Hunting for Houses in San Diego – July – October 2012

Posted: October 23, 2012 in Distractions and Barriers, Family and Friends, Personal Finance, Real Estate
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We bought a house! Oops… getting way ahead of myself and that is not what this post is going to be about. It is about our brief July-October 2012 house hunting experience and what we learned about the state of the housing market in San Diego, CA during that brief slice of time. We were actually looking at houses for months before this with the help of a terrific Realtor – Jeanne Heidmiller, but we got serious about our search in July, right after getting married near Big Sur. We had both owned homes in the past and so we had the lessons learned from those experiences. We also had very specific ideas about what we wanted in a home.

Our initial want list:

  • Single Story (preferred), or at least one bedroom on the main floor.
    • Reason: We never want to move again, eventually we’ll tired of stairs and if we are lucky too old to go up and down them all the time!
  • An open floorplan
    • Reason: We don’t like wasted space and want to feel connected with the others in the house.
  • 1800-2200 SQ-FT, but we would go smaller if the floorplan was very open and optimal (no wasted space)
    • Reason: It will eventually be just the two of us with occasional guests.
  • A small but usable yard.
    • Reason: We have both dealt with large yards before and we are over that!
  • Views! – Very highly preferred.
    • Reason: I’ve always wanted to live on a hill and have views. Our current rental was selected because of the awesome views and now we are spoiled.
  • A reasonable commute – preferred 20 miles or less.
    • Reason: Life is short!
  • Not just an ordinary house/neighborhood – some WOW factor!
    • Reason: We will live there a long time.
  • A price/loan that we can pay off in 15 years (or a little more).
    • Reason: We are not spring chickens and we want to retire right here in San Diego.

Despite our previous home buying experience, we had no idea what was really going on in the San Diego housing market when we started our search. We had been looking at a very good website for months SDLookup.com to track the homes in neighborhoods we knew that we liked. We had also been looking around for new neighborhoods of interest to expand our search area in order to have the highest number of homes to choose from. There were a few things that were not obvious by looking on the SDLookup site. We significantly over estimated inventory of good homes, had unrealistic expectations about home prices, and did not realize the number of buyers that we would be competing with.

Our perception of the available home inventory was based on our online search, but there were a couple of things we were not aware of that caused us to overestimate the availability of homes. First I was unaware of what the status of “Contingency” meant on the SDLookup site. I knew that in general it meant that there were terms to the sale that were not straight forward, and in most cases I assumed that it involved short sales. What I was really missing here was that these homes were not really still on the market. Contingency, in all most all cases meant that the homeowner had accepted an offer and the sale or short-sale process was ongoing. Looking on SDLookup I thought there were a lot of good homes available in our price range. Once we learned that the contingency listings were not available, we realized that the inventory was much tighter than we originally thought. We still had quite a few choices that were in the Active status though and so we set out on our search. Once we started visiting homes that looked interesting on the site we found that many of the homes that looked good online were actually not great homes. There were way too many homes we visited with “high expectations” only to be let down by the reality of the home. Online pictures can be very misleading! Pictures can also leave out things, like the “dungeon” downstairs. This meant that the true inventory of good homes was even smaller than we thought. The final reality check came when we decided to put an offer on a great home. We were very excited, a spectacular home listed below our maximum budget. What we didn’t realize is that many of the really good home listing in the current market were intentionally being priced low to attract multiple offers driving the price of the accepted offer well above the asking price. When all of these factors were combined, it turned out that the reality of the housing market was that only about 1 “good house” a month was really “in our price range”, and actually still available. Also every one of these homes would only be available for a day or two before receiving multiple offers.

When we started looking we assumed that we were entering a buyers market. The inventory appeared to be significant and priced attractively, and we were not expecting strong competition for a given home. We were wrong, we were entering a stealthy sellers market. However, it is more complicated than that. All of the homes we made offers on were short sales. The actual seller was not going to make a dime on the sale, regardless of the amount of buyer interest in their home. Many of these sellers owe 20-30% more money for the homes than the current market price. It is easy to think that all of the interest would drive prices up quickly. However, this is not happening. It is not happening because you can’t get loans for more than the current appraised value of the home. So regardless of the interest, in fact regardless of the offer amount, homes are selling for appraised value, which so far has been well below the amount offered by the “winning” bidder. I plan to write a post specifically about the current short sale market and the serious issues involved in trying to buy a short sale property so I’ll just cut to the chase here. The short sale market is at best random about who is selected as the winning bidder, and at worst it is a shady market, with only under the table deals deciding the outcome of the bidding process. For the last short sale property we made an offer on, we offered nearly 20% over the asking price, which was most likely at least 5% over the likely appraised value (based on comparable sales). We lost to “a higher offer”. I consider this a random selection of the best offer (at best) because the final price paid will likely be less than our offer. In fact it is likely that they received multiple offers that will ultimately be higher than the final sales price because the appraisals are holding down prices.

Early on we decided that we favored newer construction. In addition to liking homes with open floor plans, we would like to have a house that requires minimal maintenance. We continued to look at older homes, and even considered making offers on a couple of these homes, but ultimately we only made offers on homes that were built within the last 8 years. In the areas we want to live, this limited our choices even more. Most of the homes are 40-100 years old. Although we love homes with character, there were issues (weirdness or at least choices we would not have made) for every one of the older properties we looked at. There was only one new home development in the area that we were interested in living. We visited this development often. The combination of floor plan and lots available just did not work out for us. However, as we realized the futility of the current resale market, we looked even harder. By luck only, a home with a great lot dropped out of escrow. Unfortunately it was a floor plan that we had little to no interest in after looking at the model. We wanted a single level home and this model was 3 stories! I was very surprised that my wife even wanted to take another look. All I can say is the lot made all the difference. Because of the terrific lot, there were views from nearly every room and from the backyard. At this point in our search, the other terrific thing about this home was that we would not be competing in a random (at best) offer process. All we had to do is put in a deposit and the house would be ours.

So now I can talk about it. We bought a house! But how does it compare to our original want list? We found that we did change on some of what we were looking for and compromised on some of the other items. But overall we stuck to much of our original want list.

  • Single Story (preferred), or at least one bedroom on the main floor.
    • Our new house: 3 story single family detached home. Garage only on first level. But it does have a bedroom on the second floor/main living area.
  • An open floorplan
    • Our new house: Not as open as some we looked at, but the main area – family room, dining room, kitchen, and morning room (breakfast area) are all open to each other.
  • 1800-2200 SQ-FT, but we would go smaller if the floorplan was very open and optimal (no wasted space)
    • Our new house: 2500+ Square feet. We did not find houses with the combination of optimal layout, great location, and no other negatives, this house is more than we need, but had too many positives to ignore.
  • A small but usable yard.
    • Our new house: Yes, it has a small but useable yard. We are actually very pleased to not have a larger yard. We plan to make the yard feel more like an additional and very open couple of rooms than a yard.
  • Views! – Very highly preferred.
    • Our new house: Yes, from nearly every room, and from the backyard.
  • A reasonable commute – preferred 20 miles or less.
    • Our new house: Yes. It will be a very reasonable commute for both of us. We did not compromise on this despite the choices being more plentiful as we moved to areas that had a longer commute.
  • Not just an ordinary house/neighborhood – some WOW factor!
    • Our new house: Yes. We were and are WOW’d.
  • A price/loan that we could pay off in 15 years (or a little more).
    • Our new house: Our price point slowly crept up to about 20% higher than our original plan. However, this house was significantly lower priced than the last short sale we put an offer on, and we will be able to pay this off within 15 years or slightly more.

We got much of what we wanted, but did compromise in some areas. We also were surprised at how our price range increased; however, the interest rates declined by nearly 25% from the time we initially set our price range, so the payment was not significantly higher. We were also surprised by the complexity of the market and the difficulty finding a house we were interested in putting an offer on and the randomness (at best) of the short sale offer selection process. If you are looking for a house in San Diego and facing this market… the best of luck to you!

Update 10/28/2012: Wanted to add some pictures… so I’m adding pictures of the views from our current rental, which we love and a couple of views from the home we’re buying.

We love the natural slope behind our home, it is a long way to anything below our house. A park is the nearest thing and it is a long ways down and away from the house. We find it amazing some weekend mornings when we can hear folks playing in the park. At times they sound like they are two feet from our back fence. Sound is a weird thing.

Panoramic View at current rental home

Panoramic View at current rental home

The colors on the slope behind the current rental are spectacular. I particularly like this picture that I took one foggy morning.

Foggy day

Foggy day picture of our view

The other great thing about our current view is that it faces almost directly west. We see sunsets almost all year long. The one thing we learned at this house is just how much the point of the sunset moves throughout the year. In February it was quite a ways to the left (south), and in June it moved so far right (north) that the sun was setting out of our line of sight.

Sunset beyond our little valley

Sunset beyond our little valley

View of the sunset over Mount Soledad

View of the sunset over Mount Soledad

Did I say we really love the view from our current rental! Too bad the house is a little too small (and not for sale). As we looked for a house to buy we knew it would be hard to give up this view. Luckily we found a house with awesome views from both sides. We can see the sunrise in the morning from our Morning Room and three bedrooms and the sunset from our master bedroom and family room.

Sunrise from the Morning Room

Sunrise from the Morning Room

Sunset from the family room deck

Sunset from the family room deck

Although we will miss our little valley, and the new neighborhood will not be as peaceful, it has several awesome views we didn’t have before and it is a much nicer home.

View of downtown from our MB

View of downtown from our MB

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