Nervous homebuilders were eyeing San Diego last weekend to see just how soft the real estate market has gotten.
One of the nation's largest homebuilders, DR Horton, auctioned off more than three dozen condos that had previously gone unsold. The condos went for an average of 30 percent below the peak price previously advertised.
About 300 people crowded into a hotel ballroom Saturday to hear a tuxedoed auctioneer say, "This is your lucky day."
Richard Ryan said later that he felt lucky. He bought a one-bedroom condo for about $257,000. It was previously listed as high as $389,000.
"It didn't get too crazy. And we even had prices sketched out. So I think we did OK. We feel good about the price," Ryan said.
The condo builder, DR Horton, wasn't keen to publicize just how low prices would go. Cameras and microphones were barred from the auction hall. NPR registered as a bidder in order to attend. Still, the company appeared satisfied with the prices buyers were willing to pay. Midway through the auction, a second batch of condos was put on the block.
The list prices on these condos may have been artificially high to start with, like a department store that raises prices just before a sale, in order to show a bigger markdown. The price Ryan paid is only about 6 percent below what new condos in the neighborhood have actually been selling for this year.
"If you look in North Park, it's overpriced," said Darcy Mudd, who left the auction unimpressed. "I'm going to wait a little while and see what's going to happen. I think this was a lot of show to get people in and get excited about it. But I don't think it's a very good deal."
The auction made headlines, not only in San Diego but across the country, at a time when homebuilders are struggling with their lowest sales in seven years. Real Estate professor Norm Miller of the University of San Diego says that in a soft market like this, it can make sense for builders to cut their prices. Holding out for a higher price can cost a builder up to 12 percent per year.
At the same time, Miller says, the markets seeing the sharpest drop in home prices now are the same ones that saw a steep run-up just a few years ago — mostly coastal markets like Miami, Washington, D.C., and San Diego. He pooh-poohs the idea that San Diego is some kind of national canary in the coal mine.
"Most people aren't in this coal mine at all," Miller said. "The only people in the coal mines are the markets that went up 100 to 150 percent in the last seven years. Those are the markets that are soft now. Now, if you bought that home seven years ago, you're still way, way up. But if you bought that home one or two years ago, then you're in trouble."
For those who bought at the peak of the market in San Diego a year or two ago, the auction might carry the sad realization that whatever equity they had in their homes is now going, going, gone.