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Bargains Abound For Buyers With Cash
Economic recession and a collapsing housing market have created conditions ripe for the picking for buyers with cash to invest.
“It’s the best time to buy ever,” says real estate agent Laura Barry of Barry Estates in Rancho Santa Fe. “Prices on properties are better than they’ve been in the last ten years.”
How much better?
“We have a great buy on the sand in Del Mar,” Barry notes. At the peak of the market, the six-bedroom beachfront home would have sold for $18 million, she estimates. “We have it for sale for $14 million — and there’s still room for negotiating.”
A 7,000-square-foot home on over three acres in the Covenant area of Rancho Santa Fe, on Los Barbos, fetched $5.1 million at the market’s peak several years ago. “Today you can buy it in the $3 million range,” Barry reveals.
Architect Gregory Castle agrees that there are good deals for savvy buyers, in part because a lot of homeowners refinanced their homes in recent years. “They are finding notes coming due and interest rates changing on them,” he says, “so they are looking to sell right now. It’s a great buyers’ market.”
Homebuilder Bill Davidson of Davidson Communities agrees that it’s a buyers’ market — but only if you have money.
“These are unusual times because the mortgage market is in shambles,” he observes. Before, banks could easily sell conforming loans (typically under about $430,000 in San Diego County) to the secondary market or to the federal government. Now, by contrast, to qualify for a nonconforming loan “your credit has to be outstanding and you have to have a ton of money in the bank, so it’s extremely difficult even though the rates are the best I’ve seen them.” Banks are providing nonconforming loans, he adds, “but they go through you like you were in an x-ray machine. They are very careful and it takes time.”
Barry concurs that credit has tightened, though she assures, “If you can put 35 percent down, you won’t have any problem getting financing. But the days of putting ten percent down and getting 90 percent financing and a three percent teaser rate are gone for the public.” That said, she predicts, “The lending is going to have to loosen up for banks to stay in business.”
Davidson says his company has slowed construction from 25-30 houses starting up each month to just three start-ups a month today. “We as an industry were overbuilt and the market needs to correct itself,” he notes, blaming “too much money out there and too much speculation” for the problem.
Another factor is that this recession has hit business owners hard. “The banks have cut off all credit to entrepreneurs,” Davidson explains, noting that the first place most business owners look to is their homes, which often have tremendous equity. “This forces too many houses on the market.” The silver lining for buyers is that “folks out there are getting tremendous buys.”
Davidson predicts the trough of the market will be this summer. “We are finding stability in pockets in San Diego, certain neighborhoods.” The best values are in Rancho Santa Fe and inland areas of North County, he reveals. The mindset of today’s homebuyers has undergone a fundamental shift, Davidson believes. Southern Californians have long regarded homes as investments, not merely shelter. As a result, Davidson says, “A lot of homes were built bigger than they needed to be. Builders like myself will be targeting smaller products, because there was an oversupply of large products.”
But downsizing homes of the future by builders isn’t just due to a market glut of McMansions.
“This particular recession, which is a depression in my mind for the real estate business, has shaken us up like the times during the Depression that our parents have told us about,” Davidson says. “I think it’s a wake-up call certainly for the war babies, the baby boomers, the largest demographic in the country. It’s changed our outlook for the rest of our lives.”
The younger generation wants a faster-paced lifestyle conducive to urban living — and younger homebuyers don’t want to drive 40 miles and live in the suburbs, according to Davidson. “Building in the suburbs and driving further to the city — those days are gone,” he says, adding that there is little land left for production developers in San Diego County. “The urban living is very attractive to buyers, and that’s as it should be. You can go back and say ‘Why did cities fall apart?’ It’s when everybody moved out to the suburbs. The right thing for the world is more density and closer housing.”
Increasingly, people are opting to rehab existing homes as well. “We are not doing a lot of ground-up work on new structures,” Castle discloses. “Most of our work is finding older homes in spectacular locations and bringing them up to the times.”
Both Davidson and Castle report that buyers are increasingly seeking homes that are more energy efficient than in the past. “We are incorporating a lot of green design and energy-conscious features such as tankless water heaters, heavy insulation, and very energy efficient appliances, doors, and windows,” Castle notes.
Having a low-water yard has also become a strong selling point due to increased water restrictions and also the appeal of low maintenance for homebuyers who travel frequently. In addition, if higher-stage drought alerts are declared, water districts could limit the installation of water meters, Castle says. “What that means is no new homes in existing developments, which will drive up the price of homes already there.”
Fortunately, San Diego properties are nearly certain to appreciate in the future for buyers who can afford to buy now and hold. Southern California’s climate, amenities, and year-round appeal attract people from around the world, Barry observes. “The best investment is always real estate. It always has been, and it always will be,” she concludes. “It’s a tangible asset. You can live in it, and you can enjoy it — unlike any other asset — and if you hold it for any reasonable length of time and sell it, it’s appreciating.”
The time to buy is now. “Once we’ve hit bottom,” she cautions, “the party is going to be over for buyers.” MIRIAM RAFTERY