I try not to run predictions here, but this is really happening:
For units sold, REOs and short sales combined for 51.7% of the total market in January, up sharply from 6 months ago (about 20%). Clearly the San Diego market is starting to be dominated by REOs.
I called one of the top agents in San Diego yesterday, and she told me that the housing market is steadily getting worse with the flood of REOs. She said the banks are still dragging their feet on lowering prices, and she expects prices to decline 40% to 50% from the peak in many areas of San Diego. She gave me an example of a house that sold for $500K in 2005. The bank foreclosed and is now asking $380K – with no offers – and she believes it will eventually sell for $300K or less.
Feel free to correct me if I’m wrong, but I understand the terms involved like so: REO means “real estate owned,” or property that’s been foreclosed and is now in the hands of the lender. So those are bank sales, in which the lender/owner unloads the property for whatever they can get. A “short sale” is when foreclosure is looming, but the lender agrees to take less than the amount owed and forgives the rest of the debt. Sort of a nice way of tidying things up.
The fact that the combination of these now accounts for more than half of all sales in San Diego is pretty grim, and this is feeding on itself [see quotation above]. The same thing is happening in parts of Florida and elsewhere. If I’d bought a house anywhere in the last five years, I’d be a wreck these days, though at least I’d HAVE a damn house, now wouldn’t I? None of this equity crash would matter if the house was where we wanted to be forever, or even nearly forever. But running the mortgage calculations with a 50% smaller price would hurt like hell. Oh, baby.
In the meantime, if you want to play Monopoly with real houses, go to St. Francis, KS, just one of many places in flyover country where even now, you can buy all the homes you want for less than 20 grand. Those prices probably won’t come down much, either.
I’ve been to St. Francis. It’s actually quite pleasant if you like small in the middle of the great American high plains. Yes, there’s a website, which declares the population of “Sainty” to be 1,500. Sigh. These Midwesterners! You should note that 1,500 is the 2000 census figure, and that there’s been a steady decline of about 10% since then. The population was declining before the last census, it goes without saying, so I don’t imagine the property taxes are very high. [ahem] But don’t get me wrong, I like places like this. That they exist, pleases me, and there’s a part of me that can always imagine living out my life in such a spot — in splendid physical and social isolation, no doubt, since I’d never fit in, though the things you have to do to live like that are pretty simple. Geographically, if I recall correctly, when you head into St. Francis from the east, you drop down into a hilly little river valley. [getting up to check the Rand-McNally...] Yes, the South Fork of the, um, Republican River. Well, there is that. Kansas, you know.
But for all you students of regional psychology, you absolutely must take note of the town motto. A more quintessentially (and necessary) Midwestern spirit was never expressed. This is one for the record books, and believe me, I’ve seen a lot of these sentiments on Welcome to Wherever signs:
I think you need to read that two or three times, at least, with pauses for refreshment in between. If you really get it, you’ll either run screaming down the road or pack up all your worldy goods and head for Cheyenne County.
There are much worse fates, I’m sure.
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