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The Slow Unwind – Quality of Inventory

I mentioned that we could be seeing a pause in the market, and for prospective home buyers, there are plenty of reasons to take a rest:

  1. Mortgage rates starting with a 5, not a three.
  2. The S&P 500 and Dow are down 15.9% and 11.3%, year-to-date.
  3. The list prices of homes for sale are higher than comps.
  4. There are very few superior homes coming to market.
  5. It’s a good time for graduation/vacation season!

When I look at the current batch of unsold homes, I don’t see any surprises. Either they are inferior homes/locations, or the list price is too optimistic (or both).  It’s natural to add a little extra mustard to a list price so the optimism isn’t a complete turnoff if the home has been upgraded nicely and is well presented.

Buyers taking their time and being more picky about what they will tolerate is a good thing for everyone.  The sellers who do everything right (spruce-up, price attractively, and are easy to show and sell) will be rewarded, and those who don’t will languish.

It is a big change from the last two years when the frenzy caused buyers to jump for the inferior or overpriced homes AND pay over list for them too.  Those days are gone.

If you see more than an occasional quality home not selling, then we have bigger problems. But for now, buyers could just be waiting for some quality inventory at a decent price!

Of the 109 houses that have closed escrow this month, only 22 of them sold for less than the list price. Eight percent sold have for list price or higher!

Happy to report that the new custom contemporary in Cardiff whose proceeds were going directly to the Rancho Coastal Humane Society did sell for $6,750,000 cash or $1,650,000 over it’s list price:

https://www.compass.com/app/listing/2361-oxford-avenue-cardiff-by-the-sea-ca-92007/1030482827149948177

Encinitas Ranch Discount

For those who have been waiting for prices to tumble, here you go!

This listed for $3,545,000 in January right when there was a flurry of $3,000,00-ish listings in and out of Encinitas Ranch. It took 76 days to finally find the buyer for this one – and it did close at a discount.

It sold for $3,520,000, which was a whopping $25,000 off the list price!

Removing Photos From Zillow

Home buyers who value their privacy don’t like seeing their home’s photo gallery advertised on Zillow after the sale is completed. Zillow has made it easier to remove those photos!

Here are the instructions:

To add or remove photos on your home’s property page, you must claim ownership of your home’s property page and navigate to the Edit Facts screen.

  1. Sign in to your Zillow profile.
  2. Click on the profile icon, then select Your Home from the menu option.
  3. Click on the tile for your home to load the property page. If you have not already claimed your home on Zillow, please follow these steps.
  4. Once you have claimed your home, click on the Edit Facts icon from the Owner View of the property page.
  5. To add photos, click the Upload photos button under Photos & media.
  6. You will be prompted to select photo files stored on your computer to upload.
  7. To remove a photo, click on an individual photo and click Remove Photo.
  8. To rearrange photos, click on the individual photo and hold the left mouse button down. Drag any photo to the desired place in the photo grouping order.
  9. Save your changes by clicking the Save Changes button at the bottom of the page.

https://zillow.zendesk.com/hc/en-us/articles/202036344-How-do-I-add-or-remove-photos-of-my-home-

Inventory Watch

Everyone complained that we had no inventory….well, we have more now!  But the 286 active listings today is still well under the 349 actives that we had last year at this time, and more listings should cause more sales.

We’ll see if the slight pause in the market can be attributed to the usual graduation-season malaise, or if a full-blown buyers’ strike is underway.

This isn’t the only measuring stick, but it appears that pricing has been settling down:

Most sellers are going to wait it out, or cancel their listing – neither of which will satisfy the buyers who are hoping for a major adjustment.

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How to Fix Housing

Today, the White House released their plan to fix housing:

https://www.whitehouse.gov/briefing-room/statements-releases/2022/05/16/president-biden-announces-new-actions-to-ease-the-burden-of-housing-costs/

I only skimmed it and I didn’t see the one thing that could really make a difference, which is re-purposing federally-owned real estate for residential use.

Let’s start with MCAS Miramar, which is 23,116 acres in the middle of San Diego that would be ideal for residential development. It’s big enough that you could have something for everybody!

We had our chance once:

In 1954, the Navy offered NAS Miramar to San Diego for $1 and the city considered using the base to relocate its airport. But it was deemed at the time to be too far away from most residents and the offer was declined.

Let’s leave the airport where it is and redevelop Miramar!

https://en.wikipedia.org/wiki/Marine_Corps_Air_Station_Miramar

The Slow Unwind – Price Reductions

Imagine the pricing quagmire we are in.

The homes on the market today were priced according to comps from 1-4 months ago, which were the craziest-priced sales in the history of real estate.

To make matters worse, sellers are naturally drawn to the highest-priced sales – and today that means the ones that closed for hundreds of thousands above the list price. But there was probably only one buyer crazy enough to pay that price.

Then rates go up to the mid-5s, which to buyers feel like double what they were.

But the sellers have committed to their list price, and their ego is laid out bare for all to see – friends, family, neighbors – all are watching and waiting to see if another house is going to sell for an insanely high price.

What happens if it doesn’t sell right away?

The sellers have to be motivated enough about moving that they will address the results.  Many have been on the market for weeks without selling – and have they even received an offer yet?

They didn’t get this far in life without being smart enough to know that something different is needed.  But there are only three choices:

  1. Cut the price.
  2. Wait it out at this price.
  3. Cancel the listing.

That’s it, those are the choices.

Most will add a fourth choice – it’s my agent’s fault! If my agent would only advertise more, and do more open houses, and well, heck, do whatever agents are supposed to do to sell my house for my price, then it would sell! But you can spend a million dollars on advertising, and it still won’t sell if the price isn’t right.

This is why the market won’t adjust for a long time. The gap between those crazy comps from yesteryear and what more rational buyers will pay today has never been so wide.  It’s probably not 5% or 10% either.

The craziest buyers have already purchased, and left us with unattainable comps. The only question is whether there are any somewhat-crazy buyers left, or if it’s just the rational buyers.

Tip: Throw out all the sales prices of the comparable homes that have sold nearby, and just use their list prices. Those list prices were probably rooted in reality (hopefully), and then in all the commotion, one of the craziest buyers radically overpaid just to win the house. Their purchase price is unlikely to be achieved again, at least for the foreseeable future, but those list prices should be a good starting point.

Modern Hacienda

A new Compass listing in South Encinitas, priced at $6,290,000:

Tucked away in seclusion, this 3606 sq. ft. 3-bedroom 3 bath New Construction Modern Hacienda masterpiece with two additional detached units exemplifies a unique combination of an ultra-modern interior and the warmth of a welcoming hacienda exterior. Nestled in the depths of Berryman Canyon, with the inviting Enclave development serving as the veritable drawbridge to the estate, this home exists as a fortress of relaxation. Upon arrival, all guests are unequivocally certain that this estate is the crown jewel of the neighborhood.

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California Interest-Free Loans

This will help to keep home prices up:

A top California lawmaker is proposing to spend $10 billion to help families buy homes in the state with some of America’s highest housing prices.

Democratic State Senate Leader Toni Atkins on Wednesday unveiled details of a proposal she’s pushing to create a revolving fund that would provide interest-free loans for up to 30% of the purchase price of a home for low- and middle-income households.

If implemented, it would be the largest program of its kind in the nation, according to the people who designed it. Proponents hope that it will be included in the state budget that must pass by June 15 and go into effect as soon as January. The aim is for it to eventually help about 8,000 families a year.

The proposal calls for the state government to share in any appreciation in the value of houses it helps purchase when they are sold and then invest those proceeds back into the fund.

“The purpose of this is to create a long-term endowment,” said Gene Slater, chairman of CSG Advisors, which advises public agencies on affordable housing and helped design the program. “We’re investing in the future value of the home so we can help other people.”

Under the proposal, California would spend $1 billion a year for 10 years. Participation would be limited to households making 150% of the median income in an area. There would be limits tied to a region’s median home price allowing home buyers in the most expensive markets such as the San Francisco Bay Area to benefit.

In Los Angeles County, households earning up to $120,000 a year could qualify for assistance, while in low-income areas like the agriculture-heavy Central Valley, that number would be closer to $107,000, according to data provided by the researchers who drafted the framework. Proponents want to target certain groups through outreach, including residents of largely Black and Latino neighborhoods and those with high loads of student debt.

The homeowner would repay the loan when they sell or refinance the home, along with a cut of the profit from any appreciation in value based on how much assistance the state provided. If the home price declines, Mr. Slater said, the state would be repaid if money is left over after the purchaser pays back their mortgage loan and recoups their portion of the down payment.

The program would be limited in scope to cover only about 2% of home sales volume statewide in an effort to avoid pushing prices higher.

Participants would be chosen on a first-come, first-served basis, with slots set aside for certain geographic areas and income brackets.

To become law, the proposal would have to pass both chambers of the Democratic-controlled state legislature and be approved by Democratic Gov. Gavin Newsom. A representative for Mr. Newsom declined to comment on the pending legislation. In a statement, Assembly Speaker Anthony Rendon praised Ms. Atkins’s work on the issue but didn’t say whether he supported her proposal.

An unlocked link to the full WSJ article:

https://www.wsj.com/articles/california-legislative-leader-wants-to-spend-10-billion-to-help-families-buy-homes-11652270401

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