For those who didn’t see this in our newsletter, here are my guesses on market conditions:
A little better than usual for the rest of the year due to low mortgage rates.
A little worse than usual next year due to political/election distractions.
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The C.A.R. is forecasting +0.8% in sales, and +2.5% in median sales price for 2020, which is about as safe as it gets. Here is a comparison of how their forecasts have compared to the actual numbers recently:
SFH Resales #
% off forecast
SFH Median SP
% off forecast
From the C.A.R.
LOS ANGELES (Sept. 26) – Low mortgage interest rates will support California’s housing market in 2020 but economic uncertainty and affordability issues will mute sales growth, according to a housing and economic forecast released today by the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.).
C.A.R.’s “2020 California Housing Market Forecast” sees a small uptick in existing single-family home sales of 0.8 percent next year to reach 393,500 units, up from the projected 2019 sales figure of 390,200. The 2019 figure is 3.1 percent lower compared with the pace of 402,800 homes sold in 2018.
The California median home price is forecast to increase 2.5 percent to $607,900 in 2020, following a projected 4.1 percent increase from last year to $593,200 in 2019.
“With interest rates expected to remain near three-year lows, buyers have more purchasing power than in years past, but they may be reluctant to get off the sidelines because of economic and market uncertainties,” said C.A.R. President Jared Martin. “Additionally, an affordability crunch will cut into demand in some regions such as the Bay Area, where affordability is significantly below state and national levels. These factors together will subdue sales growth next year.”
C.A.R.’s forecast projects growth in the U.S. gross domestic product of 1.6 percent in 2020, after a projected gain of 2.2 percent in 2019. With California’s 2020 nonfarm job growth rate at 1.0 percent, down from a projected 1.5 percent in 2019, the state’s unemployment rate will tick up to 4.5 percent in 2020 from 2019’s 4.3 projected figure.
The average for 30-year, fixed mortgage interest rates will dip to 3.7 percent in 2020, down from 3.9 percent in 2019 and 4.5 percent in 2018 and will remain low by historical standards.
“California’s housing market will be challenged by changing migration patterns as buyers search for more affordable housing markets, particularly by first-time buyers, who are the hardest hit, moving out of state,” said C.A.R. Senior Vice President and Chief Economist Leslie Appleton-Young. “With California’s job and population growth rates tapering, the state’s affordability crisis is having a negative impact on the state economically as we lose the workers we need most such as service and construction workers, and teachers.”
In fact, according to C.A.R.’s 2019 State of the Housing Market Study, nearly a third (30 percent) of those sellers who planned on repurchasing said that they will buy their next home in another state outside of California — the highest level since 2005. Older generations were more likely to buy outside of California as 37 percent of baby boomers and silent generation planned on repurchasing in another state, but only 30 percent of Millennial sellers planned to do the same.
The housing market has been looking slightly better over the last few month and Freddie Mac July economic report reflects that fact. They also maintain a fairly rosy picture of the economy as a whole.
They note that the 30-year fixed-rate mortgages (FRM) dipped below 4.0 percent at the end of May and has remained there “amid concerns over trade disputes, a possible economic slowdown, and market anticipation of a Federal Reserve interest rate cut.” This has caused a spike in mortgage applications for both purchase and refinancing and they predict that low rates, along with a thriving labor market, will help sustain the housing market, not just short term, but for at least the next year and a half.
They have, in fact, revised down their quarterly forecasts for mortgage rates over that period, forecasting an annual rate for the 30-year fixed-rate mortgage of 4.1 percent this year and an even lower 4.0 percent in 2020.
As to other rates, while not predicting a cut in the Federal Funds rate after today’s Federal Open Market Committee (FOMC) meeting, they still expect “cuts” in the second half of the year and project an effective rate of 2.3 percent in the third and fourth quarters with an average of 2.4 percent for the year, unchanged from their earlier forecast. The average next year will be 2.3 percent in 2020 and they see no further FOMC cuts.
The lower rates will turn investor interest towards more lucrative stocks and away from government bonds they say, and forecast that the 10-year Treasury rate will decline to 2.3 percent in 2019 and stay at the same level in 2020. Also, maintaining the spread between government bond yields, they see the 1-year Treasury rate to be 2.2 percent in both 2019 and 2020.
They say the strong homebuilder confidence and lower mortgage rates will lead to a recovery of housing starts and sales from their 2018 slump and that housing starts will end this year at 1.26 million and increase to 1.34 million in 2020. Home sales will be 6.0 million in 2019 due to the continuing shortage of inventory but will return to 2017 levels of 6.12 million next year.
The recent home price reports have sent mixed signals, but the report’s authors expect home prices to rise by 3.4 percent this year. They have revised their expectations for next year down to a 2.6 percent appreciation rate.
This collection of opinions has more reach – and more influence – than those of any part-time blogger. Thankfully, these experts are split on whether the alleged slowdown is temporary, so readers will just be on their merry way in hopes that it will all work out.
It’s what happens when the ivory-tower group chimes in – they attempt to apply the vague old theories to what is happening today, but we don’t know if their principles are still valid.
Gina is the only one who mentioned a specific data point, so let’s put the actual number on it:
First-half sales of detached-homes in San Diego County between $1,000,000 and $2,000,000 were nearly identical year-over-year (1,551 in 2018, and 1,546 in 2019), while sales over $2,000,000 dropped 10% YoY.
Gary probably has the best take on it above, and his day-to-day focus is advising builders.
We have a low supply of quality homes mixed with a very affluent demand which is causing every aspect of selling homes via the MLS to be under attack. Rather than championing (and improving) the traditional system of selling homes, the industry is going to allow off-market sales, ibuyers, commission lawsuits, and Wall Street to sway the outcome.
It will take away some of the free-market influence, which could keep us at an artificially-inflated plateau.
But then again, I’ll stick with what Yogi Berra said,
“It’s tough to make predictions, especially about the future.”
Here are the histories, and forecasts, of our local Zillow Home-Value-Index for each area:
They are forecasting flat or declining prices in three of our larger areas – and they are also predicting a drop-off in values as the selling season will be getting underway in March, 2020 (which sounds far-fetched).
Their track record hasn’t been that great though. Here is their Carlsbad prediction in December, 2015, when they expected a 1.9% increase for 2016 – the actual was +7%:
The Carlsbad HVI has risen 19% since the beginning of 2016!
Can we agree on one likelihood? Prices probably won’t be going up much in the next year or two.
A summary of the 2019 forecasts – they say mortgage rates will be above 5% this year, and that pricing will continue to go up too. Something needs to give, and the only thing left is the number of sales:
So far, the limitations on mortgage-interest and property-tax deductions haven’t had a negative impact. Instead, rising mortgage rates and home prices are doing more to put a damper on the market.
Economic uncertainty brought on by global trade tensions, stock market volatility and the government shutdown also isn’t helping. In this environment, potential home buyers can be reluctant to make a large purchase such as a house. The last sustained government shutdown in 2013 saw a slump in home sales.
It is too soon to tell whether the recent decline is a temporary lull or a major pullback.
In their forecasts for 2019, real estate experts anticipate the housing market slowing down, but not stalling, with prices and mortgage rates moderating.
“If mortgage rates trend sideways next year, as we anticipate, and home price appreciation continues to moderate, improving affordability should breathe some life into the housing market,” said Doug G. Duncan, chief economist at Fannie Mae.
Below is a snapshot of what housing experts are forecasting for 2019.
We’re going to start a contest for Padres tickets in the new year, so let’s get a read on how things wrapped up in 2018.
We know that NSDCC sales were down 10%, and the median SP was up 8%. Sales of detached homes in San Diego County were down 11%, and the median sales price was up 7%.
If sellers were feeling a sense of panic about the market – and prices – we would be seeing more new listings hit the market.
Have there been more listings than usual lately?
NSDCC Listings, 4th Quarter
4th Qtr Listings
Median List Price
Median List Price
The other comparisons we’ve done have shown that the 2018 stats have mostly been similar to previous years. But once we have the complete total for new listings, it looks like the 4Q18 number is likely to be at, or above, all of the recent years. It’s already 12% above last year, and the MLP is actually lower.
There were fewer December listings, but that means the October/November count was higher than ever. With soggy conditions in place already, did potential sellers this month decide to wait for a 2019 launch?
Will we see a surge of new listings in early 2019?
We are wrapping up another year, and have eyes on 2019!
Here are guesses from the more prominent real estate prognosticators:
National Association of Realtors: Sales +1%, prices +3.1%.
Realtor.com: Sales -2%, Median SP +2.2%.
California Association of Realtors: Sales -3.3%, CA Median SP +3.1%.
KW: Sales -2%
The opinions are fairly universal throughout the industry. Sales might be down a little, and prices up a little.
But I’m sticking with -20% for NSDCC sales, which by comparison, sounds catastrophic. We only had a 10% decline this year and everyone was reaching for the panic button, so if it happens, it will feel uncomfortable for most. But the inventory will be there, it just means more of it won’t be selling.
Here is the data for detached-homes between La Jolla and Carlsbad:
# of Listings
# of Sales
MSP YoY %chg
Additional inventory is encouraged….up to a point.
In 2006, the inventory ballooned to 6,046 listings, which was 9% higher than the previous year’s count. The surge in new listings set buyers back on the their heels, and sales plunged 13% in 2006 compared to 2005.
The 2018 counts above are today’s numbers, so a few more will be added. Using these numbers, listings are up 3% YoY, and sales are down 11%, YoY.
The median sales price is +8% YoY, but that’s for the whole year. We saw the October Case-Shiller Index be up only 3% YoY, so pricing is decelerating.
The stock market crashed 635 points on Monday, only to go up 1,086 yesterday – and yet the 30-year jumbo rate hasn’t budged (still at 4.41%).
Pricing might drop a little, but the sales go first, so I think we won’t see much change in the NSDCC median sales price in 2019.
The Chargers – still euphoric from having 7 of their players make the Pro Bowl – lost badly last night, and that should doom the rest of their Cinderella season. They will probably end up in Pittsburgh or New England for their playoff game, and have a premature ending to their Super Bowl run – and eliminate a potential distraction for our early-2019 housing market.
The stock market should level out early in the new year, after causing mortgage rates to dip into the low-4s, which will be good news too.
All we need is some well-priced inventory, and off we go!
Except for one thing – will sellers and agents remember the Struggle of 2018?
The holidays always provide a nice distraction for all, and help to put some distance between our previously sluggish market conditions and the clean slate of a new year.
We can predict the usual occurrence:
The Top 30% of listings will have no trouble selling. They are in excellent condition and are priced fairly.
The Bottom 40% of listings won’t sell. It happens like that every year.
It’s the Middle 30% that will determine the fate of the selling season of 2019.
The jitters in the stock market should translate over to real estate, and nervous home-sellers will be listing earlier than ever. We’ll probably have a new record high for January listings – which should set buyers back on their heels even more as they wonder who is going to go first.
The Top 30% of listings will be fine and orderly. It will be how the Middle 30% decide their pricing – are sellers nervous enough that they will resist adding a little cushion to their list price?
No way – the sluggishness of 2018 will be a distant memory, if remembered at all. The higher comps of 6-18 months ago will be used to justify retail-plus pricing, just like always.
There will be mixed messages because those in the Top 30% that sell briskly will make potential sellers think everything is fine again. But if we see unsold listings are starting to pile up by May/June, it will become obvious to buyers that the Middle 30% needs to adjust their pricing radically if they want to sell.
Sellers should get it done early, before it becomes obvious. The sluggishness started in July this year, and it will probably be back earlier in 2019.
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