Home sellers in the residential market are feeling “seller’s remorse,” according to local real estate professionals at a roundtable discussion hosted by The Daily Transcript and sponsored by the San Diego Association of Realtors.
“They’re thinking, ‘I should have waited a couple more months because it’s going back up,'” said Leslie Kilpatrick, branch manager and broker associate for Willis Allen.
December 2011 finished with 11,000 units on the market, and December 2011 finished with 4,100 units, said Linda Lee, board president of the San Diego Association of Realtors.
And with low inventory and tough competition in the residential real estate market, investors may start to flock to commercial properties, Lee said.
Chinese investors are telling Lee that the trend is moving to commercial, she said, because the opportunities in residential properties are limited. Many of Lee’s clients are real estate developers, and also include high-tech and biotech companies and manufacturers. And many of them are young entrepreneurs, she said.
“They are definitely looking at the U.S. overall and they are really looking at commercial because they got bid out on the residential side, as well,” Lee said. “They see tremendous opportunity in commercial.”
Cash buyers are outbidding first-time homebuyers, and the cash buyers are also being outbid by other investors. The competition is strong for properties listed under $1 million and properties up to $2.5 million are moving “fairly quickly,” Lee said.
“We have been bid out so many times and these are strong buyers. It’s just very difficult,” Lee said. “People are like, ‘Why is the inventory so low?’ Well, properties are coming on the market, but when you have so many offers, they take the property right off the market.”
The low inventory is making it difficult for homeowners selling to find another home to buy, and Lee said CAR and NAR’s prediction is that the tight inventory is here to stay for a couple years.
Lee’s clients who are first-time homebuyers are putting 5 to 10 percent down or trying to use VA loans, which she said is “very difficult,” and they have to put in a lot of offers to get one property. Lee recommends first-time homebuyers include a cover letter with their offer, to try to appeal to the seller.
“I think some of the things I get concerned about in my role as a branch manager are there are a lot of risk management issues that are associated with tight inventory markets,” Kilpatrick said. “Meaning, you see a lot of multiple offers, you see a lot of people attempting to outbid each other, to pull tricks, if you will, to try to be the one to get the property.”
Marty Conrad, regional vice president at Coldwell Banker Residential Brokerage, said the “psychology of the market is interesting,” because he said the economy is no better than it was two or three years ago.
“And yet, you look at what’s going on in real estate right here right now, it’s all psychological. It’s all in the minds of the buyers and sellers,” Conrad said. “The conditions haven’t changed -- loans are still difficult to get, rates haven’t changed much in the last couple years -- and now people are fighting over inventory. And the really smart people were buying properties two and three years ago.”
Lee said the chief economist of NAR said at a recent meeting that the unemployment number hasn’t really improved, and yet the vacancy rate is extremely low.
“Never in the history have you had the unemployment rate at that percentage with less than 5 percent vacancy rate,” Lee said.
While complaints are heard about a low-inventory market, Kilpatrick said there is one positive aspect to it: “A recovery with low inventory is a lot easier than a recovery with excess inventory, because that long trough in the ‘90s, there was no urgency on the part of the buyers. And now, because of low interest rates and the fact that there’s low inventory, the buyers who are able to buy do have that sense of urgency.”
Conrad said he’s seeing 35 percent of his sales in cash, throughout various price ranges. And Kilpatrick said her percentage of cash buyers is closer to 50 percent.
“Our mid-range is back, meaning the properties selling anywhere from $600,000 to $900,000,” Conrad said. “When they come on the market, if they’re priced even close to reality, they’re selling quickly. We didn’t have that before. Up until November, it was mostly the entry level or up to about $500,000.”
Those homes coming on the market are “opportunistic sales,” said Joshua Volen, president at CIRE Partners. The inventory is made up of homeowners who have an opportunity to sell, to get out from underwater -- and he said it’s the same situation with commercial properties.
Sellers are also now starting to be in the move-up market, Kilpatrick said. During the downturn, there were primarily short sales and foreclosures, and those buyers aren’t moving up or buying another property.
“Now some people, with the prices rising, have equity again and do become either move-up, move-down or move-away buyers -- people that wanted to sell their home here and move to Arizona or Nevada, or wherever they wanted to go. So that is starting to happen again,” Kilpatrick said.
Timing is “tough” for those who want to sell a property and buy another, Kilpatrick said.
“Because yours will sell instantly, but then are you going to be able to buy another one?" Kilpatrick said. "Especially if you’re trying to move the taxes or take the gain and do it all and time it properly -- it is pretty challenging."
Marty Conrad, Regional Vice President,Coldwell Banker Residential Brokerage
Leslie Kilpatrick, Branch Manager/Broker Associate, Willis Allen
Linda Lee, 2013 President, San Diego Association of Realtors (sponsor)
Joshua Volen, President, CIRE Partners