The ivory-tower opinion below is blaming speculators for a mini-bubble, but around here I’d say that over 90% of the home sales were regular, organic real estate transactions in 2013. Prices may fall in the coming months (slightly), and if they do, it will be because buyers are being patient and picking off only the best buys.
Home prices displayed mixed signals in Los Angeles, San Francisco and San Diego in the single month of October 2014. Prices dipped in San Diego, remained roughly level in Los Angeles and rose slightly in San Francisco. Low-tier property prices are still on average 10% higher than one year earlier. Mid-tier and high-tier prices are 6% higher.
As in 2010, today’s price movement is the tail end of a mini-bubble, set into motion some 18 months earlier. This price rise was produced by short-lived speculator interference in 2013 (not a tax stimulus, as in 2009). This pricing activity is under pressure from insufficient personal incomes, rising fixed-rate mortgage (FRM) rates and new construction.
Prices are expected to fall in the coming months, likely bottoming in mid-2016 and retreating toward the mean price trendline. The cooling of speculative fever and continually rising mortgage rates will prolong the falling trend in sales volume, pulling prices down in turn. Remember, real estate prices track and run with bond prices due to interest rate movement. A lag time of up to 12 months exists due to expectations of continued recent price movement — the sticky price phenomenon.
The graph tells the story – the higher-end market is ‘soft’, and only those with precision pricing are selling.
Here’s why I think we’re going to get off to a fast start in 2015:
1. Mortgage rates are LOW!
We’ve seen previously how sub-4% rates have energized the demand. Now that rates have been in the 3s for a number of weeks, the word is getting out.
2. Inventory is picked clean.
December 31st is the day that has the most listings expire, and we lost 126 last night. This morning there are only 695 houses for sale between La Jolla and Carlsbad, an area of roughly 300,000 people. Not much for buyers to consider.
3. Old listings are selling during the holidays.
Of the 64 NSDCC houses that went pending since December 18th, twenty-nine of them (45%) were on the market for more than 60 days – and that’s not counting the relists. During the Hanukkah/Christmas time, buyers went out of their way to snap up a home that has been sitting for months? You would think it would be tempting for them to let an old listing ride a couple of more weeks and get back to Santa instead.
4. Smart-pricing is being accepted.
Now that prices have been flat or barely rising for a year, sellers and agents are figuring it out – you can’t throw any old price on a house and expect it to sell.
All we need is more product! We should see a slew of relists this month – my guess is 50% of the ‘new’ listings will be ones that failed to sell in 2014. But they will help shine the spotlight on the hot, fresh new listings!
This blog is hosted in Germany, and my main WordPress guy is in Ireland – the internet is an international market! We had changed from BlueHost to MediaLayer, and since then I haven’t noticed any problems with the blog being down over the last couple of years.
Has anyone experienced any problems connecting to the blog?
I want to make sure everything here is running smoothly, because I’m going to come out blazing in 2015 – more listings, more videos, and more Kayla!
“San Diego falls into a short list of markets where I would say demonstrably already that demand outpaces supply,” Smoke said.
“That very tight supply condition puts it in a market thathas next to zero chance of seeing prices decline.”
Jed Kolko, the chief economist for Trulia, noted that people expected interest rates to rise last year, and that never happened. He listed San Diego as one of the nation’s 10 markets to watch next year, with Fresno the only other California metropolitan area to make the list. Others making the positive list are Boston, Dallas, Nashville and New York.
“They have strong fundamentals for the housing market without the risk that prices look overvalued,” Kolko said. “These are the markets who are in that sweet spot where the conditions are ripe for a strong year, without much downside risk.”
At the end of this video she mentions the most hilarious comment in the history of real estate by the Case-Shiller talking head, David Blitzer – a guy who has never been seen outside of his ivory tower:
“It’s no longer about location, location, location, it’s about data, data, data.”
Zillow has refined their forecast of local ZHVIs over the next year. The Zillow Home Value Index results have tracked the Case-Shiller Index closely, and are probably as good as any crystal ball in predicting the future.
These are the predicted changes in the ZHVI by October 31, 2015:
Zillow Appreciation Forecast
The Case-Shiller Index for September will be released on Tuesday, and Zillow is predicting that the non-seasonally-adjusted numbers (which are the ones publicized) will be negative:
The media will be using words like ‘fragile’, and ‘struggling’ to describe the real estate market, and we’ll probably hear calls for more intervention.
But the market is supposed to go up and down; that’s why they call it a ‘real estate market’, and not a ‘real estate guarantee’. The history of real estate has followed a ten-year pattern (which it did until Angelo’s creative financing skewed the timeline), which means we are due for at least a plateau. The local trough was April, 2009, and we’ve been flat for at least six months.
Our market is fine – you will still be able to sell your house next year for more money than it has ever been worth. We’ll still see bidding wars and OPTs. Just don’t buy the media’s version that the sky is falling just because prices aren’t going up constantly.
The California median home price is forecast to increase 5.2 percent to $478,700 in 2015, following a projected 11.8 percent increase in 2014 to $455,000. This is the slowest rate of price appreciation in four years.
“With the U.S. economy expected to grow more robustly than it has in the past five years and housing inventory continuing to improve, California housing sales and prices will see a modest upward trend in 2015,” said C.A.R. Vice President and Chief Economist Leslie Appleton-Young. “While the Fed will likely end its quantitative easing program by the end of this year, it has had minimal impact on interest rates, which should only inch up slightly and remain low throughout 2015. This should help moderate the decline in housing affordability we saw occur over the past two years.”
“Additionally, the state will continue to see a bifurcated market, with the San Francisco Bay Area outperforming other regions, thanks to a more vigorous job market and tighter housing supply.”
They are projecting an 8.2% decline in sales this year – and they think sales AND prices will rise next year in spite of their expectations of higher rates and less affordability?
Their own graph shows pendings on a YoY downward trend for two years:
An improving economy next year – if it improves – probably won’t change the momentum of flatline pricing we have experienced over the last few months. The only thing that could directly and positively impact sales and pricing will be mortgage rates in the 3s – hope they stick!
Members of the National Association of Realtors expect home prices to increase modestly in the next 12 months, with the median expected price increase at 3.5%, according to data gathered from the August 2014 Realtor Confidence Index Survey.
This tracks closely, but more modestly, with estimates from Capital Economics, which told HW Monday that it expects annualized growth to slow to 4% in the coming year, and estimates from Lawrence Yun, chief economist for the National Association of Realtors, who expects 4-5% home price growth.
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