bit, Shepard said, but he doesn’t expect the 20 percent gains this year that the area experienced in the past two years. Instead, he expects values will finish up about 6 to 8 percent in 2014.

The biggest price increase in Poway has been in the $1 million-plus market, which is up 30 percent, Ordway said, with a market time of one week. In the $800,000-plus market, Ordway is losing out to cash buyers, and receiving counteroffers asking her client to remove all contingencies and the appraisal in order to be considered, which she hasn’t seen since 2004-05.

Related article: SDAR mediation center resolves range of real estate issues

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Roundtable Participants

Chris Anderson, Realtor at Town & Country Realty Inc. and 2014 President Elect for SDAR

Donald Coleman, VP of Real Estate Member Experience, USE Credit Union

Leslie Kilpatrick, Branch Manager at Willis Allen Real Estate and 2014 President of SDAR

Andre Kwan, VP of Mortgage Lending, Guaranteed Rate

Angela Ordway, Realtor at Berkshire Hathaway HomeServices California Properties and 2014 Vice President of SDAR

Cory Shepard, General Manager, Coldwell Banker West

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Greater San Diego Association of Realtors

Company Website

4845 Ronson Ct., 330
San Diego, CA 92111

Greater San Diego Association of Realtors Executive(s):

Linda Lee

  • 2013 President

Leslie Kilpatrick

  • Board President

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