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Frenzy Monitor

The reason for breaking down the active and pending listings by zip code is to give the readers a closer look at their neighborhood stats.

Our Big Three zip codes – where you can still buy a decent house for $2,000,000 – are still having more pendings than actives (highlighted below), but let’s note how strong the pending counts are in La Jolla and Rancho Santa Fe too:

The median list price in La Jolla today is $5,422,500, and in RSF it is $7,700,000!

We can also track the average market times too.  Upward trends here would indicate market slowing:

All four categories have improved recently, and the high-end $3,000,000+ average market times have been in the tightest range over the last few months!

Some may call this the off-season, but the only reason that the numbers aren’t any better is because the number of new listings is so low.  Brace for impact in 2022!

Manhattan Views

We did get to spend the Thanksgiving weekend in Manhattan with Kayla. She cooked a good old-fashioned turkey dinner at home on Thursday, and the next day we visited the new tourist attraction on 42nd Street adjacent to Grand Central Station. They run you up to the 92nd floor where most of the younger folks are posing like a Kardashian – with some bringing their own pro photographers!

The view looking towards downtown (and Brooklyn to the left):

Looking west across the Hudson River towards New Jersey:

42nd Street below, and New Jersey in the distance:

Pivoting to the right, this is looking up Madison Avenue towards Central Park, Harlem, and the Bronx:

Looking east towards the Chrysler Building and the United Nations, with Queens in the distance:

Happy Holidays!

Inventory Watch

Virtually all of the ivory-tower crowd thinks that pricing will settle down in 2022.

They should take a good look at how 2021 is wrapping up.

Admittedly, the San Diego market is at the extreme end, with our inventory enduring the biggest YoY dropoff anywhere in the country.  It’s been that way around here for months, and the NSDCC stats for November show how explosive the pricing can be when buyers are starved for quality homes for sale:

Year
NSDCC November Sales
Median LP/sf
Median SP/sf
LP:SP
2019
212
$1,391,500
$1,347,500
97%
2020
306
$1,597,000
$1,589,950
100%
2021
195
$2,000,000
$2,100,000
105%

The median sales price is 32% higher than it was 12 months ago, and 56% higher than it was two years ago!

We thought that the last half of 2020 was the frenzy of all-time, mostly because there was ample inventory that enabled home buyers to set monthly sales records.

But the second half of 2021 has been experiencing a radical pricing frenzy, with the November LP:SP ratio at a whopping 105%!  The median sales price is $100,000 higher than the median list price? Wow!

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Staging in 2022

Buyers need to be sold twice – online and in-person. Staging helps with both!

La Jolla Realtor Michelle Silverman can easily tick off the various homes she’s sold for which she got more and higher offers because of effective staging.

“There was one home that hadn’t been staged and was listed at $1.149 million. It was old. It was tired looking,” she said. “I took the listing and had it staged. We got 12 offers on it and ended up selling it for just a little over $1.15 million. So, maybe it was just a little higher, but the buyer said they were only going to get $900,000 for the house.”

According to a 2020 survey of 13,000 staged homes by the Real Estate Staging Association noted that staged homes sell faster, averaging just 23 days on the market. By comparison, the typical U.S. home spent 43 days on the market last month, according to a report from Realtor.com.

The staging association survey also showed that with an average investment of 1 percent, approximately 75 percent of sellers saw a return on investment of 5% to 15% over asking price.

And this was before the market got as heated as it is now.

So, you might ask, if we’re in a seller’s market, why bother staging a home? Why not save the expense?

Silverman’s response was quick.

“Because even in a seller’s market, buyers are not visionary.”

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ADU Study

Because ADUs are expensive to build, there’s not much hope that they will solve the housing crisis.

Key Findings

  • There are an estimated 1.5 million Accessory Dwelling Units (ADUs) in the United States, making up roughly 2% of all homes in the country
  • ADUs are growing at a rate of 9%, or 100,000 per year
  • An average cost of an ADU is $180,000, or $260 per square foot
  • In America’s biggest cities, a home with an ADU is priced 35% higher on average than a home without one
  • The top states for ADUs are California (30%), Florida (12%), Texas (10%) and Georgia (5%)
  • The cities with the most ADUs are Los Angeles (12%), Portland (4%) and Houston (3%)
  • ADU sale listings are growing fastest in Portland (+23%), Dallas (+19%), and Seattle (+18%)

Whether you call them granny flats, in-law suites, or garage apartments – accessory dwelling units (“ADUs”) are on the rise. There are an estimated 1.4 million of them in the United States, with around 110,000 constructed in the last year alone.

In 2020, ADUs were often heralded as one answer to the growing housing affordability crisis. Their proponents argue that ADUs offer an opportunity for homeowners to make extra income, for young people to rent affordably, and for communities to grow slowly and sustainably.

But then the pandemic came and changed everything, and hardly for the better. So where did that leave ADUs in 2021?

Read full article here:

https://porch.com/advice/state-of-adu-market-2021

Zillow Offers Follow-Up

Susie asked for a Zillow Offers update, and yesterday they announced that the unwinding is going just fine. While the debacle did tank their stock price, they figured it would be a good time to buy more for themselves:

SEATTLEDec. 2, 2021 – Zillow Group, Inc. today announced it has made significant progress in winding down Zillow Offers inventory and has sold, is under contract to sell or has reached agreement on disposition terms for more than 50% of the homes it expected to resell during the entire wind-down process. Zillow Group’s Board of Directors has also authorized the repurchase of up to $750 million of its Class A common stock, Class C capital stock or a combination of both.

“We are pleased with the progress of our wind-down efforts and recognize that no longer operating Zillow Offers will allow us to have a more capital-efficient balance sheet and business moving forward,” said Zillow Group co-founder and CEO Rich Barton. “With that, we see today as an opportune time to announce a share repurchase program and reduce the cash balance we built up to support Zillow Offers.”

We can expect them to gloss over their little boo-boo and carry on.

More below – thanks Bode:

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Reverse Mortgage, Or Sell?

The less equity you have, the more likely you will move.

Q: I guess it may be too late, but figured I’d ask. We did a reverse mortgage. We got almost no cash out of it, but it is eating up whatever equity remains with our loan that has an effective interest rate of almost 5 percent. Is there anything we can do? Thank you.

A: Reverse mortgages have been around for more than 20 years. The concept is enticing: If you’re over age 62 and you have equity in your home, there are a number of lenders who will give you a loan for a certain percentage of available equity (often up to 85 percent, but sometimes quite a bit less). The loan provides you with cash and no requirement to repay the loan until the home is sold or the owners pass away.

If you’re house rich and cash poor, and want to stay in your home but perhaps need funds to make repairs, pay off the mortgage to lower your cash burn or even augment your retirement income, a reverse mortgage can help. But it comes at a fairly steep price: a higher interest rate plus higher fees.

The higher fees eat away at the amount of cash you’ll get. The higher interest rate eats away at your remaining equity. And you still have the requirement to pay your real estate property taxes and homeowners insurance premiums.

It sounds like you needed cash, maybe didn’t qualify for a home equity line of credit and turned to a reverse mortgage as a way to secure the funds you required. The problem is the one you now face: You had a home without much in the way of equity, took what you could, and now have run through the cash and are out of options to get more.

It’s an unfortunate position to be in if returning to work is no longer an option or a possibility. When we get asked about reverse mortgages, we’ll often recommend that homeowners sell the property, take whatever equity they can and rent something that’s affordable. Or, better yet, move in with family or into some sort of shared living arrangement to cut costs.

Link to full WaPo Article

Commission Uncoupling

This report should be the last dagger for buyer-agents.

Won’t buyers who are empowered by searching for homes on the internet themselves just go direct to the listing agent, rather than paying extra for their own representation? They don’t think they need representation – they can find houses on their own! 

Listing agents will encourage this program too – and just charge 4%-5% and keep the whole fee (which this report didn’t see coming).  In addition, without buyer-agents there will be no need for the MLS.  The search portals will become an option, rather than a requirement, for listing agents to advertise their listings if they feel like it.

Also, realtors will be extremely reluctant to advertise their true rates and services. How do we know that? How many realtor blogs do you see today?  Instead, the braggadocious fluff will prevail.

Bold added:

Washington, D.C. – A new report by the Consumer Federation of America (CFA) on residential real estate commissions – The Relationship of Residential Real Estate Commission Rates to Industry Structure and Culture – shows that buyer agent commissions are highly uniform.  This rate uniformity is strongly supported by the industry’s compensation system in which home sellers pay the commissions of both the listing agent and the buyer agent.  Uncoupling (or untying) seller and buyer agent compensation would spur price competition that would substantially reduce the some $100 billion in commissions paid annually by consumers.

“The current commission system is designed to thwart price competition among agents,” said Stephen Brobeck, a CFA senior fellow and the report’s author.  “If home buyers were allowed to negotiate their agent’s commission, agents would be encouraged to compete on price and service,” he added.

CFA’s analysis of more than 10,000 home sales this year, in 21 cities from the eastern half of the U.S., shows that buyer agent rates were highly uniform.  As the appended table shows:

  • In eight of the cities, more than 80 percent of the rates were identical.
  • In 14 cities, more than 88 percent of the rates ranged between 2.5 and 3.0 percent.
  • In all cities but Brooklyn NY, at least 72 percent of the rates ranged between 2.5 and 3.0 percent.

The report’s analysis of these buyer agent rates and their relationship to listing agent rates reveals that the typical total commission in these cities ranged between five and six percent.  The report also explains why the most widely-quoted estimate of a national average rate – by industry-related Real Trends and now below five percent – is misleading and probably inaccurate.

In a Price-Competitive Market, Commission Rates Would Vary Considerably

In a price-competitive marketplace, rates would vary greatly because of several factors:

  • The work-related costs of agents can vary greatly. Listing agents can do as little as just listing the house on their local multiple listing service (MLS) or also arranging high-quality photos and videos, developing and distributing marketing materials, and meeting potential buyers.  Buyer agents can, for example, show only one house or more than a dozen homes.
  • When the work does not vary, the compensation usually does. Total agent compensation, at a five percent rate (of the sale price), varies from $5,000 on the sale of a $100,000 home to $50,000 on the sale of a $1,000,000 home.
  • The quality of agent service often varies but the rate usually does not. Experienced agents typically charge the same rates as agents who have just received their license.
  • In home sales, some agents are fiduciaries with total loyalty to clients while other agents work as dual agents or transaction brokers, with loyalty to neither seller nor buyer. Fiduciaries, in general, deserve higher compensation.

Industry Structure and Culture Block This Price Competition

The report shows that the above factors, which should result in highly variable commission rates and agent compensation, are minimized by the structure and culture of the industry.

  • Historic Rate-Setting: It was only through determined efforts of the U.S. Department of Justice, Federal Trade Commission (FTC), and some state attorney-generals that toward the end of the last century, the industry shifted from explicit rate-setting to “covert-price setting,” the term used by a 1983 Federal Trade Commission report.
  • Industry Rules: The industry requires listing agents (and clients) using local multiple listing services (MLS) to offer fixed compensation to buyer agents selling the properties.  Buyers are unable to negotiate this compensation, and buyers are usually told, if they ask their agent, that sellers pay the agent’s commission.  Sellers, on the other hand, are informed by their listing agents that lowering this buyer compensation will risk buyer agents “steering” their clients to higher-commission properties.
  • Industry Norms: The industry promotes a “cooperative” culture in which agents are expected to be “team players,” according to the FTC’s 1983 report.  Company policy manuals often constrain rates charged, and agent scripts explain how agents can avoid negotiating lower rates.  A core norm of the industry culture is not talking or writing about commission rates, which helps explain why very few firms, except discounters, advertise commission rates, disclose them on websites, provide them to inquiring consumers who call firms, or typically discuss them at all with home buyers.
  • Agent Surplus: The high ratio of agents – over 1.5 million realtors – to number of home sales – about six million annually – forces agents to spend much time and money seeking clients.  It also provides a strong incentive for agents and firms to support high, uniform rates.

The report notes that there appears to have been some recent erosion of rates and their uniformity.  Over several decades, typical rates in urban areas have declined from six to seven percent to five to six percent (with no loss of agent incomes because of rising housing prices).  In some cities, there are now a large number of sales at both 2.5 percent and at 3.0 percent.  And in Brooklyn, where expensive homes generate substantial fees, typical buyer agent rates are well below 2.5 percent.

Uncoupling Buyer and Listing Agent Commissions Would Spur Rate Competition

The report suggests that the one measure which could spur rate competition is uncoupling buyer and listing agent commissions so that buyers can negotiate compensation with their agents.  Buyer agent commissions, now baked into listed prices, would instead be negotiated by buyers.  That would lower home sale prices, and both the mortgage and real estate industries would ensure that these commissions could be included in mortgages whose amount financed would not need to increase.

The uncoupling of rates would also free listing agent discounters from the shackles of current industry rules that force them to charge typical buyer agent rates.  Over time, there would be a much wider variation in rates (and service options) reflecting agent experience, work, effort, representation, and willingness to compete on rates.

There is a broad and increasing consensus that commission rates should be uncoupled.

Studies published on both the Right (Cato Institute) and Left (Brookings Institute) argue strongly for this untying.  Lawsuits filed by major class action firms seek to uncouple commissions.  The U.S. Department of Justice is pursuing antitrust issues beyond improved disclosures.  The Biden administration’s antitrust agenda targets tied commissions.  Even some voices from the industry have suggested the consideration of changes in current rate compensation practices.

A week ago, the National Association of Realtors (NAR) announced changes that would allow agents, firms, and portals to publish buyer agent rates.  In an analysis of these changes, CFA noted that they would discourage agents from steering consumers to higher-commission properties, but would not permit significant rate competition because buyers would still not pay, or be able to effectively negotiate, compensation of their agents.

https://consumerfed.org/press_release/research-on-more-than-10000-home-sales-reveals-that-buyer-agent-commission-rates-are-highly-uniform/

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