By Roger Showley
RISMEDIA, June 16, 2009-(MCT)-The real estate slump has arrived in La Jolla, Rancho Santa Fe and other high-end San Diego County neighborhoods.
After holding their own in sales strength, sales of homes priced at $1 million or more started to fall a year after lower-priced homes hit the skids.
Now, instead of selling their multimillion-dollar homes at multimillion-dollar profits, some sellers are taking a bath or renting their properties while they wait for a sunnier day.
“The market is terrible,” said Jan Paulin, 58, who bought his 4,164-square-foot home on Hillside Drive in La Jolla for $2 million in 2000, put it on the market for $4.5 million last year and is now hoping to get $3.8 million.
If Paulin doesn’t get what he wants, he plans to rent it for $10,000 a month. Other high-end owners are following the same strategy, area agents say.
“I’d rather hold on to it for a while and wait it out until the market turns, and we can get some revenue in the meantime and at least cover the carrying costs,” Paulin said.
Yesterday in the Cielo project east of Rancho Santa Fe, Bill Menish, a former local TV anchor turned auctioneer, conducted an auction for a 5,000-square-foot home bought for $2.65 million in 2001. The highest bid was $1.965 million, which took 20 minutes to reach and was close to the seller’s reserve.
“The owners have a lot of equity in it, have moved into another house and would like to take their capital and move it into an alternative investment,” said listing agent Bill Taylor.
Through the first four months of the year, 337 homes priced at $1 million or more closed escrow, down 52.4% from the same time last year, according to MDA DataQuick.
Over the same period, sales of homes less than $1 million totaled 10,987, up 37.5%. The overall median price in April was $290,000, down 44% from the peak of $517,500 in November 2005.
“The low end has been driving the county sales higher, while the luxury market has typically remained extremely sluggish,” said DataQuick analyst Andrew LePage, adding, “Wealthy folks have taken huge hits that they haven’t taken in a long time, if ever.”
At the current rate, it would take nearly four months to sell all homes listed for less than $1 million. For homes priced at $1 million or more, the backlog stands at about 30 months, according to the San Diego Association of Realtors.
Obviously, the top end represents a small fraction of the local inventory.
According to Zillow.com, 44,500, or 5.9% of the nearly 750,000 homes the online company tracks locally are worth $1 million or more. They are generally concentrated in coastal communities with a few scattered throughout the rest of the county.
But of the 13,010 homes on the local multiple listing service last week, 2,537, or 19.5%, carry asking prices in the seven figures. The National Association of Realtors reports that the national share of sales above $750,000 is half of what it was two years ago.
In San Diego County, the drop-off of sales of homes at $1 million or more is even more dramatic, down from 73% this year from 2006′s peak rate.
“I’ve been doing this since 1975 and never seen anything quite as volatile,” said Willis-Allen Real Estate agent Linda Daniels.
Daniels said buyers are playing it cool, offering 40% below asking price
and walking away if sellers don’t cave.
“It’s wild,” she said.
And yet, Mike O’Brien, 38, wasn’t fazed when he put his waterfront home in Bird Rock up for sale for $8 million, three years after moving in. O’Brien and his wife, Julie, 34, paid $6.4 million and put $1.5 million into improvements.
“We’ve had a lot more showings recently,” said O’Brien, an online business entrepreneur. “I feel like we’re seeing more serious buyers. One group has come back three times.”
The O’Briens are selling because they are expecting their fourth son and would rather move than remodel.
O’Brien said the subject of real estate hardly comes up in conversations with friends: “The only thing families talk about less than sex is finances.”
There are several reasons behind the woes faced by the wealthy, experts say. Upper-end buyers have lost money in the stock market, have less to spend and, like many other San Diegans, are worried about their job security.
Those who are able to buy find that a “jumbo” loan — more than $697,500 — is hard to get and carries a premium interest charge of one or more percentage points above the norm.
“The jumbo market is not functioning,” said Lawrence Yun, chief economist at the National Association of Realtors. “We hear from our members every day — ‘Fix the jumbo market, fix the jumbo market.’ “
Dave McDonald, president of the San Diego chapter of the California Association of Mortgage Brokers, said to get the few jumbos available, “you have to basically jump through hoops.”
Underwriting standards have toughened up for high-rollers as well as everyone else, meaning buyers must have near-perfect credit scores and verifiable means of income to get the best terms. Anyone who bought on more liberal terms five years ago is likely to get a rejection notice from their bank if they want the same deal.
“You can’t buy today because you can’t get a loan, no matter how golden you are,” said Maxine Gellens, an agent with Prudential California Realty in La Jolla.
When their offers are accepted, buyers sometimes have to endure multiple appraisals by lenders before a loan closes.
“It is definitely becoming more difficult to find good comparable sales for the variety of characteristics that million-dollar properties present,” said David Eshelman of Eshelman Appraisals Inc.
The problem is most critical for what David Adamo, president of Luxury Mortgage in Stamford, Conn., calls the “HENRYs” — “high-earning but not rich yet” dual-income households — those who earn between $250,000 and $500,000 annually. They can’t buy what they want because of the difficulty of securing a jumbo loan.
To get around the financial roadblocks, some buyers have enough assets to make all-cash offers.
“Cash buyers are getting wonderful values because they can pull the trigger,” said Lou Martin, a Prudential agent in Rancho Santa Fe.
As for the future, history does not portend good times for the rest of the year. Since 2001, the proportion of million-plus homes sold in the first four months was always higher than in than the last eight months, except in 2002 to 2004.
If that trend continues this year, the 2.98 percentage share this January-April would be the high point of the year.
Andy Nelson, president of Willis-Allen, said top-tier buyers may upend history as they survey the relative bargains available and press sellers to lower prices even more than the 20% to 25% reduction so many already have absorbed.
“Yes, their existing homes may not be worth as much, but there are some great values out there to upgrade their location or move to a house on a single level,” Nelson said. “They may have an opportunity in the next few months to get something because we think the bottom is close at hand.”
Lew Sichelman, a nationally syndicated writer based in Washington, contributed to this story.
Copyright ©2009, The San Diego Union-Tribune
Distributed by McClatchy-Tribune Information Services.
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