When it comes to
real estate, it is often easier to speak in generalizations as opposed to
specifics. Sales of the same house rarely correspond with the market’s ups and
downs. The trade volume of most single family residences (SFR) is simply too
low. Therefore, the value of a particular house becomes a matter of speculation
rather than fact. Further, even in a case where data exists, a single
property’s ability to act as the perfect comp relative to the market is limited
by changes to the neighborhood and/or home which occurred during the period in
question. Despite the limitations, I recently discovered a SFR in San Mateo
which has transaction data corresponding with several key moments in the local
market’s uneven trajectory since the turn of the century.
In June of 2001,
after the tech bubble had burst and the local market was less rather
gridlocked, an unremarkable 2/1, built in 1937 on an otherwise commercial
block, sold for 385K. It was a quick sale, going pending in a week, for 60K
over ask. The comments note the seller was in default.
Less than five
years later, in April of 2006, as the sub-prime lending industry exuberantly
marched the global economy towards a cliff, a new buyer secured financing for
the place to a tune of 690K, or a nearly 80% more with nary a major renovation
to account for the increase. One year later, the owners put it back up for sale
– for 839K, a jump of over 20%. The market, for reasons of caution, or lack of
demand, or dearth of available financing, did not respond. The property
was withdrawn that fall.
Two years later,
in May of 2009, it was brought back to market. Despite the addition of a
bathroom, it sold in October 2009 for 532K, a loss in value, before costs, of
20%. Per the Case Shiller Index, late fall 2009 through early 2012 saw the
lowest SFR housing prices post Great Recession, before they trudged back up.
Indeed, subsequently, many folks would happily go into contract for a SFR in
San Mateo for such a price.
After a remedial
facelift, the home was listed again in April of 2013. Listed as a 3/2, it
showed more like a duplex with a 1/1 downstairs and a 2/1 upstairs. While it
remained a challenging location and floorplan for most families, its proximity
to downtown was desirable, and it still had the potential for improvement.
Listed at 599K, the low side for SFR in San Mateo at that point, it was one of
the homes I looked at that spring before purchasing my first home later that
year. The sale closed at 720K.
What is it worth
today?
Less than 1.65,
which is what the owner was requesting before it was withdrawn from market in
February 2023, after being listed for 4 months. The pictures showed nice
interior upgrades, backyard improvements, and a vast roof deck, but buyers did
not accept the upgrades warranted an increase in value of 130% in ten years.
The sellers agreed to disagree.
The home
is currently listed for rent at $5,250 a month. Assuming the owners had
traditional financing with 20% down in 2013 and the sense to refinance at the
market’s record low interest rates, it is unlikely they owe more than 500K,
unless they took additional equity out of the home. If this is the case, the
current mortgage payment could be expected to remain under 2K a month, leaving
a decent cushion to cover tax, insurance and basic maintenance if the target
rental price is attained. When the potential sale price of the property
decreases and rents remain stable, the owner’s potential yield increases,
incentivizing removing it from the sale market.
Thus defines a
distinct portion of the market right now – buyers who don’t want to buy at the
prices sellers feel entitled to receiving, and sellers in a solid enough
financial position to avoid having to accept less than they feel they deserve.
In San Mateo, the number of withdrawn homes since the first of the year has
increased by a factor of three since last year. Thus, it is a standoff of
sorts, with only the most motivated buyers and sellers participating in trades.
Can a market
crash when there is little compulsion for owners to sell? It makes sense for a
buyer who spent 690K with nothing down to sell at a “loss” when their teaser
rate evaporated amidst a lending freeze. Today, a total profit of over a
hundred percent wasn’t incentive enough to impel a potential seller to part
with their property due to the plain and simple fact they had other options.
The age-old motivations for sale, death and divorce, shall persist, but
overall, at the moment, unless a property is either highly desirable and/or
fairly priced, no one side is budging: buyers wait while sellers withdraw.
