For the past year we’ve been experiencing the trend of increasing home values and shrinking invenrories.  This is particularly true among Downtown Condos under $500,000.

On the WelcometoSan Diego.com website there is a quarterly “Market Absorption Report” for Downtown.  Market absorption is a statistical analysis of how fast homes are selling in a specific area.  This objective information allows us to categorize segments of the market as being most advantageous for buyers or sellers.

In a “Balanced Market” there is a 6 month supply of homes available.  This means that within a given price range the number of homes currently listed is the same as the number sold in the past 6 months.  When the market is balanced, neither a buyer or seller is seen to have an advantage in negotiating the price of the home.

When the supply is greater than 6 months, the market is described as a “Buyer’s Market,” because there are more willing sellers than buyers.  Conversely, a supply of less than 6 months is a “Seller’s Market,” where sellers hold an advantage over buyers.

A Seller’s Market

At the start of 2013  in Downtown San Diego there was less than a 30 day supply of condos priced less than $300,000.  In the range from $300,000 to $450,000 the report shows a 45 day supply.  Clearly, in this price range the advantage in the market is to Sellers.  In fact, up to $750,000 there is no more than a 90 day supply Downtown!

Representing both buyers and sellers provides a clear reflection of this.  And the experiences each are having couldn’t be more different.

Listing a Little Italy Condo

A client recently referred me to an owner in Little Italy.  The seller had left San Diego, and no longer wanted to be a landlord.  He had only owned the home for two years and was uncertain about the financial outcome he should expect.  There had been no sale higher than $255,000 of comparable properties.

Based on market absorption, he was able to see that prices were increasing rapidly and more buyers existed at this price point than properties currently available.  We agreed to price his home slightly higher than any previously sold property.

The home was marketed professionally, and we agreed to have his home on the market for 7 days before reviewing offers.  He received 9 and the home sold approximately 10% over asking price.

The Buyer’s Perspective

Unfortunately the experience has been quite different for buyers under $500,000.  This weekend I represented a buyer on a perfect little Carlsbad bungalow.  With 2 bedrooms and 2 baths, this 1,140 sf house is at the end of a cul de sac.  It is easily the smallest house on the block–might be the smallest house in Carlsbad.  Priced at $474,900, there were ABSOLUTELY  no comps.  The listing agent was afraid to push the half million dollar price point.

The client loved the house.  By the time we requested a second showing the listing agent said that he had received several offers and expected more.  He indicated that the barrier he had been afraid to push would surely be exceeded.

I advised my buyer that he would have to offer more than $50,000 more than the listing to be considered.  Let me preface this by saying that he was extremely well qualified and prepared.  This means a pre-qualification from a known lender that stated that he had reviewed tax returns and done preliminary underwriting, proof of funds to cover downpayment, closing costs and a significant reserve for other contingencies.

The buyer stepped up in every way.  Increasing his offer significantly above my recommended threshold, shortening contingencies and agreeing to the seller’s close of escrow date.

In the end, the house received 15 offers.  We didn’t get it.  The listing agent indicates that a cash buyer paid a “baffling” price for the home.

My client did everything right and is frustrated and heartbroken.

The market needs to readjust.  My next blog will be about listing homes in a seller’s market.  Further analysis of market absorption rates indicates that there is a real opportunity for “move up” sellers.  These are very exciting times in San Diego real estate.  Let’s create opportunities together!

David Manes is a Downtown San Diego Realtor.  Contact him at david.manes@welcometosandiego.com or 858.432.3203.