Jim Klinge sighed as he made his way through a foreclosed home littered with empty bottles of rum and mattresses. It was 2008, and Klinge, a real estate agent, was filming a YouTube (GOOG) video for his blog documenting the housing crash in the cul-de-sacs and condos north of San Diego. As he opened a closet, daylight illuminated walls splattered with black mold spores, like a tie-dye project gone awry. “Oh, lovely,” Klinge said. “People were living in here like this, looks like. They were lucky to make it out alive.”
Five years later, Klinge’s videos tell a different story, one of limited inventory and jampacked open houses, bidding wars, and quick sales. When a buyer finds a good house in a desirable location, game on. “This part of the environment is just like 2003, when the frenzy was so big it all became about winning and losing,” Klinge says. In some ways, it’s like the bust never happened. “People forget about bad news,” he says. “They just forget.”
Klinge, who pronounces his name with a silent “e”—“like the Klingons, although they are a little better-looking”—has been selling houses since 1984, except for a brief hiatus during the California housing slump in the early 1990s, “when I learned the market doesn’t always go up.” He started blogging in 2005 and regularly posting his Jim the Realtor videos on YouTube in 2008. Camera in hand, he documented ornately sculpted McMansions (“When you see lions out front, you know you’re in for an interesting tour”), abandoned pot farms (“You can always get a good deal on a drug house”), and tract houses turned into virtual ATMs via home-equity loans and refinancings (“This guy borrowed $1.3 million from Countrywide”).
He made the videos to shock sellers into lowering their unrealistic asking prices, but most clung to their illusions. Buyers, on the other hand, ate it up, as did economists and the press. The economics blog Calculated Risk began embedding Klinge’s videos, and in April 2009 the Los Angeles Times ran a front-page story calling Klinge “The Hunter S. Thompson of real estate.” Klinge was flattered—“I love Hunter.” That morning, ABC News (DIS) called, and two weeks later, a seven-minute piece aired on Nightline portraying Klinge as “the honest broker.” The attention helped keep him busy as the San Diego housing market bottomed out.
Last summer Klinge noticed the market was really picking up. He knew the rally was real when it kept on going through the fall, a time sales typically slow. By early 2013, houses were getting snapped up quickly and bidding wars “moved into the spotlight,” he says. San Diego home prices have climbed 13 percent from their June 2009 low, making up some of the 42 percent drop from the March 2006 peak, according to the S&P/Case-Shiller indexes.
On a Saturday afternoon in March, Klinge hosted an open house for a two-story, salmon-colored stucco home in a planned community called San Elijo Hills. Built in 2002, the house originally fetched $427,500 and sold again in 2007 for $640,000. The owners tried to sell it for $579,000 last year, but three offers fell through.
Klinge was optimistic that he’d get at least the new asking price of $599,000. More than 200 people had tramped through the open house he held the previous weekend at a nearby property, and that house received eight offers over ask by Monday afternoon. At the new listing, interest grew over the afternoon. “Welcome! I’m Jim the Realtor,” he’d greet each group. “Hope you feel like buying a home today. I feel like selling one.”
Fern and Michael Hirsch were among the first to scout the property. They had moved from suburban Chicago to Southern California last year to be closer to their only child, who attends college in Orange County. Fern Hirsch said they feel pressure to act quickly because a house they visited two weeks earlier sold in a day, so, “it makes you feel like you need to be ready to act.” While the open house was still in progress, an agent for a young couple called Klinge to submit an offer for the full price. To gain leverage, the agent set a 7 p.m. deadline for Klinge’s sellers to accept or reject the deal. As more families came through, Klinge told each one of the evening deadline. “You do a nice open house extravaganza, do your best to put bidders against each other, and may the best man win,” he says.
Photograph by Damon Casarez for Bloomberg Businessweek
With the clock ticking, interested buyers quickly scrambled to think of important questions. One asked if the development levied high maintenance fees, and a family with two young girls wanted to know if the homeowners association allowed backyard trampolines. More than 60 people visited, and by 8 p.m., Klinge had two more offers. That night, the home went into contract with the trampoline fans for $610,000 with 20 percent down.
Photograph by Damon Casarez for Bloomberg Businessweek
In February half of all homes in San Diego went to contract within two weeks of being listed, according to the real estate website Redfin. One in three homes sold that quickly in the top 19 markets nationwide, up from 20 percent three years earlier. A reason for the speedy sales is that there aren’t enough houses available. Reluctant to sell when prices were low, some homeowners are still holding out now that rising prices give them hope of a bigger payday down the road. Bank of America (BAC) estimates that prices will increase 8 percent this year, stimulating a “positive feedback loop” to help put more houses on the market. “Someone say house party?” the bank’s analysts wrote in March.
Cathy Brinks, who wants to sell her home so her family can move to Florida, checked out Klinge’s open house to gauge demand. She says she had planned to list her five-bedroom home for $650,000, but the success of local sales is boosting her hopes. “We have no qualms” about asking $690,000, she said at the open house. Five days later, she listed it for $699,000.
Home builders are also rushing to meet the growing demand. They’re building at a pace of about 917,000 houses a year, the fastest in almost five years, according to the National Association of Home Builders. At a new development by D.R. Horton (DHI) near Klinge’s open house, people regularly show up before the office opens ready to buy the homes, which start above $700,000.
So are we at the beginning of yet another boom-bust cycle? Klinge doesn’t think so. One key difference is that the latest surge isn’t being driven by unconventional loans that let people buy with little or no money down, he says. Most buyers today are putting at least 20 percent down or paying all cash. “We are just so used to throwing labels on stuff, and bubble is the favorite one,” he says. “We all got burned by the exotic financing, but that’s not happening this time. It’s not an unsustainable situation that will explode and cause all of the prices to start falling.” Any problems, he says, “will be very locally based.”