drscott | Palm Springs: cash and patience...

Had a conversation with

hotelbearsf about this the other day, and it's a topic other friends have brought up. Is it time to buy in Palm Springs?

The real estate world was very different in the Coachella Valley five years ago. Prospective buyers streamed through model homes while real estate agents poked pins onto maps to reflect constant sales — some posting $10,000 price gains by the month. Phones rang incessantly. Common were bidding wars, waiting lists, lotteries and house-flippers, the latter often cashing out six-digit profits.

It was fast and frenzied in 2005 as price seemed to be no object and affordability dissipated, squeezing many families out of the market.

The picture is a stark contrast to today’s market. The data, filtered from the Multiple Listing Service, market activity in key valley areas show that sales are up 25 percent compared to 2008. Overall sales volume is down 15 percent. Of 9,238 total home sales, 8,204 sold for $500,000 or less. The average sales price of homes below $500,000 was $182,369. That was 22 percent less than in 2008, when the average sales price was $236,160.

The sale of homes priced from $500,000 to $750,000 fell 21 percent. Of 9,238 total home sales, 452 homes sold above $750,000. Prices are so low that prospective buyers with cash, a ‘golden’ credit record, resilient investment portfolio and job security are swooping in to snag homes at prices not seen in nearly a decade.

And then there's this, from the Desert Sun:

John Husing is a longtime economist who focuses on Riverside and San Bernardino counties. Husing, ‘The critical question is one that can’t be answered: We don’t know for sure whether banks are going to, at some point, act precipitously against homeowners who are in trouble, but who — up until now — they’ve been allowing to slide.’

‘There are roughly 250,000 Notices of Default on file in Riverside and San Bernardino counties. We know there are more houses that are upside-down than that, so we don’t know if banks are holding off on the trustee’s sale or on evictions, the final act of foreclosure. With inventory on bank-owned homes down 50 percent, the market is acting precisely as predicted: Prices are slowly rising. Volume has made a big jump. Realtors are complaining about lack of supply.’

‘If banks do change their mind, aggressively take people’s houses and dump them on the market, then all bets are off: We could get double-dip recession. My forecast is, that won’t happen.’ Best advice for buyers: ‘If you don’t buy now, you’re nuts.’

My view: government and bank actions have acted to artificially slow the repricing and selling of houses in default, and there's going to be a long period when short sales and foreclosures will put downward pressure on the housing market most places, but especially in speculative second-home communities like Palm Springs. I think it's an okay time to buy carefully, but also think there's a chance of further declines -- prices are after all still much higher than is supportable by local incomes, and any pent-up demand from people wanting to get in at the bottom to speculate is about over.

Some of the places we've looked at in the past, like 48@Arenas and the Montage development in Cathedral City, now show price declines of over 50% from peak.

We'll be going down there to investigate buying a house....

Flat | Top-Level Comments Only

Curtis, I don't know if this would be of any interest to Paul and you, but I have a long time friend ... 85 years young ... who is moving back to Portland, OR to be closer to family. His long time partner, 40 years younger, died of cancer a couple of years ago. Ernie can no longer live without a live in attendant. I've stayed in his Palm Springs home ... three bedrooms, large, open den and kitchen, formal living room, gorgeous back yard with orange trees, pink marble throughout for flooring including on the lanai (a bit much) ... My understanding is that he's offering it for a short sale. I could find out more details if you would like ...

We're most likely looking for a new or recently-remodeled house. Your friend's place sounds charming, but we want good insulation and energy-conservation features. Feel free to send me a pointer to it when you know it, though!

I'm not certain of the age of the home, but it is extremely nice, stucco exterior. Here's the address. I would think it is listed: 2227 East Desert Park Palm Springs, CA 92262.

That's very interesting. Have been looking at prospective job opps in CA but shyed away due to fear of cost of living, home buying, etc. This is very promising.

It's very dependent on exactly where in CA. Some parts of the LA region have decent houses below $150K now. I wouldn't want to live there myself, but... and in Palm Springs, you can get a nice (older) condo in that range.

I do not know the Palm Springs market. I am a REALTOR in Phoenix AZ almost all of our sales are short or bank owned. I am also talking to folks on behalf of banks and lien holders with the current owners about the possibility of a modification on the current loans. There are so many people in this situation and most as far as I can see will not be keeping their homes.
As for the banks holding off of foreclosure, yes they do and have done so in the past, They wait until their current inventory is sold and then again send more our to the market in hopes of not flooding it bringing down prices even more. Our prices have increased a slight bit in the last 12 months. But looking at prices in Palm Springs to me they still seem high, well compared to the prices here in Phx. that is.

I'm not sure banks are particularly hesitating to foreclose to avoid flooding the market; no individual bank would be able to resist the tendency to sell first no matter what it does to housing prices. What I think is really happening is an unwillingness to recognize losses; a nonperforming loan that might turn around can be kept on the books without recognizing a loss directly. As the percent of loans not performing gets very high, though, they have to start foreclosing. Allowing millions of people to live in "their" homes rent-free for years is not going to happen, though some are getting 18 months free now. Foreclosing (or good workouts, in those rare situations where it can work) requires a lot of staff, which lowers apparent profit...

Having seen a little of the banks in action lately I'm not sure if it's a deliberate unwillingness to recognize losses or more generally bureaucratic sloth in facing the new reality or taking broad action of any sort (which I guess is really just a more general description of the same phenomenon). I'm not sure there is much rational direction being taken at least at the biggest banks, though eventually they will no doubt catch up with reality (by which time reality will have changed again).

... and that's surely part of it. The bank bureaucracy would have to streamline procedures to get more short sales and foreclosures through, and I hear of lots of situations where there are two mortgages and the two holders can't agree on how to eat the loss. Just doing the same old thing puts off the more serious issues for awhile....

Just got back from PS.

My personal sense of second home markets is of pronounced amplification of the already boom/bust nature of real estate. Unless you're an extraordinary market timer or in it for the really long term, I'd be reluctant to regard PS and similar markets as great investments. That's not to say it's not worth it if you otherwise wanto to have a place there (I think about it all the time) and of course you're an astonishingly good market timer so the usual rules don't apply to you. :)

Right -- amplification is a good word. But you have a pretty clear floor in an area like Palm Springs that is still going to grow: houses are now selling for about construction costs ($150/sq/ft.) in some cases, meaning the land value has gone to zero. It's gradually becoming a real town with permanent residents and increasingly a gay retirement place, and it's only going to be more so. So there's not a big downside, compared to, say, a ski resort which was always a faddish place to have a status house.

I think the proximity to LA (assuming it continues to grow) will help too. The exurbs of LA have almost reached the valley. Between my parents and my brother I have seen seven second home investments in my family over my lifetime; only one in hindsight would have been a great long term investment (though they managed a handsome short term profit on another and small profits on the others). They had one house on the CT shore - literally beachfront - unique location in a beach town that eventually became partly suburbanized - boy oh boy they never should have sold that one!

Two comments offered for what they're worth...

I recently accompanied some SF friends around PS as they considered purchasing a vacation/retirement home/condo. I was impressed with the level of quality property that one could purchase for a relatively low cost. So much so that I'm considering an investment there for myself.

However, I also learned of the risk one takes if considering purchase of properties constructed on "indian land". Costs are expected to increase, perhaps significantly, for the land leases, increasing the cost of home ownership while decreasing the perceived value of the impacted properties. Eye opening for me, certainly.

One of the signs that the boom was over-the-top was some development on native-owned land priced at exactly the same level as nearby owned land. Which makes no sense at all; buildings on 30-year leased land revert to the landowner in 30 years and so should be worth less. The tribes generally signal that they will be reasonable and re-lease at the time, but there have been enough instances of near-confiscation in other jurisdictions to discount such promises.

That said, if there's enough of a discount, it becomes worthwhile to buy on leased land anyway.

Palm Springs: cash and patience...

no subject

no subject

no subject

no subject

no subject

no subject

no subject

no subject

no subject

no subject

no subject

no subject

no subject

no subject