Category Archives: San Diego housing market

Overbuilding of Housing Keeps Downward Pressure on Prices

Calculated Risk has a post showing that single-family houses were greatly overbuilt for several years. Based on my research for and the experience of several of my clients, things are even worse for condo complexes than single family structures.

The percentage of buyers who are unable to complete their purchase agreements has gone through the roof in the past 6 months from already high levels.

To take a typical example, a 400 unit tower in San Diego or Miami would sell out in 2006, but as closing time approaches 20-60% are unable to complete the agreement, either because the decline in value greatly exceeds their deposit, or because financing is next to impossible for non-owner occupied condos.

Even in the city of San Francisco, the single strongest market in California (which is not saying much), banks that “pre-approved” people with steady jobs in 2005 and 2006 are now asking for 30% and 40% down payments on condos. Many people who can afford big down payments, if they previously prequalified with stated incomes and/or stated assets, are being rejected because those loans barely exist now.

This means (1) condo sales were overstated in 2004-2007 to the extent buyers who signed purchase agreements pre-construction are counted as sales (2) there is a huge inventory of new condos that the builders have not sold and have not listed.

Since building a condo high-rise normally takes 2-4 years, the next year is going to get worse as huge numbers of buildings are completed with half or more of committed buyers not closing, and few buyers able to obtain financing to replace them. The buildings sold in 2004 are only somewhat underwater and closing rates are generally fairly high. But the 05-07-started buildings are generally more cheaply made, were sold at higher prices, and not as well located. Builders are also trying to force closings on buildings before construction is completed on all floors and on amenities like pools and gyms, further encouraging people to default.

Why do I say condo buildings started in 2005, 2006, and 2007 are more cheaply made than older buildings?

(1) There was a “gold rush” mentality these years, and construction was rushed forward as everyone tried to cash in on the boom.

(2) Financing was so easy some fairly shady or completely inexperienced people were able to get bank loans to build condos.

(3) The market wasn’t so white hot in 2001-2004, so generally these complexes were built by experienced developers who knew what they were doing and were able to obtain prime locations in the weak real estate market of 1995-2002.

(4) The raw materials developers need for building: concrete, wood, metals, ceramic fixtures, glass, etc, all shot up in price from 2002 to 2007. This meant there was a lot more corner-cutting, and buildings built in this period were simply less “substantial” than older buildings.

(5) The market for construction labor was extremely tight during the boom years, often meaning shoddy construction by inexperienced illegal immigrants. With buildings going up everywhere, quality construction labor was stretched extremely thin.

(6) Perhaps worst of all, construction delays in some recently completed buildings could cause serious problems down the line, including toxic mold. I have heard some horrible anecdotes from contractors here in San Diego on how some new condo buildings here had drywall exposed to outdoors for months because of financing issues caused unplanned delays in construction.

Buyer beware!

Chula Vista’s full of cut rate foreclosed McMansions

Median income in Chula Vista’s 91914 zip code is above the national average. The problem, however, is that it’s not far enough above the average to support the insanely high prices of the 2003-2007 bubble years. Banks that loaned money for purchase of these homes during this time have only just began reporting what will turn out to be many millions of losses from these loans. Of course many of these loans ended up in mortgage-backed securities. Investors in these instruments also will lose millions, just from this single, lightly populated suburban zip code. Here is a small sample of the losses. All of these are either foreclosures or short sales:

2936 Ranch Gate Road
sold 6/06 $1.763M
resold by bank after foreclosure for $919K
-$844,032 (-48%) drop from 2006
.
897 Chesapeake Pl
sold 4/05 $1192K
for sale @ $678K
-$495,000 (-43%) drop from 2005

329 Plaza Paraiso
sold 5/05 $760K
For sale @ $475K
-$285,000 (-37%) drop from 2005

324 Plaza Paraiso
sold 5/07 $1000K
For sale @ $500K
-$500,000 (-50%) drop from 2007

982 Adirondack Pl
sold 2/07 $1.25M
For sale @ $639K
-$611,000 (-49%) drop from 2007

2912 Winding Fence Way
sold 4/06 $1.155M
For sale @ $750K
-$405,000 (-35%) drop from 2006
.
1042 White Adler Place
sold 5/05 $1.167M
for sale @ $689K
-$478,465 (-41%) drop from 2005
.
1015 Silver Oak Place
sold 7/05 $1.075M
For sale @ $649K
-$426,000 (-40%) drop from 2005
.
2916 Winding Fence Way
sold 3/06 $1.177M
For sale @ $699K
-$478,140 (-41%) drop from 2006
.
1019 Mountain Ash Ave
sold 5/06 $1.24M
For sale @ $850K
-$390,250 (-31%) drop from 2006
.
1046 White Adler Ave
sold 5/05 $1.058M
for sale @ $599K
-$459,450 (-43%) drop from 2005
.
2241 Lago Madero
sold 10/03 $334K
resold by bank after foreclosure for $280K
-$54,000 (-16%) drop from October 2003
.
957 Wind Cave Place
sold 6/03 $500K
resold by bank after foreclosure for $430K
-$70,000 (-14%) drop from June 2003

San Marcos Real Estate Collapse: prices down more than 50% from peak; well under 2004 pricing

San Marcos is one of the older cities in San Diego’s North County region, with a historic downtown. Nonetheless it has experienced rapid residential and commercial development, doubling in population from 39,000 in 1990 to about 78,000 today. Its population roughly mirrors the rest of San Diego, with a median family income of $75,860 ($6,000 higher than the US average) and 9.8% of families below the poverty line.

Condos

5XX Debra Place, 2 bed / 1.5 bath
Sold 10/06 290K
Bank owned foreclosure sold 6/08 @126K
-$164,000 (-57%) drop from 2006

Mission Park Condominiums #2xx
sold 8/05 $349K
resold 4/08 $160K
-$189,000 (-54%) drop from 2005

11XX Arbor Lane
sold 3/04 $260K
REO, for sale at $155K
-$105,000 (-40%) drop from early 2004

Mission Park Condominiums #1xx
sold 12/05 $312K
REO, for sale at $150K
-$162,100 (-52%) drop from 2005

57X Beverly Place
sold 3/06 $325K
For sale at $150K
-$175,000 (-54%) drop from 2006

-$3,900 (-3%) drop from previous sale in 6/2002

153X Grandon Ave.
sold 9/05 $315K
resold 5/2008 $140K
-$175,000 (-56%) drop from 2005

16XX Rue de Valle
sold 6/05 $310K
for sale at $149K
-$161,000 (-52%) drop

142X La Loma Lane
sold 2/06 $749K
Resold after foreclosure 6/08 $431K
-$318,000 (-42%) drop from 2006

343X De Leone Road
sold 6/04 $334K
For sale at $159K
-$174,900 (-52%) drop from 2004

353x De Leone
sold 7/06 $375K
REO, for sale @ 136.35K
-$238,650 (-64%) drop from 2006

4338 Altadena Ave #1xx
sold 9/05 $300K
REO, For sale at $161K
-$139,000 (-46%) drop

Detached Homes

158X Rambla Puesta
sold 5/04 $420K
resold 5/08 $212.5K
-$207,500 (-49%) drop from 2004

82X Mulberry Drive
sold 11/04 $540K
For sale @ $350K
-$190,100 (-35%) drop from 2004

23X Falcon Place
sold 6/04 $675K
resold 5/08 $500K
-$175,000 (-26%) drop from 2004

73X W Bel Esprit Circle
sold 4/06 $750K
resold 5/08 $507.5K
-$242,500 (-32%) drop from 2006

143X La Linda Drive (2/2, 1800SF)
sold 1/05 $750K
REO, for sale @ $327.75K
-$172,250 (-34%) drop from 2005

61X Hillhaven Drive (3/3 1500SF)
sold 9/04 $490K
short sale, for sale at $375K
-$115,000 (-23%) drop from 2004

81X Via Bella Donna(4/2 1200SF)
sold 8/04 $440K
REO for sale at $220K
-$220,000 (-50%) drop from 2004

106X Camino del Sol (5/3 2900SF)
sold 11/04 $655K
short sale, for sale at $475K
-$180,000 (-27%) drop from 2004

1308 Camino del Sol (4/3 1700SF)
sold 8/05 $555K
REO, for sale at $399K
-$156,000 (-28%) drop from 2006

Meltdown in San Ysidro: 47-68% price drops from ’04-’06 prices

.

San Ysidro is located about 15 minutes south of Downtown San Diego and the last neighborhood before the US/Mexico border station. Washington Mutual (WaMu) seems to be the major mortgage bank serving this region.

 

As ugly as the market looks from these big losses, a lot of these are closed sales that were priced in 2007 or REOs where the borrower fell behind 4-10 months ago. In other words, they reflect 2007’s economic problems, before the economy was in a recession. As 2008 wears on, these numbers will get much worse.

 

Don’t miss the sneak preview at the end of this post of my forthcoming look at the market in San Marcos, a middle-class suburb and college town in northern San Diego county.

 

2 bed/2 bath Condo at Villa Serena

Sold 6/06 293K

Bank owned foreclosure for sale now at @110K

-$183,000 (-62%) drop

 

3 bed/2 bath condo on San Ysidro Blvd

Sold 1/06 360K

For sale @ 154.9K

-$205,100 (-57%) drop

 

15xx Smyth Ave 3 bed 2.5 bath

Sold 6/05 $385K

For sale @ $199

-$186,000 (-48%) drop

 

Sunset Village #6X (1 bed unit includes new granite/maple/chrome kitchen, patio, and fireplace)

Sold 9/04 235K

For sale @ 75K

-$160,000 (-68%) drop

 

1545 Terrace Pine Lane #X (3 bed/1.5 bath)

Sold 6/05 320K

For sale now at @135K

-$185,000 (-58%) drop

 

1816 Isla Del Campanero (4 bed/2 bath 1978 build SFH)

Sold 5/06 560K

Bank owned foreclosure for sale now at @299K

-$261,000 (-47%) drop

 

2 bed/2 bath Condo at Villa Serena

Sold 4/05 285K

Sold 4/08 125K

-$165,000 (-56%) drop

 

2746 Terrace Pine Dr #X (2 bed/1 bath townhouse w/granite kitchen and hardwood floors)

Sold 6/05 313K

Bank owned foreclosure for sale now at @139K

-$174,000 (-62%) drop

 

2 bed/2 bath Condo at Villa Serena

Sold 6/06 293K

Bank owned foreclosure for sale now at @110K

-$183,000 (-56%) drop

 

3095 Iris Ave #E (3 bed/2.5 bath condo)

Sold 10/05 360K

Sold 1/08 159.9K

-$200,100 (-56%) drop 

– San Marcos Sneak Preview –

5XX Debra Place, 2 bed / 1.5 bath / built 1975

 

Sold 10/06 290K

Bank owned foreclosure for sale now at @132K

-$158,000 (-54%) drop

Escondido, CA market in freefall, many many examples of 40%+ price drops

Escondido is has a population of 133,000, making it the 4th largest city in San Diego County and 178th largest city in the USA. As you can see from the examples below, price drops of 40% or more are getting very common. And remember these aren’t even 40%+ drops from the absolute peak of the bubble, but from sales in 2004. So these losses may be excluding 2nd mortgages written off due to short sales or banks deciding to eat losses rather than pursue deficiency judgments.

Pepperwood Unit #10x
Sold 6/04 $240K
Bank owned foreclosure for sale now at $125K
-$115,100 (-48%) loss
 
Pepperwood Condos Unit #9x
Sold 5/04 $225K
Resold 1/08 $126K
-$119,000 (-44%) loss
 
Pepperwood Condos Unit #3x
Sold 9/05 $245K
For sale @ $118K
-$127,000 (-52%) loss
 
2566 White Oak Place #x
Sold 9/06 $309K
Bank owned foreclosure for sale now at $150K
-$159,100 (-51%) loss
 
31xx Sycamore Crest Place
Sold 2/05 $735K
Bank has approved short sale $450K
-$285,000 (-39%) loss
 
2012 E. Mission Ave #xx
Sold 6/05 $231K
For sale @ $120K
-$110,700 (-48%) loss
 
16xx Hawk Ridge Pl (5 bed 2.5 bath 2820 SF on cul-de-sac!)
Sold 8/06 $588K
For sale @ $320K
-$268,000 (-46%) loss
 
475 N Midway #2xx
Sold 5/04 $225K
Bank owned foreclosure for sale now at $125K
-$100,000 (-44%) loss
 
Sun Mountain Springs Condos – 520 Sandalwood #1x
Sold 10/05 $318K
Bank owned foreclosure for sale now at $175K
-$142,500 (-45%) loss
 
7xx Goldenrod St. (3 bed 2 bath single family with big yard)
Sold 9/06 $488K
For sale @ $220
-$267,000 (-55%) loss
 
24xx Hawthorn Glenn
Sold 8/06 $365K
Bank owned foreclosure for sale now at $200K
-$165,100 (-45%) loss
 
2912 E Valley Parkway #x
Sold 5/05 $355K
For sale @ $180
-$175,000 (-49%) loss
 
1xx Foxdale Place (2/1 bungalow with small garage)
Sold 5/05 $331K
Bank owned foreclosure for sale now at $180K
-$151,100 (-46%) loss
 
915 N Fig St #x
Sold 9/06 $275K
For sale @ $120K
-$155,000 (-56%) loss
 
1xx Espanas Glenn
Sold 10/05 $320K
Bank owned foreclosure for sale at $149K
-$171,500 (-54%) loss
 
1405 N Broadway #x
Sold 6/06 $386K
For sale at $195K
-$191,000 (-49%) loss
 
8xx Daisy St
Sold 1/06 $480K
Resold 1/08 $283K
-$197,000 (-41%) loss
 
10xx Nightingale Place
Sold 8/04 $560K
Resold 12/07 $322K
-$238,000 (-43%) loss
 
280xx Glenmeade Way
Sold 2/07 880K
Listed for sale 12/07 by foreclosing bank @ 570K
-$310,000 (-35%) loss (bank lost 300K+ on this loan in less than 10 months! Likely a first payment default)

San Diego real estate market in freefall; Banks dumping REOs 30-60% below bubble prices

Earlier posts here have given examples of a house in trendy Mission Hills falling 44% in price, and a condo in Cortez Hill selling at 58% below its 2006 price.

These are not just extreme examples, 30-60% losses are becoming the norm in many San Diego neighborhoods. Here are examples from Downtown, Imperial Beach, Chula Vista, and Spring Valley. These neighborhoods represent a good cross section: an urban area, a beach town, a big suburb, and a big exurb.

Spring Valley (A big exurb)

1034 Leland St #2x
sold 1/05 $275
Bank owned foreclosure, for sale at $135K
-$140,000 (-51%) loss

3557 Kenora Dr #5x
sold 7/05 $285K
Bank owned foreclosure, for sale at $120K
-$165,000 (-58%) loss

6xx La Presa Ave
sold 5/06 380K
resold 1/08 220K
-$160,000 (-42%) loss

102xx Madrid Way
sold 1/06 $240K
resold 1/08 $130K
-$110,000 (-46%) loss

 

Imperial Beach (a beach town south of San Diego)

5xx 7th Street
sold 5/06 $475K
resold 1/08 $275K
-$200,000 (-42%) loss

832 13th Street #x
sold 6/056 $326K
resold 11/07 $200K
-$136,000 (-39%) loss

 

Downtown (an urban area with lots of condo towers)

AcquaVista Condo Tower #170x
sold 6/05 $983K
resold 12/07 $595K
-$343,000 (-39%) loss

Trellis Gaslap District Condo #20x
sold 7/05 $445K
resold 12/07 $309K
-$136,000 (-31%) loss

Discovery Cortez Hill Unit 21x
sold 7/04 $699K
resold 12/07 $470K
-$229,000 (-33%) loss

Union Square #240x
sold 9/04 $385K
resold 12/07 $270K
-$125K (-30%) loss

Laurel Bay on Banker’s Hill #11x
sold 9/05 $407K
resold 12/07 $280K
-$127,000 (-31%) loss

 

Chula Vista (San Diego’s biggest suburb)

289 Tiburon Dr #18x
sold 11/05 $410K
listed as a shortsale for $245
-$165,000 (-40%) loss

710 Eastshore Terrace #1x
sold 7/05 $316K
resold 12/07 $207K
$109,000 (-34%) loss

13xx Silver Hawk Way
sold 12/05 $936K
resold 1/08 $608K
$328,000 (-35%) loss

If you are a bank or happen to own mortgage-backed securities, this is what is happening to your collateral. With losses like these, plus holding costs (maintenance and repairs, monthly HOA fees, property taxes) plus foreclosure costs, plus commissions to Realtors and/or auctioneers, I wonder if loss severities of 50-70% will become the norm in the many foreclosures in this area.

Since California is a non-recourse state, there are vast numbers of new suburban subdivisions, apartment to condo conversions, and new condo towers that were built here in San Diego in the past few years where virtually every buyer is underwater and has a financial incentive to walk away. The combination of record foreclosures and record loss severities suggest the huge 4th quarter write downs by all the banks that are long mortgage debt are just the beginning.

Allen v. Smith: A San Diego home buyer gets a big deposit refund

In my last post I explained that California has a strict rule that in most circumstances people who have put down a deposit on a house or a condo in the state are entitled to a refund of all but 3% of the purchase price from their deposit. Thus, for a million dollar condo with a 100,000 deposit, in California the buyer presumptively entitled to a refund of $70,000 from his $30,000 deposit.

This general rule has exceptions however. First, the buyer may have cause to rescind the house/condo purchase agreement, and receive a complete refund of his deposit. Or the seller may try to convince a court that it suffered damages in excess of 3% of the purchase price, though this is typically a difficult task. For the most part, however, when a buyer decides not to follow through and close on a condo purchase agreement, the seller may not keep any more deposit money than 3% of the purchase price.

One interesting example of a California buyer successfully suing to get most of her purchase price back involves a mansion right here in San Diego, in the Rancho Santa Fe neighborhood. The case is Allen v. Smith, 94 Cal. App. 4th 1270 (4th Dist. 2002).

In March 1999 Plaintiff Barbara Allen agreed to pay $1.775 million of the house of Defendants Frank and Jeri Smith. Allen put down an initial deposit of $20,000, and about two weeks later paid a second deposit of $80,000, just as the purchase agreement specified.

In May 1999 Ms. Allen told the Smiths that she was backing out of the purchase, and asked for a return of her second deposit of $80,000. The Smiths refused to return any money, so Ms. Allen sued.

So the position of Ms. Allen is that she should get $80,000 of her $100,000 deposit back because the second payment really wasn’t a purchase deposit. The Smiths’ position was that they should get to keep all of the deposit because the plain words of the purchase agreement that Ms. Allen signed said the deposit was “nonrefundable.”

The California Court of Appeals, however, give neither side exactly what it wanted, but instead followed both the spirit and the letter of California law, and let the Smiths keep 3% of the purchase price from the deposit, and ordered them to return the rest of the money to Ms. Allen. Ms. Allen’s $100,000 deposit was 5.6% of the purchase price, so the Smiths had to return 2.6% back, or $46,750.

Greg Weston is a graduate of Harvard Law School and experienced business attorney licensed in California and Florida. Mr. Weston’s San Diego-based practice focuses on representing individuals and small businesses against large corporations, including cases involving condominium purchase agreements and other real estate investments. He can be reached at (619) 255-7098 or greg@thewestonfirm.com. Comments about the blog via e-mail are welcomed.