In the spirit that this is the Bay Area Real Estate Trends blog, I’m going to be updating some of my earlier posts to get an idea of just what some of those trends are. And appropriately, on the one-year anniversary of my first post, I’m going to revisit the Montierra Condominiums in the Hayward hills. You’ll find what I wrote last year at the link above (absent one chart), but here is the missing chart updated to the end of 2012. I’ll have a few others to explore in more detail. (Click on any image to view in better detail.)
NOTE: If all you are interested in is the basis for the headline, you can skip to the end of this post. But I hope you take the time to read through it because there is more to be learned about what is contributing to this trend and how it might translate to other markets.
The short summary is that not a lot has happened in that year, which is an important part of the story. But there is also a hint of a change that I’ll discuss.
Why is it important that not a lot has happened? Two reasons:
- With 50% of the units deeply underwater a lot could have or should have happened.
- Due to what appears to be relaxed pressure by lenders, relatively few condos went onto the market, and except for the smallest units the demand just matched that tepid rate resulting in price stability.
Let’s look at the past year.
During 2012, thirty-six units (13% of all units) changed hands, down from 43 the previous year. Not surprisingly, all but two were distressed sales (Short Sale or REO [Real Estate Owned]) and the remaining two were by flippers who had bought them as distressed sales. Twenty were Short Sales and 14 were REO’s, but importantly the last REO sale was in September as lenders switched tactics and encouraged short sales rather than foreclosing. This is largely a result of the multi-state agreement between states’ Attorneys General and the mortgage industry that took effect in February. In fact, there is only one condo that is currently REO.
As a further indication of stagnating listings, there are zero units that are currently listed for Active sale and only five that are Pending, all of which are Short Sales. So the most important part of this story is that nothing is happening! There is no pressure on the 121 owners who paid three times the current market value or the 36 “knife catchers” who bought at high prices later.
- Were these cash buyers? Not likely.
- Have their loans been restructured to more favorable terms? I’ll look into that.
- Are they current on their loans, or are the lenders letting them slide? I’ll try to find that out too.
But in any event, there is apparently little reason for these owners to put their condos on the market.
A careful viewer of the chart above might think they see a bit of a recent trend to higher prices, and they would be right, but as usual the devil is in the details. Here are charts that provide separate data for small, medium and large units (essentially, 1-, 2-, and 3 bedrooms).
It’s clear that prices have been quite stable through 2012 for 3-bedroom units, a slight increase for 2-bedrooms and most of the price increase has been for one-bedroom units. Price increases over the last 6 months of 2012 (relative to all of 2011) are averaging:
- One Bedroom 21%
- Two Bedroom 5%
- Three Bedroom 0%
While most one-bedroom units are still valued much less than the current owner paid, 39 of these 96 units are now selling for more than they cost.
The data aren’t particularly robust (there weren’t a great number of sales during 2012) but this is a dramatic price increase in a short time, and supports the conventional wisdom that recoveries start at the low end. I plan to revisit it in July to see it it’s just a blip or a real trend, and whether the larger units are joining in.