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Jim Klinge
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Category Archive: ‘Forecasts’

Lawrence Yun Responds, Part 2

I sent yesterday’s post to Lawrence – and this was his reply:

Home values falling 8% to 12% were based on taking away all of the deductions-  no MID and no property tax deductions.

Fortunately, MID is set at $750,000 and $10,000 for state and local tax deductions. With these in place in the final tax bill, we have not said of those price declines. Our forecast is for a 2% price gain nationwide. You, nonetheless, bring a good point that there are still many consumers thinking of what we had said earlier. We’ll work in getting the updated info out more aggressively.

I thanked him for his response.

Are potential home buyers going to bother with calculating the specific impact of tax reform, and then not buy a house if they don’t like the result?  Or would they spend less on a house?

Californians are used to heavy taxation.  I’m guessing they will shrug off a few thousand more in taxes if it means getting the right home.

For those who want to estimate their taxes, and are WSJ subscribers, here’s a basic calculator:

Posted by on Feb 2, 2018 in Forecasts, Jim's Take on the Market, Tax Reform | 2 comments

Lawrence Yun Responds

Yesterday I sent a note to the C.E.O. of the National Association of Realtors to counter the idea that home values will be going down 8% to 12% this year.  I’ve been asking for two months – show us your math.

Here it is – see link below.  They commissioned a study by Price Waterhouse, who used their microsimulation model to determine that demand will drop so severely that home values would tank by 8% to 12%.  The study is dated May, 2017, so it’s not based on the final tax reform legislation – they used samples of what they thought it could be.

Here they note that the mortgage-interest deduction would drop by almost $800 billion when the law that was passed had NO IMPACT on the ability of existing homeowners to deduct the same mortgage-interest as they’ve been deducting all along.

They also drop the Property Tax Deduction to zero – which is wrong too. 

So Lawrence and the N.A.R. are publicizing the negativity based on an old report from six to twelve months ago that used faulty assumptions.


The data point I included in my email was the bidding war in Carmel Valley  this week on a tract-house listed for $1.2 million that garnered 16 offers. Apparently, the tax reform didn’t impact those buyers the way the microsimulation model expected.

Here’s the email from Lawrence:

Hello Mr. Klinge,

Our CEO shared your note with me, as it mentions my name.

Thanks for sending us the market info on the ground from San Diego. We always appreciate member feedback. We have also heard similar condition of multiple bidding and the lack of inventory in CA coastal cities and in many parts of the country. I will use your comments in my presentations about variations in the country: with upper-end market needing to cut prices in CT and IL and still multiple bidding in San Diego.

We regularly conduct a survey of Realtors® for that exact reason of gauging what is happening on the ground. The latest monthly Realtor® feedback, which we call the Realtor® Confidence Index, is attached. Getting a feel for the market from these 3,000 Realtors® greatly helps me and my staff.  I am asking my staff to contact you subsequently to be part of this survey. There is an open-ended question at the end where we delve into issue not mentioned in the questionnaire and comments like yours will be helpful for us to understand what is happening on the ground and to identify “turning points” in the market.

I’m very glad to hear that the tax deductions limit on mortgage interest and property tax appear not to be impacting your market. The strong job market in San Diego is no doubt helping boost home buying confidence. That is not what we are hearing in other markets, however. Here’s a couple news interview of academics. I am attaching a link of Dr. Robert Shiller’s interview with CNBC at a recent NAR event, when he gave talk about the market condition. He, unlike most other economists, does not believe that consumers are always rational. In fact, people are more irrational then rational, in his view. Always interesting to hear his perspective and it’s here:

Most economists would be like Mark Zandi, believing consumers are mostly rational in their behavior, and has called for negative home price impact from limit real estate tax preferences. Here’s Dr. Zandi’s interview with CBS

Our projection is based on Price Waterhouse Cooper research report, which we commissioned. Here below:

After taking into account of current market momentum, the job market, local housing starts, interest rate forecast, we have CA home prices rising by only 1% in 2018. It would be presumptuous to imply this NAR forecast will be the reality for 2018. Indeed, CA may experience for the remainder of the year what you are seeing currently. Given that many members have asked for our views for outlook in 2018, and the below forecast is our attempt at that.

One big issue we have been working on is to boost inventory and housing supply. As such we have been working with University of California Berkeley … to boost housing supply and homeownership in a sustainable way. Here’s the paper and my presentation at the University is attached.

Based on Realtor® feedbacks, we know how critical it is to have more inventory. Therefore, my presentations have focused on this issue. I am attaching 2 powerpoint presentations that talks to the great undersupply in CA.

  • Housing Conference at University of California at Berkeley
  • Homeownership Conference at HUD, with Dr. Ben Carson presiding.

For day-to-day update on the ever changing market conditions, follow us on social media, along with other 100,000 + fellow realtors®. I am sure you will not agree on all things shown, but it is my hope, some of the info can be used in your business.

Finally, if not already, please consider becoming a major RPAC donor. Many very successful Realtors® like to give their time back to the organization by volunteering and by investing in RPAC to help protect private property rights.

Best regards,


Lawrence Yun, Ph.D.

Chief Economist

National Association of REALTORS

Washington, DC 20001


Posted by on Feb 1, 2018 in Forecasts, Jim's Take on the Market, Market Buzz, Realtor | 6 comments

Doom Ahead?

From – an excerpt:

When real estate investors get this confident, money manager James Stack gets nervous.  U.S. home prices are surging to new records. Homebuilder stocks last year outperformed all other groups. And bears? They’re now an endangered species.

Stack, 66, who manages $1.3 billion for people with a high net worth, predicted the housing crash in 2005, just before prices reached their peak. Now, from his perch in Whitefish, Montana, he says his “Housing Bubble Bellwether Barometer” of homebuilder and mortgage company stocks, which jumped 80 percent in the past year, once again is flashing red.

“It is 2005 all over again in terms of the valuation extreme, the psychological excess and the denial,” said Stack, whose fireproof files of newspaper articles on bear markets date back to 1929. “People don’t believe housing is in a bubble and don’t want to hear talk about prices being a little bit bubblish.”

As the housing market approaches its key spring selling season, Stack is practically alone in his wariness. While price gains may slow, most analysts see no end in sight for the six-year-old recovery.

There are plenty of reasons to be optimistic. The housing needs of two massive generations — millennials aging into homeownership and baby boomers getting ready for retirement — are expected to fuel demand for years to come if employment remains strong. Sales in master-planned communities, many of which target buyers who are at least 55, reached a record last year, according to John Burns Real Estate Consulting. Last month, a gauge of confidence from the National Association of Home Builders/Wells Fargo rose to the highest level in 18 years, and starts of single-family homes in November were the strongest in a decade.

“As soon as homes are finished, they’re flying off the shelf,” said Matthew Pointon, Capital Economics Ltd.’s U.S. property economist.

Stack has a different perspective. While the market might gradually correct itself, history shows that it’s more likely to “come down hard” with the next recession, he said. He described the pattern as a steep run-up in housing prices spurred by low interest rates. The last downturn came about when economic growth slowed after a series of rate increases, exposing the “rot in the woodwork” and prompting loan defaults, Stack said.

He noted that the Fed has projected three rate increases for this year, and said that “raises the risk that today’s highly inflated housing market will again end badly.” He’s watching homebuilder stocks closely because they’re a leading indicator, peaking in 2005, the year he called the crash — and the year before home prices themselves hit a top.

Link to Article

Jim: Of course today’s environment feels irrationally exuberant – it’s hard to believe how well we have done since our pricing recovery began in 2009!

But his reasoning that higher mortgage rates would “Raise the risk that today’s highly inflated housing market will again end badly” is off-base.  Rates were coming down during the mortgage crisis – it was the fury over the neg-am loans that caused borrowers to think their payment was going to go through the roof, burn the house down, and kill their family.  Borrowers who could only afford their initial minimum payment on the ARM then panicked at the first adjustment and hit the eject button.

Neg-am loans are now illegal, and I haven’t seen or heard of any ez-qual loans available at conforming rates – everybody who bought a house in the last nine years had to prove they could afford it, and their payment is fixed.  Besides, we learned last time that just because their home value went down, people don’t panic and sell their house as long as they can afford it.  People have to live somewhere, and we like it here.  If a full-blown depression happened and we had another run of defaults, the government will provide another safety net and just tell banks not to foreclose.

If rates go up to 5% or 6%, it will probably stall the market, causing prices to bounce around.  But there won’t be enough sellers who will dump on price that it would cause a major event.  There could be a skirmish here and there caused by boomer liquidations occasionally.  But that’s it.

Posted by on Jan 23, 2018 in Forecasts, Interest Rates/Loan Limits, Jim's Take on the Market, Mortgage Qualifying, Rancho Santa Fe | 0 comments

N.A.R. 2018 Forecast Revisited

The National Association of Realtors has re-thought their negativity barrage on the tax reform, and is back in cheerleader mode:

While the new tax law is already in effect, here we estimate how home prices will trend in 2018 for each state. The new tax law reduces the limit on deductible mortgage debt and limits the deductibility of the real estate tax up to $10,000. These two provisions are expected to have an impact on the housing market. Moreover, a higher standard deduction may lessen the incentive to purchase a home, as fewer consumers will utilize mortgage interest and property tax deductions.

Aside from the tax reform impact, it is of utmost importance to understand that the current state of the housing market will also influence home prices. Prices are shaped by supply and demand, like any other economic asset. A shortage of supply pushes up prices, while excess supply causes prices to fall. In the past five years, housing inventory has fallen across the country and as a result, home prices continue to rise.

Link to Article


They have broken down their data for each state too.

Here is what they say about California:

In spite of California prices going up 7.9% in the third quarter of 2017, they project a 1.1% increase for 2018 – which is quite a drop-off.

How is their math?  Let’s check:

Factor 2 – Tax impact

The average interest paid for a 30-year fixed-rate mortgage:

$750K: $15,170

$1M: $20,220

What?  Just a quick look at those numbers and you can sense a mistake.  Interest on a $750,000 loan has to be more than $1,200 per month.  Thanks to Google, there are several mortgage amortization calculators online, and within 30 seconds I found this:

Even the full interest paid over the life of the loan divided by 30 is more than $15,170 (it’s $17,967 per yr).  Then they calculate the impact on existing homeowners, BUT THERE IS NO M.I.D. CHANGE FOR THEM. The new limit of $750,000 is for new home buyers, not existing.

The N.A.R. is publishing articles nationwide, and nobody checks these? If they can’t get their facts right, how reliable is anything they say?

Like my high school baseball coach used to say,

“Don’t believe anything you hear, and only half of what you see!”

Posted by on Jan 18, 2018 in Forecasts, Jim's Take on the Market, Tax Reform | 1 comment

Alan’s Take on 2018

Written by Alan Nevin, director of Economic Research at Xpera Group. His consulting practice focuses on valuations, development strategy studies and forensic services.

Link to Article

I like 2018.

It’s going to be a good year. I guarantee it.

Let’s look at the big U.S. picture:

   – Interest rates will remain low;

  – Oil prices are stable and will remain so;

  – The U.S. will add 2.5 million persons (as usual) and

  – Our nation will add 2 million-plus jobs.

  – And the unemployment rate will be 4 – 4.5 percent, again;

  – The rate of inflation (urban dwellers) will again be less than one-fourth of 1 percent (exclusive of home prices)

  – Finally, job openings will continue to rise. In January 2011, U.S. job openings totaled 2,939,000. Now they are at the 6 million-plus level, a 10-year high mark.

And let us always remember that one of our president’s key concerns is ensuring the continuing rise in value of his family’s hotels, commercial space and apartment projects. He knows that low interest rates, pro-real estate legislation and taxation and a strong economy benefit him and his families (and, of course, others).

Focusing on population: 47 percent of all the population gains in 2018 will be in California, Texas and Florida. Hurricanes, floods, earthquakes, fires, pestilence. Doesn’t seem to make much of a difference: The big three just keep on growing.

And then, there’s the housing market:

This year will be the strongest housing market in a decade in terms of total residential units permitted. And that’s good. However, single-family production is still meager. The 2004-2006 average production of single-family homes nationwide was 1,558,000 units. In 2017, it will be 850,000, about half of the 2004-2006 level. We project the 2018 total to rise to the 900,000-950,000 level, and that’s pretty good. What we are unable to incorporate into our projections is the total number of replacement units destroyed by hurricanes, floors and fire.

The San Diego Economy – 2018

San Diego County’s demographic profile doesn’t change much from year to year:

In 2018 the County’s population will top 3.3 million, up another traditional 30,000 or so. It’s an educated group of folks: 23 percent of persons over 25 have a bachelor’s degree and 14 percent have advanced degrees. Now, admittedly, that doesn’t compare to San Mateo County where their 50 percent with college degrees pales our 37 percent, but it’s pretty good in my opinion.

From an ethnic standpoint, we have a pretty steady mix of Hispanics (30 percent); Asians (12 percent), blacks (6 percent) and non-Hispanic whites (46 percent).

And we’re young (at least some of us). Our median age in the County is 36 and only 13 percent of the population is over age 65.

And we do add jobs rather regularly. In the past five years, we have averaged 30,000 new non-farm jobs annually, and I am delighted to note that the construction industry has added 27,000 jobs in past five years and is now at 81,000 jobs.

I do not anticipate a major uptake in new jobs. Non-farm jobs will most likely increase by 16,000 to 20,000, somewhat less than in past years. A shortage of labor may have something to do with the lack of ebullience in new job formation

In terms of residential construction, it should be a fairly stable year. In 2018, the County’s developers will produce some 4,000 single-family homes and 6,000 multi-family units. Multi-family includes both rental and sale product, everything from townhomes to high-rises.

The 10,000-unit count is largely made possible by the folks in eastern Chula Vista, where the three major landholders (HomeFed, Baldwin and Millenia) will be providing a substantial amount of shovel-ready dirt.

Posted by on Jan 16, 2018 in Forecasts, Jim's Take on the Market, Market Conditions | 0 comments

Towards the End of Cycle?

Predicting the future is hard. If it weren’t so challenging, we would all be super rich because we could predict winning Powerball numbers.

However, some people do take a crack at it — not predicting lottery numbers — but peering into the future to see what kinds of changes are likely on the horizon.

Christopher Lee, president and CEO of Los Angeles-based CEL & Associates, is one such person. His expertise is real estate, and he recently offered some insights into the future at a meeting of NAIOP San Diego.

For some time, he’s been predicting that we are getting close to seeing the real estate cycle to begin trending downward. We’re in the seventh inning, he’s said.

How does he know this? Real estate follows a familiar pattern, he said. He’s written on the subject in a paper called, “Real Estate Cycles: They Exist … And They Are Predictable.”

He writes: “Most real estate cycles have begun around the third year of a decade (1973, 1983, 1993, 2003) and usually end by the eighth year of that same decade (1978, 1988, 1998, 2008).”

And what year is it?

Yikes! It’s 2018!

That’s not all he sees. He predicts that the number of real estate brokers will fall by as much as 50 percent within a decade. They will be replaced by strategic business advisors.

And why is this? Because more and more people get their real estate information from online sources, such as Google. Brokers aren’t as necessary.

Lee believes the nature of the workforce itself is transforming as well.

“Work is being redefined,” said Lee, noting that we are moving toward an age when freelancers (from Airbnb hosts to Uber drivers) could thrive and where work will start to follow the worker and not the space. Although he expects some 10 million or more jobs to be lost to robotics, he said specialists and niche entrepreneurs with flourish in this new world of real estate.

Read More

Posted by on Jan 15, 2018 in Forecasts, Jim's Take on the Market, Market Buzz, Market Conditions, The Future | 5 comments

Zillow 2018 Forecast

For those who are putting the finishing touches on their own 2018 forecast, here’s how close the Zillow Group guesses have been:

Local ZHVI-Appreciation Forecasts

2015 Forecast
2016 Forecast
2017 Forecast
2018 Forecast
Carmel Valley
Del Mar
La Jolla
San Diego
Solana Beach

Their guesses have been conservative, and for their 2018 forecasts, they pretty much just halved the appreciation gained in 2017.

The Zillow data changes slightly, depending on where you look on their website, and whether you use town names or zip codes. Here is the LINK to find others.

Posted by on Dec 27, 2017 in Forecasts, Market Conditions, North County Coastal, Zillow | 2 comments

2018 Predictions

JtR Predictions


I guessed we would see 2016 sales drop by 5%.

Instead, they went up 3%, and the median SP went up 6%!


I guessed that we’d have 3,100 sales in 2017, and the median sales price would be $1,200,000. How’s that is turning out?

NSDCC Annual Sales
Median Sales Price
3,016 (today)

The number of 2017 sales should wind up being higher than last year, and also the highest count since the Frenzy of 2013 – and that’s with a median sales price that is 29% higher than in 2013!


I guessed earlier that NSDCC detached-home sales will drop 5% in 2018 – but that would still give us around 3,000 houses sold, which is a healthy amount, given that rates and prices are both expected to be higher.  The median sales price, full of imperfections, should keep rising, and I’ll guess +5% in 2018.

Those same factors, plus a few more boomer liquidations, could also create a bull rush frenzy, with intense wrangling for decently-priced houses listed under $1,500,000.  With more inventory, we could approach 3,200 sales again.

The higher-end market is challenging too, but in the opposite direction.  Today there are 374 NSDCC houses for sale listed over $2,000,000, and we sold about 50 per month in 2017.

2018 Predictions By Readers:

Rob Dawg:

High end volume and price stagnant.

Median rises 8% because every low priced property disappears sold or doesn’t sell. Median rises 8% because median properties are going to be owner improved in order to command a higher price. Total volume however will drop 10% for the same reasons.

It is almost as if financial events have been financialized. No room for small fish in the real estate ocean.

The next stock market event doesn’t lower prices only freezes activity.

Makes me so mad I want to drive a minivan into a swimming pool.

franklin Jones:

My guess, home sales remain -2% due to a lack of inventory in the low end coupled by price increase in that sector. With a median sales price up 5.5% for 2018.

The lower end property will be very competitive. Lets take Encinitas, don’t think you are gonna find a SFR that is decent for under 800K anymore, next will be South Carlsbad which will be under 700K…that is coming. Good time to buy anything over 1.5 mil especially Cardiff and Rancho Santa Fe…good value for the money considering what new homes are going for, we are talking 800K for new San Marcos and up with any kind of a view. that city has really come up in the last five years.

I think for a second house, or rental you cannot go wrong with the beach areas, yea the price, but I think no matter what happens in the future people will always want to live at or near the beach and I don’t see rents tanking anytime soon. Interest rates are gonna up…3.6 to 4.0 this year, next I see towards the end of the year 4.5…in terms of interest that is a 12% increase in interest payments in terms of whole dollars…Lock it in now..while the money is still very cheap. 5years from now when we are at norm…which is 6.5% or more than 50% more interest if you consider 4% or thereabouts. We will see price fluctuation but at these rates lock and load at either 15 years or 30 years..

What do you think?

Posted by on Dec 27, 2017 in Forecasts, Jim's Take on the Market, Market Conditions, North County Coastal | 2 comments Forecast for 2018

Let’s also include the forecast from, which is different than N.A.R. –  the Murdoch forecast?  If their mortgage rate forecast comes true, and the tax reform sends buyers scurrying, it could be be a tumultuous year!

Home shoppers may have it easier in 2018. Inventory constraints of for-sale homes and rising home prices may finally start to ease next year, according to®’s 2018 National Housing Forecast.

“Next year will set the stage for a significant inflection point in the housing shortage,” says Javier Vivas, director of economic research for®. “Inventory increases will be felt in higher priced segments after spring home buying season, which we expect to take hold and begin to provide relief for buyers and drive sales growth in 2019 and beyond.”

But the big wild card for 2018 will be any impact from the proposed tax reform legislation, which is currently being debated by Congress,® adds.

Here’s a closer look at®’s five housing prediction trends for 2018:

Read More

Posted by on Nov 29, 2017 in Forecasts, Jim's Take on the Market | 1 comment