For those of you who don’t want to spend time reading the entire post, here are the key points:
A few weeks ago a 4,000+ sqft, 26th floor condo at the Metropolitan (top 10 floors of the Omni Hotel) came on the market for $3,995,000. A short 10 days later, the condo went pending.* And while this price point is not typical, it’s not unusual for listings to get multiple offers and sell within a few weeks. Prices are the highest they’ve been since the market crashed and buyer’s are in a hurry to get into the market before it’s too late.
In 2012, 57% of all home sales in California had multiple offers – this is the highest percentage of multiple offers the market has seen in the last 12 years. On average, each listing with multiple offers that sold in 2012 had 4.2 offers, up from 3.5 offers in 2011. Additionally, 41% of all California homes sales sold at the asking price or higher, which is the highest since 2005.
Fewer Listings Create More Multiple Offers
One of the main reasons why the market has picked up, is because of the incredibly low interest rates. Interest rates have been dropping since 2011 and rates hit an all time low of 3.35% (for a 30yr fixed) in November of 2012. Look at how much money you would save by buying now, versus when rates rise to 5%:
Purchase price of $500,000 with 20% down
At 3.5% – your monthly Principal and Interest payment would be $1796.18 – or $646,624 over the lifetime of the loan.
At 5% – your monthly Principal and Interest payment would be $2147.29 – or $773,023 over the lifetime of the loan.
In this scenario, a 1.5% increase in interest rate would cost you about $351/mo, $4,212/yr, or $126,399 over the lifetime of the loan.
With mortgage payments as low as they are, many renters are realizing that they’re throwing their money away on rent. A typical downtown San Diego two bedroom condo will rent for about $2400-3000/mo. depending on size, location, views, etc. That same condo can be purchased for anywhere between about $400-600K, which would have a total monthly payment of about $2350-3280/mo (based on 3.5% mortgage, 1.25% property tax and $500/mo HOA). The mortgage payments I just quoted do not include the tax write offs, which would lower their payments by a few hundred dollars, making owning a home cheaper than renting. Yes, you still have ton consider the down payment, but with interest rates so low, most people aren’t making much money on their savings/investments anyhow.
Reasons for Buying: First-Time Homebuyer vs Repeat Homebuyer
Another reason for the increase in price and activity is because of the extremely limited amount of homes for sale. There has been a huge drop in distressed sales (short sales and foreclosures), which previously had contributed to a large portion of the market’s inventory. Statewide, there were 53% fewer short sales and 48% fewer REOs (Dec. ’11 to Dec. ’12). And as more buyers realize they’ve missed the bottom and rates won’t stay this low much longer, they’re frantically flooding the market with their offers (read: you should sell now).
Currently, there are only 145 condos for sale downtown. There are 161 contingent and pending sales and 207 condo have been sold in the last 90 days (or 69/mo) – that’s leaves with a mere 2.1 month’s supply of inventory. The last 11 listings I’ve taken have had multiple offers and I don’t see this trend ending anytime soon.
If you’re thinking about buying, or selling, please let me know if I can help. Denny Oh 858-243-2092 email@example.com
*The day before I wrote this, the Metropolitan condo came back on the market. At least we know there are buyers!