Something Really Strange is Happening in the San Diego Home Market
Something Really Strange is Happening in the San Diego Home Market
Can Buyers and Sellers Make Sense of It?
Bidding wars. Moratoriums. Foreclosures. Short sales. Rising and falling median home prices. Over-reported home sales in May.
How are San Diego buyers and sellers supposed to interpret it all?
This much is certain. Something very strange is happening in the San Diego home market as a result of natural market dynamics and artificial government regulation.
On one hand, we hear about the diminishing number of foreclosures because of the government imposed moratorium on lending institutions. The government is saying to banks, “Since we've saved you with public money, we are going to make it harder for you to foreclose on peoples’ homes.”
We also hear about the difficulty of successfully navigating short sales. These deals seem to frustrate all involved as they wait for lenders to agree to reasonable terms.
Meanwhile the banks have investors demanding that something be done with the non-producing home loan assets. The foreclosure inventory diminishes and bidding wars ensue on the relatively few available properties while pressure builds within the banks to get rid of the many (and growing) delinquent loans.
This conflict of market economics and government regulation has created some truly strange symptoms.
An Actual Case Study of the Confusion
This week I heard about a foreclosure (REO) “sale” to an enthusiastic buyer who needed FHA financing and who had excellent credit. The only problem for everyone involved in the deal was that the accepted offer was 20% higher than the appraisal. (Had the bidding war had gone amok?)
The reactions of various parties to the transaction became sort of a case study of frustration and of how bizarre the current real estate market is in San Diego.
After receiving the lower appraisal, the bank’s REO asset manager indirectly told the buyer to just “cancel” the purchase. The appraisal was simply “unacceptable”.
Ah, but here’s where things get really interesting.
The REO bank and the buyer’s lending bank were the exact same institution. In other words, the REO asset manager couldn’t possibly hope for a more balanced appraisal! (Furthermore, FHA rules require that the appraisal stick with the property for six months after the appraisal so there was no way for the asset manager to "escape" the appraisal.)
The reaction of the buyer’s agent was quite peculiar (and a quite frankly embarrassing). The agent pleaded with the mortgage broker of the bank for a higher appraisal.
This is disturbing on at least two levels. First, the agent should have seen this as an opportunity to be the hero and negotiate a better deal for the buyer. Second, the agent clearly didn’t understand the futility of the request for a better appraisal. Who could possibly be more impartial than an appraiser representing both sides of the deal (i.e. the REO asset manager of the bank and the lending side of the same bank)? Also, FHA lending rules simply do not allow you to "shop" for an appraisal.
So what are we to learn from experiences like this?
Time will tell but in a market of increasing loan delinquencies and high unemployment, the reactions of some real estate players seem to be quite confused and contradictory at times.
Meanwhile, the pressure of investors on their banks’ boards of directors increases daily to take decisive action on non-producing loan assets.
We still find ourselves in a pressure cooker.
Brian Flock is a real estate columnist in San Diego and Baja California, Mexico. He may be contacted at Flock Dream Homes (www.flockdreamhomes.com ), brian@flockdreamhomes.com , or (619) 793-5224.