I disagreed with the expert opinions yesterday. What are they missing?
My thoughts:
We cannot apply any previous assumptions or beliefs about real estate sales to the market conditions of today – we need to clean the slate. The discussion starts with how the number of people who are willing to sell their home has dropped significantly:
The Ultra-Low Inventory Causes More Volatility
A single one-off sale in La Costa Valley where a cash buyer paid 10% above the last model-match sale has caused a similar increase in other LCV sales. Now pricing is the same or higher than the first half of 2022 which was the peak of the pandemic frenzy.
But will it continue?
Can the current LCV homeowners count on those recent gains holding? Only if they use these recent sales for comps – and they are only good for six months. Buyers in 2024 and beyond will be reluctant to rely on comps that are 1+ years old.
Here’s where the volatility comes in to play. Without having a steady stream of LCV listings to continue the hot streak, we will be starting over each year. Sure, the sellers will use the comps from the previous year, but will the buyers? Will the sellers be satsified with getting the same price as the previous year, os insist on the usual 5% bump or more? Will they improve their home to deserve a premium price? Probably not, which means the buyers will be faced with paying more, for less. Not a good bet, because….
Mortgage Rates Are Going To Remain High
Mortgage rates don’t appear to have much chance of coming down this year. The Fed could raise further and kill any likelihood of rates getting back to 6%, let alone into the 5s, which means….
Home Pricing Will Be Flat
Generally-speaking, the overall pricing will most likely go back to the +/- 3% annually, which gives buyers a reason to pause. Without runaway prices that cause buyers to worry about getting in now before they are priced out forever, they have a reason to pause. They already have to wait patiently for another house to come up for sale, and if they don’t get the feeling that prices aren’t going up – they can, and will, wait for the next one. Might as well if prices aren’t going up much.
Seasonality Is Back
The knucklehaeds who think that housing has recovered are going to get a harsh reminder that real estate is seasonal – even in San Diego. Remember at the end of last year when I documented a few sales where the sellers were lowballed by more than 10% and they took it? It will happen again this year, which leads to…..
The Biggest Fear
Home sellers have had huge gains in equity, and if they have to give some back it won’t hurt much – and some will give more than others. A few low sales in the off-season will thwart the idea that comps from the first-half of the year are sustainable.
We’ve dodged the bullet this year – so far. Each year will be different!
This listed for $1,899,000 at the beginning of March, but no takers. They reduced to $1,790,000 after a month and let that ride for two more weeks. After that, they cancelled the listing and re-freshed it at $1,749,000. Two weeks later they found a cash buyer who paid $1,725,000. The cabinetry was super-custom but unusual for those who want the bland white kitchen you see on HGTV.
Here are expert opinions on the market. I disagree with all of them:
The year started out with signs showing that the Federal Reserve’s inflation-fighting tactic was effective in cooling down the hot pandemic housing market.
For the first time in 11 years, home prices dropped year-over-year in February as mortgage rates more than doubled following the Fed’s consecutive interest rate hikes, curbing affordability.
However, the median price of a home increased month-over-month for the second consecutive month in March. The median home price is projected to increase for a third month in a row in April to $393,300, which is 2% lower than the previous April’s median price of $401,700, according to data released in May by the National Association of Realtors (NAR).
One big factor behind the strengthening home prices and the decrease in sales volume — down 23% in April from a year ago — is the lack of housing inventory.
“Home sales are bouncing back and forth but remain above recent cyclical lows,” says NAR Chief Economist Lawrence Yun. “The combination of job gains, limited inventory and fluctuating mortgage rates over the last several months have created an environment of push-pull housing demand.”
Where are home prices headed?
Generally speaking, high mortgage rates should prompt house prices to trend downward.
“Yet, housing supply remains so restricted, that any uptick in demand will put upward pressure on prices,” wrote First American Chief economist Mark Fleming in a blogpost. “This is the dynamic that played out in March, as the spring home-buying season ushered in more demand for homes, while insufficient supply prompted buyers to compete and bid up prices.”
No return to typical seasonality in the market
There will be a lot of uncertainty in the economy over the next few months and prospective home buyers are going to be more opportunistic, as opposed to following traditional seasonal market trends, says Bright MLS Chief Economist, Lisa Sturtevant.
“There will continue to be volatility in mortgage rates as we wait to see what the Fed will do at its upcoming meetings and as we watch economic data roll in over the summer,” says Sturtevant. “Prospective buyers are going to be watching rates closely, and many will try to make an offer on a home when they see rates dip. As a result, we should expect less seasonality this year than we had prior to the pandemic.”
More sellers returning to the market
While inventory will remain low this year, we should expect to see more sellers who had been on the sidelines list their home for sale this summer and into the fall, says Sturtevant.
Many existing homeowners have been “locked in” with super low mortgage rates, which has discouraged discretionary moves.
“However, some people have to move, and others will decide to move for a bigger or smaller home, or to change jobs or neighborhoods, despite rates remaining elevated,” says Sturtevant.
The uptick in new home construction has provided more opportunities for move-up buyers who may have been staying in place because they did not have anywhere to move to.
“One thing that could shut down new listings is if we see a sharp spike in mortgage rates to 8 or 9%, a situation that is still unlikely but not out of the realm of possibilities,” she says.
New home construction
Instability of regional banks is a concern for builder and land developer financing going forward, says Robert Dietz, chief economist for the National Association of Home Builders.
Lending conditions for builders have tightened, and the interest rate for development and construction loans is now well above 10%, which threatens housing supply.
Single-family spec home building loans had an effective rate of 13% in the first quarter of 2023 compared to 9% in the first quarter of 2018.
“Our expectation is that the rate of these loans will move lower as the Fed cuts the federal funds rate, but our forecast is that will not happen until later in 2024,” Dietz told USA TODAY. “As a result, land development would be suppressed, and we risk loaning low on lots during a home building rebound in 2024. Lot development can take three years in a typical market.”
Today, we have the highest number of active listings of the year, and the lowest number of pendings since the first week of February. There were only 17 new pendings since last Monday, which is the lowest weekly total since the beginning of January.
Were buyers on vacation? Graduations? Or just dissatisfied with the current offerings?
The experts are saying that real estate has recovered and everything will be fine now, in spite of high rates. They are quick to add that nobody can predict the future!
Well, it looks fairly predictable to me.
The previous three years plotted above were the hottest frenzy markets of all-time, so we’re lucky just to be having a similar run of showings. But today those showings will be less fruitful, and even if the 2023 trend can stay close, we probably won’t be having as many actual sales.
If the rest of this year goes about the same as recently, we should have a couple of strong weeks in June, take off July 4th, and then a couple of decent weeks in July before drifting off for the rest of the year.
Mortgage rates would have to get into the 5s for it to go any better.
Having experienced and producing fruit trees on site (two pomegranites, two loquats, dragon-fruit, persimmon, avocado and a fig) may not cause buyers to pay more money, but they sweeten the deal!
Check out our new listing WEST of the 5 freeway in downtown Carlsbad!
1116 Buena Vista Way, Carlsbad
3 br/1.5 ba, 1,000sf
YB: 1958
Lot is 7,100sf
LP = $995,000
Retro beach bungalow on a large 7,100sf lot for this money? Wow! Hardwood floors, vaulted ceiling, new roof, new fence, and new paint too. The lowest sale in Carlsbad this year is $1,050,000 and it wasn’t west of the freeway and walking distance to the vibrant and happening village of Carlsbad! Build yourself a three-car garage with an ADU and you’ll be all set! The 1961 Cadillac limo is negotiable.
Open 12-3pm Saturday June 3rd and 12-2pm on Sunday June 4th.
Will there be fewer sales in California due to kids moving into inherited homes? Or could there be more sales, due to the high home values and the difficulty of paying off the other siblings? Hat tip to the WSJ!
One of the first things people do when they inherit their parents’ home these days is put up a for-sale sign.
Deciding what to do with a family property is often both an emotional and financial decision, but the rising costs of renovations, property taxes and utilities are making it harder for adult children to hold on to the real estate, financial advisers say. Higher home prices and mortgage rates have often also made it impractical for heirs to buy out their siblings, said Dick Stoner, a Realtor in Rockville, Md.
The high home prices of the past few years have made the decision to sell even more attractive. If inheritors can unload a house in a hot location for a high price, the proceeds from the home’s sale can help secure their finances and fund goals such as retirement, advisers say.
“For inheritors, cash is king,” said Paige Wilbur, Wells Fargo’s head of estate services.
Leaving a home to children remains a common way to transfer wealth, according to financial advisers and estate planners. There is no recent data that tracks home inheritance nationally.
More than three-quarters of parents plan to leave a home to their children when they die, according to a 2023 Charles Schwab survey of more than 700 American investors between the ages of 27 and 95. Some children may be reluctant to sell for sentimental reasons, but finances and simplicity of unloading a property often win out. Nearly 70% of those who expect to inherit a home from their parents plan to sell it, the survey found.
I go way back with the listing agents Maxine and Marti here – we all worked for Jerry Campbell back in the day when Mike Ferry (not Tom) was just starting out and he came to our office to conduct one of his first Action Workshops in person. He told me once, “You know why you’re not married? Because no woman has decided to marry you yet.”
These charts and graphs get updated on the first of the month, so let’s take in the latest data. Everyone laments the general lack of inventory, but can we break it down further?
Yes indeed – and let’s note that the higher-end inventory was bustling during the pandemic which helped fuel the insane frenzy conditions. But look how the number of higher-end listings has cooled off now.
The affluent buyers have never been so frustrated!
