As the news is fond of reporting, housing sales seem to creep up one month and down the next in San Diego. Here is a startling statistic that should give some perspective on why the housing market in San Diego is struggling to continue moving.
For every two homes that begin an escrow in San Diego, one of those homes is going to fall out. Said another way, 50% of transactions that begin in San Diego will fail before the closing documents are signed.
Let’s examine some reasons why.
Transactions are Taking a Long Time
40% of the market place transactions right now are done as what’s referred to as a short sale. A sale where the home has negative equity and the bank accepts a reduced pay off to facilitate the transaction.
This is a great deal for home buyers since they’re not forced to get into the market when prices are greatly inflated, but the simple reality is that these transactions can take an extremely long time to finish. It’s not unusual for a short sale transaction to take more than six months up to a year to complete.
Variables include the lender, the borrower and any junior liens that are involved. Negotiation of a short sale is not a simple real estate transaction and there are simply not enough qualified real estate professionals counseling clients as to the realities and complexities of the transaction. This needs to change if San Diego is going to see a robust real estate recovery.
Doom and Gloom News
When was the last time we were able to turn on the news and hear some really fantastic news? Aside from the miraculous rescue of the Chilean miners, I can’t remember when. The last time there was a positive or in depth news story that helped the real estate market was probably in 2007.
The basic reality of the news cycle is that focusing on the negative aspects of the market makes money. 50% of escrows failing for instance will probably be reported, but any analysis as to why or how to fix it will be sorely lacking.
It is important that real estate professionals and those involved in real estate transactions focus on their individual deal. Human beings aren’t particularly good at predicting the future. The point is to pay a fair price for what you’re looking to buy and to enter into your individual transaction with what Warren Buffet would call a “margin of safety.”
That is, don’t spread yourself too thin. We’ve seen what the consequences of spreading money too thin can be.
One unfortunate consequence of a market like the one San Diego is experiencing is that buyers think that they can steal a piece of real estate. As a result a buyer will go all over town putting in low ball offers on tens of different pieces of property with the intention of purchasing possibly one or two of these.
Buyer’s agents need to counsel their investor and buyer client that entering into a transaction with integrity is extremely important for market confidence and market recovery. There is an aspect of all for one and one for all in this market place that simply needs to be respected in order for trust and realistic predictors to return.
In September and October of 2010 50% of transactions that made it to the escrow phase failed. That’s troubling, but not insurmountable. If the San Diego market is to return buyers and sellers need to have better expectations of the market realities and the complexities of their given transaction. It is the responsibility of real estate agents and brokers to counsel their clients and to deliver on their promises.
The real estate industry is not only a game of numbers and statistics. Expectations and emotions play an enormous part in a distressed market like the one San Diego is currently experienced. This often overlooked responsibility of agents needs to be respected if we are to see recovery in 2011.