2012 – The Year in Review

chart end of yr 2012

What a difference a year makes.

No matter what happens next year, 2012 will go down as a banner year for San Clemente residential real estate.

Preliminary information from the California Regional Multiple Listing Service indicates that the local home median sales price will rise about 29% during the year to close at approximately $645,000.  The median is where half the homes sold for more and half for less.

This impressive performance (most of which occurred in January, February and March) will end a five-year losing streak that saw the average home price plummet by a third.  Some properties lost half their value during the period.

Not only will local home prices rise dramatically during 2012, but the number of resales should skyrocket to almost 1,000 homes, a volume not seen in seven years.

Around the middle of January, different real estate price tracking services will report somewhat different annual numbers for San Clemente.  But the theme will be the same:  Spectacular.

Why the screaming market?  There’s no doubt that fear of expiring government programs at year’s end (the so-called “fiscal cliff”) has boosted recent sales volume.  But that doesn’t explain the extraordinary price rises earlier in the year.

Did anyone see this coming?

I make few concrete market predictions, because I have learned that 80 percent of well educated and experienced professional prognostications turn out to be wrong.

Nevertheless, in May of 2011, I wrote:  “Sooner: …The San Clemente home real estate market…will remain flat for at least another year….  Later:  San Clemente home prices will rise along with inflation over the next ten years.”

So it turns out I was right — about 80 percent of predictions being wrong, that is.  The market turnaround came five months earlier than I thought it would.  I should’ve known:  The local real estate market always seems to turn on a dime.  By the time you begin to notice it, it’s already happened.

What’s in store for 2013?

I’m already on record with my inflation prediction.  I hope we’re in for an average, prolonged real estate bull market.  But for that to happen, I think we will need some adults to show up in Washington.  Continued divisiveness could cut short this real estate rally.

For the latest San Clemente real estate market trends, visit mcotter.com.

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Don’t Be Misled by Annual Home-Price Growth


Why do you choose to read real estate articles like this one?

Do you want to know:

  • What happened to home prices in your ZIP code for the 23 days ending December 4?
  • How much house you can get for $660,000 in other cities across the state with names beginning with “San?”
  • How much real estate agents’ incomes went up last month?

Not likely.

Odds are, you just want to know what’s happening to the value of your San Clemente home. Or what’s happening to the value of real estate you are thinking about buying in the future.

The old adage that the three most important considerations in real estate are “location, location and location” is true. National, state, county or even city statistics may not shed much light on prices in your neighborhood.

Usually. the most recent sale of a home comparable to yours, on your block, will give a general idea of your property’s market value. But a personal visit by a REALTOR familiar with the area should provide the most accurate evaluation.

In the meantime, according to data from the California Regional Multiple Listing Service, San Clemente’s home median sales price in November was $660,000, an increase of 16.8 percent over last November’s $565,000.

But don’t believe everything you read. Smoothing out the exaggerated saw tooth price pattern of the relatively small San Clemente real estate market reveals a more modest and realistic annual appreciation rate of about 6.2 percent. Still very nice.

But wait — there’s more!  Maybe you can make some money on this one. Bet your friends that December’s published annual growth rate for San Clemente will be an astronomical 20 to 40 percent or more. (You’ll have to average the rates of the two San Clemente ZIP codes.)

How can you predict this phenomenal performance?  Because last December’s published median sales price for San Clemente found itself in a deep crevasse between two saw teeth, so to speak. Even if this December’s prices stay even with November’s, the growth rate from last December should come in at 20 percent or more. And, unless smoothed out, that published appreciation rate will be greatly overstated.

One other thought: While November sales seem timely, they actually represent closed escrows that were opened around last August. In other words, you’re looking at buy and sell decisions made last summer.

It’s All About The Apps Department:  There are free smart phone apps that purport to tell you the market value and other information about any home in the country by simply taking its picture. I’m using one myself. Unbelievable.

For the latest San Clemente real estate market trends, visit mcotter.com.


Cotter has been a California Real Estate Broker since 1981, and is currently a Realtor and Broker-Associate with Century 21 O.M.A., 229 Avenida Del Mar, San Clemente.  He is President of the Spanish Village Foundation and serves on the boards of directors of the San Clemente Historical Society and the San Clemente Downtown Business Association.  His web site is MCotter.com.  Contact him at Mike@MCotter.com or (949) 322-6009.

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It’s Time to Buy Real Estate

It’s time to buy San Clemente real estate

I hope this article gets you off the couch and on the phone to your real estate agent immediately.

It’s time to buy real estate.

I have written over 400 real estate and finance articles in the last quarter century, but rarely one with a call to action such as this. Why am I so adamant now?

Because it’s time to buy real estate. The market is ready to rumble. An opportunity this timely will not last for very long, and may not return for 15 years or more. We’ve seen this before.

If I’m wrong, I’ll eat my hat.

Most real estate stories are like fish stories — about “the one that got away.” My favorite story is about a world famous hot springs resort near Murietta. Once appraised in the tens of millions of dollars, the entire property could have been bought in 1992 for a mere $950,000 in back taxes. Twenty years ago, that one got away.

Why is it time to buy real estate?

Because if you don’t buy now, you may be priced out of the market within a few short years. You will regret it, as Bogey says to Bergman in Casablanca, “maybe not today and maybe not tomorrow, but soon, and for the rest of your life.”


The last 44 years have seen three major growth cycles in local real estate. Between 1968 and 1982, San Clemente homes appreciated an average 12 percent per year. Between 1985 and 1989, the annual rate was 16 percent. Between 1995 and 2006, the rate was 15 percent per year. The average length of these three growth periods was ten years.

To be sure, after each of these extended real estate bull markets, there were relatively short “correction” periods. This is the cyclical nature of most investment markets, whether real estate, stocks or chinchilla farms. But each “boom and bust” local real estate cycle ended with prices considerably higher than when the cycle began.

Between 1982 and 1985, the market was flat. Between 1989 and 1995, the market had a 30 percent total correction. Between 2007 and 2011, the market had a 35 percent total correction. The average length of these three corrections was under five years.

Market corrections can be catastrophic, especially if undercapitalized or over-leveraged. Like everyone else, I have lost equity in market downturns. No guts, no glory. No guarantees.

But it’s time to buy real estate, because the latest correction is over.

If I’m wrong, I’ll shave my beard again.

After a five-year correction, San Clemente’s 2012 housing market came out of the gate screaming. Since January, the home median price has jumped more than 10 percent, without a single monthly drop.

To repeat, the recent five-year market correction is over — and WAS over last December. You have already lost ten months of the next bull market. You’re not still on the couch, are you?

How strong will the next bull market be? One word should describe it: Inflation.

With the national debt approaching $16 bazillion or so, the next big thing that’s going to happen to this economy is inflation. Inflation drove up prices in the 1970s so high that it crippled those without inflationary assets. But those with real estate holdings came out well ahead by the end of the decade.

Inflation is bad only for those on fixed incomes or without assets that rise with inflation.

Inflation must hit us eventually, no matter who runs the government. It’s unavoidable.

Assuming real estate prices appreciate at 10 percent per year for the next 10 years — history shows this is not only possible but probable — San Clemente’s home median price will rise from about $600,000 to over $1,600,000.

A new bull real estate market is not only an opportunity to play offense — to buy low and become rich. Just as important, it’s an opportunity to play defense — to weather the inflationary teens as some of our parents weathered the inflationary seventies.

And another thing: The local real estate for sale inventory has not been this low in years. But don’t let the “slim pickins” stop you from making an offer. Prices won’t be this low ever again. Buy something.

Because it’s time to buy real estate. Don’t say I didn’t tell you.

If I’m wrong, I’ll shave my head again.

For more about the San Clemente real estate picture, check out Mike’s latest San Clemente market trends at mcotter.com.

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San Clemente Short Sales Are Disappearing

Short sales hurt neighborhood market values

Local short sales are disappearing like Elvis leaving the building.

And the real estate market audience is shouting for joy, “Goodbye and good riddance!”

A short sale is a sale of property for less than the mortgage owed, requiring approval of the original lender who takes a loss or comes up “short.”

Before short sales became popular, many home owners who found themselves owing more than their properties were worth, would simply walk away and let the home go into foreclosure. A foreclosure on a credit report makes it difficult to buy another home within a certain period of time, whereas a short sale penalizes less.

Up until 2006, few people had even heard of short sales. But the real estate market bubble burst in 2007, and the number of short sales offered for sale in San Clemente skyrocketed to about 20% of the total listed inventory. In May 2009, at the lowest depths of the local bear market, the percentage of short sales listed had risen to 29 percent.

The bad news: A short sale is far more complex than a traditional sale, takes many months to accomplish, and can dampen the market value for traditional properties in the neighborhood.

Not surprisingly, a chart will show a direct correlation between the number of short sales for sale and the appreciation rate of all homes.

The good news: Since January, the number of short sales as a percentage of listed inventory has dropped from 20 percent to seven percent. It hasn’t been this low since August 2007.

In the same time, the local appreciation rate has steadily risen from a negative seven percent to a positive 1.3 percent. It hasn’t been this high since — that’s right — August 2007.

So why have short sale offerings receded so rapidly in the last eight months?
Cyndy Lou Tracy, a veteran real estate agent at Century 21 O.M.A in San Clemente, who has handled a large number of short sales for both buyers and sellers, explains: “We seem to be at the end of a rather long real estate market cycle. Mortgage defaults are down, there’s a shortage of homes for sale, short sale activity is way down, mortgage rates are down, and prices have been heading up since the beginning of the year. It seems like a seller’s market that’s good for buyers too!”

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

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Guess Who Won the OC REALTORS ASSN “No Flash” Photography Challenge?


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San Clemente Real Estate Market Turns Positive in the Long-Term

The chart looks like a whale just breaching the surface.

Sticking its spout above water for the first time in nearly two years.

According to preliminary information from the California Regional Multiple Listing Service, the long-term growth rate of San Clemente home prices finally turned positive in August. This hasn’t happened since December 2010.

This is good news.

Here’s how the numbers break out: Of the last 12 months, the first four saw falling home prices. Then things abruptly shifted in January and growth rates jumped into the positive column.

The average appreciation rate of all 12 months is about 1 percent. This trailing 12-month average is called the seasonally adjusted or the long-term growth rate.

But looking at any single month in the last 12 could’ve led to the wrong conclusion. For instance, most news organizations last December would have reported a 17% year-over-year decrease in San Clemente’s home median price.

And most newspapers will report (when they get around to it in a couple of weeks) a 17% year-over-year increase in last month’s market. A lot will be made of this one month’s statistic.

Well, the market can move fast, but not that fast.

Because San Clemente is a small market with relatively few transactions, the month-to-month data tends to follow a saw tooth pattern, with one month showing big gains and maybe the next month showing big losses. Things even out over a few months.

Truth of the matter is, prices have been relatively flat for the last year.

But the fact that San Clemente is eking out a positive seasonally adjusted growth rate — no matter how small — is evidence of a strong trend. Maybe we’ve hit the bottom after all.

I have to point out however, that we found ourselves in the same optimistic position a couple of years ago, in October 2010. After about three years of dramatically plummeting prices, the market improved to the point of producing a slightly positive seasonally adjusted appreciation rate. Unfortunately, the phenomenon lasted only a few months and we again dropped into a negative market, albeit a milder one.

So there are no guarantees.

Looking at the big picture, the local housing market has been depressed for nearly six years now. An analysis of the last few months shows a credible base-building formation. A year and a half ago, I predicted two more years of flat prices and then an inflationary period.

What I didn’t foresee back then was how low mortgage interest rates would go, and how quickly. It’s a mystery to me how the Fed has managed to arrange this. In my book, “quantitative wasing” amounts to robbing Peter to pay Paul. But it seems to be working for now.

I could be wrong but it occurs to me that after the election, interest rates will start to rise.

I remember in 2002 or so, everyone had a story about the killer real estate deal that got away from them 10 years earlier. (Mine was a famous hot springs resort near Temecula that could have been had for less than $1 million in back taxes.)

I’m expecting to hear the same kinds of stories 10 years from now.

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

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Is Real Estate Still a Good Investment?

Is real estate still a good investment?

One thing is for sure: A lot of conventional wisdom is dead, dead, dead.

Time was, when real estate appreciation was as certain as death and taxes. At least California real estate in my adult lifetime.

Using myself as an example, I remember buying my first home in 1972 for $29,000. Sold it three years later for $32,000. Bought another home for $65,000, sold it two years later for $75,000. Bought a commercial building for $75,000, sold it one year later for $90,000. Bought another home for $85,000, sold it eight years later for $129,000. Bought another home in 1996 for $228,000, sold it five years later for $386,000.

I didn’t do so well on a $250,000 dream home I overbuilt in 1986 ($50,000 loss,) but I can’t blame the market for that.

Since the GIs came home from World War II in the 1940s, almost everyone went into debt to buy homes. Those who “saved up” to pay cash for a house found that prices had risen while they were saving. Frugality suddenly seemed counterproductive. For most of the last half of the 20th Century, going into debt was the only way for most people to afford a house.

An inflationary spiral in the 1970s made things worse for conservative homebuyers on fixed incomes who shunned debt. Cash was trash. Going into debt to buy real estate not only protected buyers from inflation, it also made them rich.

Watching real estate prices rise every day was like watching the sun rise.

Prices never went down, or so it seemed. Sure, California — including Orange County — suffered a three-year downturn in the early 1990s, but that was easily attributable to a severe local recession brought about by the closing down of military bases and the aerospace industry. Back in those days, the California economy often operated independently of the U.S. economy. And during that time the broader U.S. real estate market continued to grow at a decent clip.

As a matter of fact, in the mid 2000s, when Fannie and Freddie were approving loans for anyone who could say “stated income” without stuttering, and enabling portfolios of them to be sold in the securities markets — the notion that the overall U.S. real estate market could go down was inconceivable.

That’s probably because almost everyone in the real estate and securities industries was too young to remember the Great Depression of the 1930s. Everyone talked about the modern economy “since the Great Depression,” as if the “Great Depression” could never happen again.

Securities rating firms such as Standard and Poors were so certain that the broad U.S. real estate market could never go down, they rated portfolios of questionable “subprime” loans “Triple A” — as safe as having the “full faith and credit of the United States.”

What caused the housing bubble to burst in 2007, and the economy to nearly collapse in 2008 will be debated for years to come.

Part of the blame goes to too much mortgage debt in the economy.

But remember that for most people, buying a house and participating in the real estate boom of the last 70 years pretty much required going into debt.

So, real estate was a good investment for most of the last century. But is it still a good investment?

As I see it, the recent and rapid massive increase in the national debt will inevitably result in an inflationary spiral in this country that will make the 1970s look like the 1950s. I don’t see how it can be avoided. The only question is when it will commence.

Studies show that in the long run, the local real estate appreciation rate tends to approximate the local inflation rate.

In the next decade, owning real estate my be viewed less as a way to build wealth, and more as a way to conserve it.

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