San Diego Luxury Home Foreclosures

Geoffrey Schiering by Geoffrey Schiering

REO’s and Short Sales In Del Mar, Carmel Valley, La Jolla, Rancho Santa Fe

There have been a lot of recent reports that the numbers of foreclosures are rising in the top tiers of the real estate market. This seems to be true in San Diego, where the number of San Diego luxury homes for sale has been increasing steadily over recent months. Banks continue to have restrictive lending standards for jumbo loan home mortgages. The result has been slackness in demand for upscale homes. In the meantime, job losses and the general downturn of the economy has made many past buyers of luxury homes want, or need, out.

San Diego luxury homes struggling.  Foreclosure properties in Carmel Valley, La Jolla, Del Mar, and Rancho Santa Fe getting more common.

San Diego luxury homes struggling. Foreclosure properties in Carmel Valley, La Jolla, Del Mar, and Rancho Santa Fe getting more common.

The combination of decreased demand and increased supply has been putting downward pressure on the prices of San Diego luxury homes. As a result, as many as one in four San Diego home owners may be upside down on their mortgages, owing more on their mortgages than their homes are worth.

The initial adjustment of San Diego home prices had been in the entry-level home market. First-time buyers and investors had driven the bottom rung of San Diego real estate prices above $500,000 for detached single-family houses. When prices stopped rising, the fragile balance of easy financing for under-qualified buyers was disrupted. Demand dried up, inventories of homes for sale grew, and entry-level house prices fell quickly in San Diego. By the time prices fell 30% to 50% off their highs, easy credit had returned for “conforming” loans (under $697,500 in San Diego County), and buyers jumped in to buy at the reduced prices. Inventories shrank and soon demand exceeded supply. Now there has been upward pressure on the prices of entry-level San Diego homes for most of 2009.

The story has been different for the San Diego luxury homes market. Many home buyers in this category had purchased their homes with large down payments, rolling over equity gains from earlier sales of San Diego real estate. And as a general rule, luxury home buyers are traditionally in better financial shape than first-time home buyers or any buyers of entry level homes. So when the economy turned, the luxury home owners were largely better prepared for riding out the storm. But rainy day funds are beginning to dry up, and the old fallback of taking home equity loans for emergency situations is simply not available, especially for self-employed people or those who have seen their house values drop near or below their mortgage balances. Again, falling home prices combined with lack of availability of jumbo loans is the big problem.

According to Zillow, luxury homes (the top third of the housing index) are beginning to outnumber the bottom one-third of houses in foreclosure nationwide. That is being illustrated by the types of loans that are now going sour. More than 58% of foreclosures that began in the second quarter of 2009 were prime loans (as opposed to sub-prime loans), up from 44% at the same time last year. Prime loans were determined by the borrower’s credit scores and documentation. However, there are a lot of prime loans that are “interest-only” and adjustable-rate, so the prime loans that go bad are often the same sorts of junky loans that got entry-level home buyers into trouble.  More upscale San Diego foreclosure properties are on the way.

Of course, where there are losers there will also be winners. Right now San Diego home buyers are taking advantage of the increased inventory and downward pressure on prices of homes for sale in Carmel Valley, Del Mar, La Jolla, and Rancho Santa Fe. Right now there are sixty four-bedroom houses for sale in Carmel Valley. Just a few years ago there were no four-bedroom houses in Carmel Valley priced under $1.3Million, so prices are down at least 30% from their highs.

Just as it did in the entry-level homes market, the San Diego luxury homes market will also recover as soon as jumbo loans become more generally available. Inventories will drop and prices will again rise. Just ask anyone who is presently chasing the limited inventory of entry-level homes for sale in San Diego. It’s much more fun and rewarding to buy a home when there aren’t hundreds of people competing for the same property.

45 Comments to San Diego Luxury Home Foreclosures

Comments

  • I recently read a news feed from associate press which says the foreclosures will peak by end 2010 and the rate of unemployment will also travel north by 10% . The sale of homes is also anticipated to increase by 21%
    .-= Mack@Las Vegas Luxury Homes´s last blog ..Commercial Real Estate Bubble =-.

  • Logan Utah Real Estate says:

    In our little market, which we have less than 50 foreclosures out of 750 active listings, the foreclosures are rising to. This isn’t good for home values, but I like Mack’s comments about the rising foreclosure rate to peak by 2010. :)

    • Geoff Geoff says:

      The foreclosure rates are definitely patchy around the country, and even within individual communities. The economy is fragile, but the stock market senses a recovery. If so, it will be a happy day when the bulk of the distressed properties work their way out of the system. We’re all looking forward to having the short sale and foreclosure mess behind us.

  • Charles@Las Vegas Homes says:

    I had heard that as well. There are another wave of loans due to adjust soon…so foreclosures will follow. Plus with unemployment still high, more foreclosures are a foregone conclusion.
    .-= Charles@Las Vegas Homes´s last blog ..Time Running Out for the First Time Home Buyer Tax Credit =-.

  • Am I the only one who doesn’t think that foreclosures are a bad thing? Over-leveraged consumers buying too much home with too little money defaulting is normal: if you can’t pay, you give up the collateral. Losing a house to foreclosure is no great tragedy. Becoming HOMELESS is a tragedy. Any government/societal interference should only be to keep families from becoming destitute and homeless… As for the great subsidies we provide the housing industry (tax credits, mortgage interest deduction, artificially low interest rates), they should all go away. If the home PRICE corrects to a sustainable level, we would all be better off, because only then would it truly be affordable.

    • Geoff Geoff says:

      Foreclosures are above normal levels, largely due to questionable lending practices which fed questionable financial instruments between 2000 and 2007. I believe government intervention was appropriate to protect the public from the fallout caused by an under-regulated banking industry. The government backing of new mortgages issued and insured by the FHA has prevented a serious meltdown. Despite the high number of foreclosures in San Diego and across the country, it could easily have been exponentially worse. But the government should definitely remove themselves from the market when stability and credibility is returned to the banking and financial sectors. I don’t think that anyone is yet willing to make the final determination along those lines.

  • At this point the market seems pretty predictable. We know who is losing and gaining from this global crisis. There will definitely be an increase for construction for new town houses for rent, to supply the families losing their homes in foreclosure.

    • Geoff Geoff says:

      Perhaps, but so far the applications for building permits are still down more than 50% from their 2005 levels. There are no big plans for any new home developments in San Diego County during 2010, detached houses or townhomes.

  • Given the economic situation, the impact of the crisis will always be a barrier for home buyers thus it makes it more difficult for them to decide whether to buy or not. Real estate market in Utah is unpredictable these days, let’s just wait and see.

  • It is the same in Florida. Foreclosures are soaring up to the roof. There is no end yet. A couple of years ago the market was going up, up, up. Then the foreclosure hit and you can get good deals for waterfront properties like never before. Hopefully the end will come soon and the prices are going back. This would help tons of people.

  • Unfortunately, we still have a long way to go. Not only here in San Diego but throughout the country. We still have to weather all the ARM resets from 2010 through 2012. Don’t be surprised if things get worse before they get better.

    • Geoff Geoff says:

      We see more and more upper-end buyers coming back into the market. The optimists are using the opportunity to buy luxury homes in Rancho Santa Fe, La Jolla, and elsewhere at deeply reduced prices.

  • Being upside down on your mortgage is a horrible situation. One strategy which people are using to good effect is to rent out their home and downsize to a much smaller place, either leaving the home furnished or putting their excess in storage. For some, it’s been a great way to get through the crisis.

  • These price drops are crazy. Definitely a buyers market so long as the drops stop. You can still get burned jumping into a house if its value is going to decrease an additional year.

  • Unfortunately, I don’t see the rate of foreclosures slowing down any time soon.

    Steven, foreclosures aren’t necessarily a bad thing, especially for those that bought more house than they could afford.

    But remember, there are a large number of home owners who bought homes they could afford, on fixed rate loans, who are now unemployed, or severely under employed. They were responsible home buyers, who through no fault of their own, suddenly aren’t working and can’t afford the house payments. Plus, they can’t find buyers for their house, so they lose it to foreclosure. Those are the people I feel for.
    .-= Reggy@Foreclosure Cleanup´s last blog ..Foreclosure Clean Up Business Setup =-.

  • I definitely agree that now is the right time to start investing in luxury real estate, especially when prices are at an all time low. One can’t help but feel bad for homeowners who bought a home but are now unemployed though. But a lot of these properties were bought by fellow investors who couldn’t flip them and are putting it back on the market at a loss because they can’t afford the overhead. Now for those properties, I wouldn’t mind taking their properties off their hands.
    Carlo@App-Fix-It last blog ..Testimonial 1

  • 12 Month Car Leasing says:

    I agree with that right time of investing luxury real state, now is that time. My sister in Seattle is planning to move out to San Diego anytime soon. Hope there are still available for them at the very low price.

    • Geoff Geoff says:

      Thanks for your post. This is definitely the best opportunity that we’ve seen for decades to negotiate great deals on luxury homes in San Diego. Negotiating is my favorite part of the real estate career!
      I’d appreciate an introduction to your sister if she decides to move this way. We’ll take good care of her. We treat all of our clients like family!

  • I heard that a lot of people are not even asking for loans anymore because they’re so certain they’re not going to get accepted and that banks are waiting to give people loans again so hopefully with that we’ll see the housing market pick up.

  • Grace@Foreclosure Help says:

    There’s never been a better time than now to start looking for real estate investments. Aside from luxury homes, investors should also be looking at commercial real estate. Commercial property owners are going to need foreclosure help in the very near future. It is the next wave expected to hit an already fragile and battered economy. There’s no better time than now to get your buying gear ready to take advantage of some great deals while helping the economy recover at the same time. Happy investing!
    .-= Grace@Foreclosure Help´s last blog ..My First Mortgage Has Been Modified by Wells Fargo but CitiMortgage Says No 2MP Information for my Second Mortgage =-.

  • Hi,
    The post is very good for the people which is interested in the foreclosure. It could be very updating an article for interested individuals in the regarding field.
    .-= Avalanche@Tampa Foreclosure´s last blog ..Consuelo Mack Interviews Steven Romick =-.

  • The bad economy really affects our real estate industry. If you have extra money saved, this is the right time to buy when the prices are so low.

  • Hard times for some could actually mean great opportunities for others. A general scenario of economic instability and foreclosures left and right is a good opportunity for those with cash kept for rainy days to invest in real estate.

    I think San Diego is one the best places to live in, considering how much I love their weather. I’m pretty sure quite a few folks took advantage of this.

  • Don’t waste the chance when the price is very low. Keep it for a few years and you will be surprised of the big growth in your investment. Interesting topic.

  • Las Vegas MLS says:

    With the prices going down due to foreclosures, it really puts some of these amazing homes right in my price range.
    .-= Las Vegas MLS´s last blog ..Las Vegas MLS =-.

  • In my opinion I think the prices for luxury homes have pretty much hit the bottom. This sets up a once in a lifetime chance to buy a fabulous home that is normally prices at the top of the market at bargain basement prices. If you can afford it, now is the time! Call San Diego Realty pro and make it happen. Just trying to help :) But I’m serious about the opportunity.
    .-= Rodney @ Selecting a home builder´s last blog ..Different Types of New Home Builders =-.

    • Geoff Geoff says:

      Thanks for your reply Rodney. I’d like to be able to say for sure that we’ve hit bottom in the luxury home market in San Diego, but my crystal ball broke some time ago. I can say that we’ve seen good support and even median price increases in many neighborhoods, such as the Carmel Valley luxury homes market.

  • We have a similar situation in Thailand, but the only difference is that prices still remain sky-rocketing high. Coupled with the strong Baht, the market is already in a slum, and neither local nor foreign buyers/ investors are interested in luxury beach front homes. Most are praying for the Dollar to go up so as to bring back the big buyers.

    • Geoff Geoff says:

      Unfortunately, I wouldn’t expect the dollar to go up anytime soon. The recent monetary policy is aimed at keeping interest rates low, which is great for U.S. buyers thinking of buying homes in San Diego, but not in Thailand. And your right that the current market cycle makes San Diego houses cheap by international standards. Buying San Diego foreclosures is a particularly good way to get a great deal.

  • Alex says:

    Recessions take a toll on every social class, believe it or not. Some of the wealthiest of the wealthy do pay cash for everything and carry very low debt loads. However, some wealthy people simply take out way bigger bank loans. Some people would rather risk debt and disaster to have the biggest house and flashiest car, and it is showing. Foreclosures on large properties are increasing, as even the wealthy lack the instant money to pay the mortgage. Even rich people could use loan modification.

  • Birmingham investment realty says:

    Let us not be pessimistic. I know, if foreclosures happen it will not degrade its links.

  • Homeowners insurance quotes blog says:

    It seems that recovery has been very slow but has been showing some signs of improvement from April 2011. Currently the average price on a home in San Diego ranges around $529K. It is a slow pace but perhaps this is a sign of better times ahead.

  • The bad economy really affects the real estate business.
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  • Due to the recession, there are quite a number of foreclosed properties that are being put up for sale in the market now. This provides a great opportunity, especially for first-time homeowners, to get great deals for great property investments.

  • My wife and I took a vacation in SD a couple of moths back — and we were blown away. The place looks like a vacation spot indeed! And it has great weather to boot! I think investing here is very promising because of all the advantages the whole area has.

  • San Diego is where a lot of families flock to these days, primarily due to its great weather and its atmosphere highly conducive to raising a family. I’d forever be envious of their sunny skies!

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    Do you know a little more about commercial real-estate returns in Viljandi, Estonia?

  • Foreclosures are a great thing to invest in right now with the market at an all time low.

    • Geoff Geoff says:

      Foreclosures are a great way to make money on San Diego real estate investments, and really anywhere. Real estate investors are paying all-cash and flipping foreclosed homes in San Diego for a substantial profit. And anyone looking to buy a home to live in would do well to buy a foreclosure if they don’t mind dealing with a bank and probably doing some cleanup work.

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