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Scarce Sellers, Bullish Buyers

Posted by Tyson Lund on Thursday, September 20th, 2012 at 3:19pm.

This is the October 2012 article for the Carlsbad Business Journal.  -Tyson Lund

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Fewer homes for sale amidst falling mortgage rates has left North County San Diego’s real estate market in a temporary seller’s market.  A 'sellers market' is defined as a time period when buyer demand for housing exceeds available supply.  A sellers market gives those selling property an opportunity to secure a higher price, sell faster and/or negotiate superior terms than compared to recent comparable sales.   And although only a fraction of the strength of the extreme sellers market 2004-2005 and possibly only temporary, the current sellers market is being confirmed with several key metrics used daily by real estate practitioners..  

Experienced brokers will tell you that a real estate market is rarely ever an 'even' market.  It either favors the buyer or the seller.  And this guides pricing and expectations in a home sale.  An important component to a successful real estate transaction is properly measuring demand for a given property.  This cannot be determined by directly querying potential homebuyers vs the number of homes.  Homebuyers do not register on a central database. Professionals use several key metrics to define their local market.  A metric used is the average time-on-market or how long a typical home takes to sell.  Average market time in the Carlsbad market is 34 days for a traditional single family home sale (no short sales). This compared to an average 60 days a year prior and 90 days during the 2007 to 2009 Carlsbad market.  Another metric to watch how close comparable homes are selling to their asking price.  In today's market, homes are selling at 98% of asking price, an average discount of only $15,000 off current asking prices of Carlsbad homes priced under $1M.  Last year, the average was 97%.  And this is important as the average asking price for a Carlsbad home is now higher than in 2011.  The average asking price for homes between 2,000 sq.ft and 4,000 sq.ft in Carlsbad between June - September 2011 was $705,000 with a sale price of $682,000.  This year, during the same time period, the asking price rose to $717,000 with a $700,000 sale price.  And remember, this average home sold in half the time.    

And although these facts pertain to Carlsbad, as this is a Carlsbad focused publication, the numbers are similar elsewhere in North County San Diego.  Government intervention into the mortgage market has pushed rates to never-before-seen lows.  Average 30-year fixed rates are at around 3.5%.  This has dramatically lowered average monthly home payments and made higher local home prices 'affordable'.  Most will find Carlsbad homes as high as $800,000 less costly than renting a comparable home.  The current market is making even career renters question a continued course of action.  North County's rental market has seen strong demand for rental housing resulting in higher rents and fewer available rentals.  Property managers are noting a dozen applicants within the first week of showing their property.  Over 50% of the property for sale in North San Diego county has been distressed property; either a short-sale or foreclosure.  With a foreclosure, the homeowner is typically unable to borrow and buy another home for five years.  Short-sellers have to wait 2 years.  These are people that still need a place to live.  The competitive rental market has also created housing demand from investors.  Investors have been successful in securing rental returns rarely seen in real estate.  Lower home prices, higher rents and cheap money are enabling 10% to 12% returns on a cash home purchase.  And some will borrow 75% of the home’s value at a 4.25% rate and use the leverage to push their returns much higher.   

October is traditionally the start of a slowdown in local real estate.  Sales begin to decline from summer months, while school and holidays take center stage.  However, the current market is showing no signs of following tradition as demand remains high and supply stays low.

Tyson Lund
Broker Associate | 01385039

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