A limited inventory of houses means the San Diego real estate market can stand to absorb a possible influx of foreclosures, local experts said at recent roundtable discussion at The Daily Transcript sponsored by the San Diego Association of Realtors and North Island Credit Union.
There is about 2.2 months of inventory right now in San Diego County, said John Altman, broker at JT Altman & Associates. Gary London, president of The London Group, added that a healthy market has about six to nine months of inventory.
“That’s considering 12 months of sales. And yet, in April and May, sales are speeding up and we are moving into the selling season. For May, we’re at 1.9 months of inventory. Sales in traditional transactions were up 30 percent over last year,” Altman said. “Short sales were up 22 percent and sales of REOs are down 24 percent.”
Altman said 75 percent of the inventory is traditional, 20 percent is short sale and less than 5 percent are bank REOs (real estate owned). There are 1,026 properties owned by the banks in San Diego County, according to Altman, including 251 that are on the market.
In 2007, there was a max of 23,000 properties on the market, Altman added. That number dropped to 7,500 in 2009, went back up to 13,000 in 2010 and is now at 6,000. He said there are about 178,000 properties that are mathematically upside down and 5,250 in pre-foreclosure.
“So, if all of those properties came on the market instantly, just boom tomorrow, that’s 11,000 inventory and that wouldn’t be a balanced market — even if that happened instantaneously,” Altman said.
Altman said in a balanced market in San Diego, where there are more than 700,000 properties and 3 million people, there would be 14,000 to 16,000 properties on the market.
Donna Sanfilippo, president of the San Diego Association of Realtors, said if banks listed the 1,026 properties they would not last long on the market.
“As long as we’re at this uncomfortable steady, slow, slow recovery, I think we’re past the point where REO really matters. I couldn’t have said that last year, but I feel that way this year,” London added.
London called 2012 a “transition year” where the marketplace takes over, and issues with regard to distressed homes and short sales get cured.
Bob Kevane, president of The Kevane Co., said REOs could keep inventory from the market in San Diego.
“You can’t live in a market where investors keep buying the property, when that property is not going to come back on the market again,” Kevane said. “These guys are doing it — you’ve got every small construction company buying these things and trying to fix them up, and flip them and renting them.”
REOs can bring down home prices if sold at a deep discount. The S&P/Case-Shiller Home Price Indices reported in late June that home prices in San Diego increased 1.4 percent in April. However, Sanfilippo, Altman and others agreed that the median price is not always reflective of an actual appreciation — the price per square foot should be used instead to measure a change.
“I believe we hit the bottom of the market. I think we’re in a trough,” Altman said. “I think it’s going to level out for a while — I don’t think we’re going to see true appreciation maybe for a couple years.”
London added that multiple offers will bid up prices, which will cause a price change due to the shortage of inventory.
“You see multiple cash offers for these kind of high-end markets, in Silicon Valley, San Francisco and La Jolla,” London said. “You see multiple cash offers for just a little bit of inventory, and my sense is that that’s going to continue for beyond the foreseeable future because we’re not adding inventory to the market.”
Linda Lee, a broker with Keller Williams San Diego Metro, said she often deals with multiple offers, and if the property goes on the market on Friday, it’s pending on Sunday afternoon. One client was one of 14 offers within five days in Carmel Valley, and paid $25,000 above the appraisal.
London said builders are “out of business” and San Diego won’t see an addition of new home inventory for years. Even if the builders start up today, London said it wouldn’t be for another two or three years that the inventory would hit the market.
“What you see today in terms of inventory of single-family homes — in all of but perhaps South County markets — you’re going to see five years from now. You’re not going to see an increase in inventory,” London said.
The increase of inventory on the market could come from homeowners — who were previously sitting on the sidelines — starting to list their properties, according to London.
“More people are starting to put their toe in the seller water,” London said. “You’re going to see gradually more sellers coming to the market because they smell the opportunity of getting the prices they thought they could get in the go-go years — or maybe not approaching the top of the bubble, but at least somewhere around 2003, 2004 pricing.”
Altman said there are close to a quarter of a million prospective buyers in San Diego County waiting for something to happen with the market. Between 1997 and 2002, about 142,000 properties were purchased, and there are 160,000 people who have owned properties since before 1997. Altman thinks those homeowners are “what’s going to feed our market right now.”
John Altman, Broker, JT Altman & Associates
Bob Kevane, CPA & Owner, The Kevane Co., Inc.
Linda Lee, Broker, Keller Williams San Diego Metro
Gary London, President, The London Group
Donna Sanfilippo, 2012 President, San Diego Association of Realtors (sponsor)