Market Thoughts – February, 2006

One hardly knows what to make of different statistics published by different news corporations -- one local daily newspaper says the December 2004 to December 2005 rise in house prices in Zip Code 92026 was 5+%, while the other newspaper says it was a bit over 10%.

That of course is mostly "inside the beltway" stuff for Realtors -- no one cares much...the important thing is that that the market was up!

With all of the talk about there being a "housing bubble," how can the market rise at all?The answer is that we may well be in a retrenchment, but there is no "bubble" in sight. The general economy is really quite strong, the stock market is strong, unemployment is low...and even at 5%, that is a HUGE "return on investment" because most people are well leveraged in the housing market.

The Median Priced Home sold in Zip Code 92026 in 2005 was $510,000. (Just for comparison, in 2004 the Median Priced home sold in Zip 92026 was $459,000! Yes, that indicates more than 10% this past year…, and in 1991 the Median Price was $175,000.

But there are signs that the overheated market has REALLY gone -- the Founder of the discount real estate company, IPayOne has left the company he founded and gone over to the full service agency, Prudential.

In a hot market, discount brokers do well -- but in truth, in an overheated market ANYONE can do well! There is only so much that a full service broker can "discount" -- advertising is costly; offices, computers and utilities are expensive; and insurance and litigation are ultra expensive.In a hot market, you can cover the costs with volume, but when the volume is not there, discount brokers have a much harder time.

The volume of home sales is sufficiently off from the overheated market that there is trouble brewing in discount land.

Homes of every sort are staying on the market longer...and some badly-priced homes are simply sitting. The sales prices are up, but the volume is down. That does not bode well for discount brokers.

Meanwhile, I am considering replacing "Date Built" on my List of Homes Available with "Time on Market."
"Date Built" has less and less impact in the Hidden Meadows market, because so many homes have been remodeled. IF the Listing Agent has properly priced the home, a newer or completely remodeled home SHOULD be in the $300/s.f. or higher range.

($/s.f. is a particularly gross methodology of judging the value of custom homes, but it is a "quick and dirty" that everyone understands…it does not take into account views, swimming pools, or the difference between tile and granite. Still…if you have nothing else to go by, it is a rule of thumb and only a rule of thumb.)

Our Hidden Meadows inventory is at its normal and historical high, as it is every Winter. The market USUALLY turn warm in March, hot in May, cool in September and cold every November – there is no reason to believe there will be a change this year.

The inventory is at a normal 47 today, and should drop to the 25 level by June.

February Real Estate

The market is "normal."

In December there were 10 homes closed, and while the December and January markets were cool -- the market is always cool in December and January.

Beginning in the first week of February, traffic picked up -- and more importantly the Buyers were asking the right questions. It is fairly easy to spot serious Buyers during an Open House because they are asking about the interest rates, the CC&Rs, traffic patterns, microclimates, neighbors, etc. (In effect, they ask the kind of questions that outside agents seldom know the answer to...)

Our terrific February weather has added to the interest -- our market gets pretty sparse during cold weather. There has been some good information in the North County Times -- our Zip Code gained 4% during the December 2004-December 2005 time frame, which certainly does not indicate a "bubble."

Buyers do not like to buy into a decreasing market -- they hate the thought of purchasing a home and having it worth less in six months.

They would rather have stability.

Different Zip Codes showed different results...92128 (Rancho Bernardo lost 1% -- but that is also a sign of stability.

Law of Unintended Consequences

There is a new California push for stricter sex offender laws, like Jessica’s Law, and I certainly support that.

But releasing sex offenders at all has unintended consequences to the public, and yet there are certain low-level, non-violent sex offenders who deserve to be eventually released back into the community.

The impact of sex offenders living in a community has unintended consequences.

Imagine living in an apartment or a condo next to a violent, recidivist sex offender.

Now, imagine trying to sell a house or condo next to a Megan’s Law sex offender!

Not all sex offenders are created equal. Some are violent, some are not. Some are "merely" flashers while others pose a physical threat to people around them.

Take this generic situation: You own a condo in a nice neighborhood. You decide to sell the condo, and weeks after the condo goes on the market a local resident tells you, "did you know the guy renting the condo next to yours is on the Megan’s Law website as a registered sex offender?"

No, you didn't know it but you do now and your condo is not going to be easily sold because once you know it, you MUST disclose it.

The other name we jokingly use in the real estate industry for Buyers is "Plaintiff."

Most lawsuits in the industry are for "Failure to Disclose" and a wise Seller will dutifully disclose EVERYTHING they know (or even suspect) in today’s litigious society.

How far away from your condo or home must other condo owners (homeowners) disclose this?

No one knows.

In GENERAL, the standard sales contract notes that it is up to the Buyer to visit the Megan’s Law website to "check out the neighborhood," and that is considered legally sufficient.

Fine, but there is also the concept of a "material fact."

A sex offender living next door certainly qualifies as a "material fact."

What about three doors down?

In the next block?

Two streets over?

Beats me!

Believe me no one knows the answer! At some point the location of a nearby sex offender passes from "go look it up yourself in the database" to being"a "material fact."

It’s not that a Seller cannot sell a condo (or home) with a sex offender living next door, it is just going to be more difficult, and it may well have to sell at a substantially lower sales price.

(Alternately, it has been known for a Seller to go to the sex offender and offer him many thousands of dollars to move! A particularly onerous sex offender could make a substantial living just being paid to move!)

It is against California law to refuse to rent to a sex offender who is on the Megan’s Law database, so the owner of the condo or home next door did not have an option to refuse the renter.

Why should a Seller lose money because the "lottery of life" has a nearby neighbor who must rent to a sex offender? Yes, there are other "lotteries" that make it difficult to sell a home or condo, like a barking dog next door, or even an obnoxious neighbor, (both of which must be disclosed) but NOTHING trumps a registered sex offender next door!

It is the kiss of death!

There are 66,000 registered sex offenders in the State of California. That means that there must be tens of thousands of homes/condos next door to a registered sex offender, or two doors over, and at least some of those homes, owned by innocent people, could easily come up for sale during the tenancy of the sex offender.

The "Law of Unintended Consequences" is distinctly at work in this area. It is another reason the "Disclose, Disclose, Disclose" because nothing can trip you up faster!