Mike Cotter's San Clemente Real Estate Blog

I just hope it’s not another bubble.

San Clemente real estate market prices are up 13% over last April, and volume is up 49%.

April’s rise in price and volume is an acceleration of an up trend that began in January.

Sometimes, you just have to look at the numbers to appreciate the full picture. Comparing this April to last April:

• Residential sales volume rose from 68 to 101.
• Home median price jumped from $588,250 to $662,500.
• Average days on market dropped from 125 to 109.
• Pending sales in escrow skyrocketed 30% to 257 homes.
• New listings plummeted 24% to 110.
• Inventory of homes for sale shrank 51% to 196.
• Inventory in months shriveled from 5.7 to 2.8

Comparing April 2012 to April 2011, it certainly looks like a screaming seller’s market.

But keep in mind that last April is a pretty lousy benchmark.

Also remember that San Clemente’s seasonally adjusted appreciation rate has not been positive in over five years, and still isn’t, hovering right now just under a 0% growth rate.

Of course, different neighborhoods perform differently.  While it’s nearly impossible to find a home for sale in the southwest part of town right now, I notice that nearby Beach Road has a very high 13 homes for sale.

It seems these days that the only consistent thing about real estate is change.

For more on the San Clemente housing market, check out MCotter.com, especially latest market statistics and neighborhood stats.

In case you haven’t noticed, the San Clemente residential real estate is hot hot hot.

This is not so much due to screaming appreciation rates, which are improving for sure, but due to a perceived seller’s market brought on by a very low inventory.

Advice to buyers: Remember that price appreciation is not guaranteed.

Advice to Sellers: Don’t get too cocky.

Are we now truly in a full blown real estate bull market, with nothing but blue sky ahead?

Maybe, But we had a false alarm of sorts a year and 1/2 ago. In October 2010 the appreciation rate jumped into positive territory, so strongly that even the seasonally adjusted growth rate inched into the black for the first time since August 2007.

Things look pretty good. But then the home median price slipped back again into negative growth for more than a year.

By the way, in the midst of this lackluster market, in May 2011,I gazed into my cracked crystal ball and made this market prediction:

“The San Clemente home real estate market …will remain flat for at least another year…. (and then) home prices will rise along with inflation over the next ten years. The rise will be substantial, as it was in the 1970s.”

Making market predictions is never wise, but so far I’ve been near the mark.

In October of last year, I reported on the incredibly shrinking inventory for sale. I said, ” Home sellers are pulling their homes off the market…in droves.” Sooner or later, I predicted, the law of supply and demand would have to force prices up.

In January it finally hit. A jolt in prices moved the home median price up to $625,000, an annual appreciation rate of 4 percent.

In February, prices jumped at an annualized rate of 5 percent.

In March, prices bolted again at an 8 percent annual rate.

(By the way, don’t add these numbers, but average them to calculate that prices rose at an annual rate of about 5.6 percent in the first quarter of 2012.)

But might this be yet another false start like the one in October 2010?

Keep in mind that monthly price growth numbers fluctuate wildly, forming a saw-tooth or seismograph pattern that defies logic. To make sense of the numbers, an average “seasonally adjusted” growth rate is calculated.

While the raw numbers from the first quarter of 2012 show positive growth, the latest seasonally adjusted growth rate is still in red territory at about a negative 3.8 percent.

Having said that, I have to tell you that it sure FEELS like a bull market.

For more on the San Clemente housing market, check out MCotter.com, especially latest market statistics and neighborhood stats.

     But it’s not exactly late-breaking news, is it?

There’s an old joke that the stock market has predicted seven of the last two recessions.

Something similar could be said about the uptick in local real estate activity that tends to occur in January of each year.  Lots of new post-holiday listings and “busy, busy, busy” anecdotes give the impression that market prices are on the rise.  Usually, however, they’re not.

But this January, local home prices experienced a substantial jolt to the upside, even though nothing else very dramatic happened with other statistics.

According to the CRMLS — the multiple listing service used by realtors — San Clemente’s home median price came in at $625,000, up 4% from last January’s $600,000.  Since the housing bubble burst in 2007, this is a rare year-over-year January price uptick.

So, why did January 2012 turn in such a great market performance?

It wasn’t because of high volume.  Local sales actually dropped to 42 homes, 26 percent fewer than last January.

It wasn’t because of a drop in short sales — homes sold at prices less than owed.  As a percentage of total volume, January short sales actually increased this year.

I think January prices went up because buyers finally responded to a “for sale” inventory that has been steadily shrinking for 18 months.  Right now there are only 265 San Clemente homes for sale.  Compare that to 393 for sale last year at this time, and 630 homes for sale four and a half years ago.  It seemed late in coming, but the law of supply and demand finally arrived in January.

Another measure of supply is how long it would take to sell the current inventory at the current sales rate.  There are different ways of doing the math, but I calculate four months.  No matter how it’s calculated, however, San Clemente hasn’t seen this kind of limited supply in six years.

So, what does the January market price jolt mean?  Are rising prices finally back?

Remember that the typical January closed sale represents an escrow opened 90 days earlier.  So here in nearly March, looking at January activity, we’re actually looking at buy decisions made nearly half a year ago, back in October.

If rising prices are back, that’s great news.  But it’s not exactly late-breaking news, is it?  We always learn about the major moves well after they’ve started.

For more on the San Clemente housing market, check out MCotter.com, especially latest market statistics and neighborhood stats.

With apologies to Charles Dickens.

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us….”

So begins A Tale of Two Cities (1859) by Charles Dickens, one of the most famous novels in the history of literature.

But these memorable opening lines seem to describe not only Paris during the French Revolution — but also San Clemente’s current real estate market.

Best of times, worst of times: An incredible shrinking inventory should raise market prices, but San Clemente prices have been falling.

Age of wisdom, age of foolishness: We have learned a lot about the perils of “no money down” real estate investing, but you can still get a government-guaranteed home loan with just 3.5 percent down.

Epoch of belief, epoch of incredulity. We trust that the government wants to spur the economy, but, honestly, how much lower can mortgage interest rates go?

Season of light, season of darkness: The Internet has made the real estate market transparent for everybody, but short sale lenders and bank property owners act like we’re in the informational Dark Ages.

Spring of hope, winter of despair: Consumer confidence is climbing, but the market is still largely controlled by distressed property owners.

Everything before us, nothing before us: Real estate is traditionally the way to grow wealth in California, but those who bought their first home in the last five years may never want to buy one again.

Maybe this is just the way any real estate market is going to look after five years of downturn — a picture full of dichotomies.

It’s hard to predict the bottom of any market, especially in the short term. But eventually our multi-trillion dollar national debt is bound to stoke the embers of inflation.

And long-term local real estate appreciation is generally equal to the local rate of inflation.

For more on the San Clemente housing market, check out MCotter.com, especially latest market statistics and neighborhood stats.

Pop Quiz!

Only two questions:

1. Which area of San Clemente has suffered the most from declining real estate market prices since the peak in 2007?
2. Which area has suffered the least?

Choose from the nine areas of San Clemente:

• Coast District

• Forster Ranch
• Marblehead inland
• Rancho San Clemente
• Central
• North
• Southeast
• Southwest
• Talega

Before you answer, keep in mind that San Clemente conventional wisdom maintains at least two unalienable truths:

1. The closer to the ocean, the more expensive the real estate.

2. The closer to the ocean, the higher the expected appreciation rate over time.

I can tell you that most active local real estate agents have stories to support these views, including myself. I have helped to perpetuate notions that seemed pretty obvious — namely that inland Talega developments have experienced worse price performance since 2007 than the seaside neighborhoods of, let’s say, Southwest San Clemente. I should have checked the numbers more carefully.

So, here are the correct Pop Quiz answers, according to data gathered from the California Regional Multiple Listing Service:

1. The area that has suffered the most since the 2007 peak is not Talega, but North San Clemente (with a 33.4 percent price drop.) This area is north of Avenida Pico, has substantial ocean views and frontage, straddles both sides of the Interstate 5 Freeway, and includes such diverse neighborhoods as Shorecliffs, Seascape Village, Ocean Hills and Seapoint Estates.

2. The area that has suffered the least since 2007 is not Southwest San Clemente, but unbelievably…Talega! (with a 24.9 percent price drop.)

It’s true that the Southwest currently has the most expensive home median price in all of San Clemente (about $725,000 versus the citywide average of about $593,000.) But it doesn’t automatically follow that the Southwest’s appreciation rate always has or always will outperform other areas of the city.

In a market like San Clemente, buyers as a group are drawn to certain areas often because other areas have become relatively more expensive. This will tend to even out neighborhood appreciation rates over time.

In this case, since the peak in 2007, Southwest home sellers held out for a couple of years, refusing to discount their selling prices. (They even remarkably managed to increase their market value by five percent in 2008.) Finally, however, they capitulated in 2010 and lowered their prices dramatically.

At the same time, Talega home sellers started discounting early in 2008 and even more in 2009. By 2010, Talega was considered an excellent bargain by buyers, who flocked to its neighborhoods, resulting in firmer selling prices. By 2011, Talega’s overall price performance since 2007 ended up edging out all other areas of town. What a delightful surprise.

Since the peak in 2007, here are market price drops taken by each of the nine areas of San Clemente:

•Talega 24.9 percent
•Coast District 25.7 percent
•Southwest 26.1 percent
•Marblehead 27.0 percent
•Forster Ranch 28.0 percent
•Southeast 28.5 percent
•Rancho San Clemente 30.2 percent
•Central San Clemente 32.7 percent
•North San Clemente 33.4 percent

For more on the San Clemente housing market, check out MCotter.com, especially latest market statistics and neighborhood stats.

The Law of Supply and Demand be Damned.

I wrote about San Clemente’s incredible shrinking housing inventory last October 25 when the local homes-for-sale supply dropped to 369 homes.

Since then, the inventory has further plummeted to 303 – as of this writing.

Something different is happening here.

This is not just a seasonal phenomenon. Sure, people sometimes pull their homes off the market for the holidays, but not to this extent. Inventory hasn’t been this low in almost six years.

Everyone knows the basic law of Supply and Demand. Make something more scarce and the price goes up.

So why are prices still flat or down a bit from last year? Sales volume (demand) is normal. Could it be that prices are not rising because the type of buyer has changed? Normal emotional folks looking for homes could drive up prices, but they are finding it difficult to qualify for home loans these days. But investors with cash seem to be having no problem snapping up properties at low prices (at least anecdotally.) If this phenomenon were true, prices might not rise in a “cash is king” environment, even with a lower supply.

Here’s a quick snapshot of the San Clemente residential real estate market on Thanksgiving Day, 2011:

• The median list price is $729,900.
• 73 percent of the inventory are “standard sales.”
• 27 percent of the inventory are “distressed” (either “bank owned” or “short sales” listed for less than owed.)
• 72 percent are single family homes.
• 28 percent are condominiums.
• 55 percent are in zip code 92672.
• 47 percent have an ocean view.
• 38 percent have no air conditioning.
• 61 percent of the homes have 2 stories.
• 19 percent have more than 4 bedrooms.
• 30 percent have more than 3 bathrooms.
• 31 percent have more than 3,000 square feet interiors.

To better illustrate the scarcity of the current inventory, take the following San Clemente real estate quiz:

How many single family homes are for sale (standard sale) with an ocean view, on the ocean side of the freeway, for under $799,000?

Answer: One: 1311 Avenida De La Estrella, listed for $639,000 by Mike Cotter of Century 21 OMA (me.)

How many single family homes are for sale (standard sale) in Talega with 5+ bedrooms and 4+ baths under $1,225,000?

Answer: One: 15 Corte El Brazo. Listed for $875,000 by Mike Cotter of Century 21 OMA (me.)

How many condos are for sale (standard sale) with 3+ bedrooms and an ocean view under $529,000?

Answer: Two:

• 38 Vista Encanta 38. Listed for $399,999 by Janet Montandon of Star Real Estate South County.
• 764 Via Otono. Listed for between $399,000 and $425,000 by Carlos Hernandez of Rosalinda Hernandez Broker.

Finally, how many condos are for sale (standard sale) with a ground floor master bedroom in all of San Clemente?

Answer: Only three:

• 3830 Avenida Del Presidente 25. Listed for $169,999 by Ledeen Hangen and Sylvia Tarkeshian of Tarbell, Realtors San Clemente.
• 2501 S El Camino Real 206. Listed for $279,999 by Ledeen Hangen and Sylvia Tarkeshian of Tarbell, Realtors San Clemente.
• 257 Avenida Lobeiro G. Listed for $1,859,000 by Karen Conley of Keller Williams OCC Realty.

For more on the San Clemente housing market, check out MCotter.com, especially latest market statistics and neighborhood stats.