Home prices have been on a tear for ten years straight, and are at their highest levels ever.
Is this bubble going to pop too?
Let’s look at the statistics first. I took the most recent 45 days to get the latest scoop, plus the MLS prefers to calculate the smaller sample sizes.
NSDCC Detached-Home Listings and Sales, April 1 – May 15 (La Jolla to Carlsbad)
# of Listings
# of Sales
It is remarkable that all-time-high prices aren’t causing more people to sell!
In previous markets, once prices started reaching new highs, homeowners would jump at the chance to move. The inventory would grow and cool things off, and/or we’d hit an economic downturn and foreclosure sales would direct the market. But not today!
We are a mid-level luxury market. The more-expensive areas like Los Angeles, Orange County, and the Bay Area feed us downsizers who think we are giving it away.
Homebuying has de-coupled from jobs. We do have substantial employers like Qualcomm, bio-tech, etc. but not near enough to justify these lofty prices. How do we keep afloat? It’s the big down payments; either from previous home sales, successful business ventures, or the Bank of Mom & Dad.
They changed the rules. Banks have to give defaulters a chance to qualify for a loan modification before they can foreclose. With everyone enjoying their equity position, they will find a way to hang onto their house or sell it for a profit, instead of lose it.
Reverse mortgages are an alternative for those who need money. They might crank down the amount of money you can tap, but as long as homeowners are flush with equity, they will be able to get their hands on some of it via reverse mortgages or the typical equity line.
Buyers have been full of money, and willing to blow it. I’ve seen sales close for 10% to 25% above the comps this year, so it doesn’t seem like people are worried about a bubble. Those sales could be creating unsustainable comps, and be short-lived values, but will the next buyer question them enough?
Coming Soon vs. ibuyer. We need a gimmick to transition us to the ibuyer era, and the ‘Coming Soon’ off-market sales will be the sexy distraction. The price of an off-market sale isn’t necessarily lower than retail, and in some cases they can be higher when the buyers get jacked up about the opportunity.
The ibuyer era could be the last hurrah for open-market real estate. If the big-money corporate buyers can build enough credibility and begin to dominate the space, they will be able to dictate the prices paid for their flips, and control the marketplace. If so, they will make sure we won’t have another down market!
In the meantime, we might see prices start to bounce around, instead of the constant trend higher. But if it gets harder to sell, then many will just sit tight instead.
If you think a bubble pop will happen, ponder this question. Who is going to give away their home now?
We can probably say that affluent people are coming, and those who are priced out, or cashing out, are leaving. There were 31,354 houses and condos sold in San Diego County in the last 12 months, so those migrating are only part of our real estate market.
Millennials are leaving San Diego in the thousands, according to a new report by Brookings.
The new Census Bureau migration data reveal a post-recession shift in the migration of young adults and seniors.
From 2007 to 2012, San Diego lost more than 7,000 people between the ages of 25 to 34 annually. From 2012 to 2017, the number nearly doubled to more than 13,000.
The report points out that millennials have the tendency to move to “educated places” such as Denver and Seattle. Millennials also prefer more affordable areas such as Kansas City and Minneapolis.
While San Diego is losing young people, several Texas cities appear to be gaining a good chunk of millennials. Cities like Houston, Dallas, Austin, Denver and Seattle gained tens of thousands of people between the ages of 25 to 34 between 2012 and 2017.
As for those 55 and older, more than 18,000 migrated to Phoenix per year from 2012 to 2017. Cities like Tampa, Riverside and Jacksonville also saw their fair share of people ages 55 and older.
Staff in public transportation companies and housing rental offices are increasingly finding themselves challenged to sort through which types of service or support animals must be allowed by law. According to these companies, some individuals are cheating by introducing ordinary pets as doctor-prescribed “emotional support” animals in order to bring them into housing where pets are banned or to avoid fees such as pet deposits, pet rent or travel costs.
“I can’t go 30 minutes any time I’m around landlords without someone bringing up assistance animals,” said Paul Smith, executive director of the Utah Apartment Association, which advocates for landlords. “That’s the No. 1 issue for landlords. Landlords want to accommodate people with disability, but want to cut down on fraud.”
To legally gain accommodation for an emotional support animal requires an “impairment that substantially limits one or more major life activities,” Smith said. “In addition, the animal has to be a medical necessity — it’s not just that having a cat makes me happy. Having the cat treats the medical condition. Our frustration is not that we don’t think there are people who genuinely need one. But under that definition, the animal has to be a medical necessity. We don’t think that definition is met most of the time.”
Landlords know that anyone can go online and buy a letter that “prescribes” an emotional support animal. The Deseret News set out to test how easy it was to obtain such a letter, and within a couple of hours had two in hand from separate sources — each for under $100 and each documenting the “need” for an emotional support animal. That ease of providing so-called proof, coupled with what Smith describes as a dramatic increase in renters saying they “must” have an emotional support animal, has fueled skepticism that could make it harder for those who really need emotional support animals to have them.
While landlords must trust that a letter from a doctor is valid, it’s an issue made more complicated by what Smith calls “online certification mills,” which sell letters prescribing an emotional support animal for a fee, no therapy needed.
The Deseret News decided to see how hard it would be to get an emotional support animal letter online without having a particular need (or even owning an animal). Reporter Erica Evans went after the cheapest option she could find easily: a website which offers airline and housing recommendation forms for $79.
The website advertises “Live and fly with your pet legally and hassle free,” and boasts 30,000 happy customers nationwide. She started filling out the form, but got interrupted after inputting only basic information, including her name and phone number. No worries; within a half hour the company called her, though she hadn’t completed the online intake.
More homes are for sale this year, which is helping to keep a cap on pricing. The rent increases are subsiding too – San Diego has cooled off more than any other major metro area dropping from 4% to 2% this year (see above).
Less pressure on buyers means sellers should try harder.
Spruce up your home, price it attractively, and hire a great realtor!
The Trump Administration is cracking down on national affordable housing programs because of concern over growing risk to the government’s almost $1.3 trillion portfolio of federally insured mortgages.
The effort targets providers of money for borrowers who can’t afford the 3.5 percent down payment typically required on Federal Housing Administration loans. Such help — from government agencies and families — enables 4 in 10 FHA loans. Borrowers in government down-payment assistance programs become delinquent at about twice the rate of those who put up their own money.
A new U.S. Housing and Urban Development guideline, published on its website late last week, would be particularly harmful to the Chenoa Fund, one of the largest down-payment programs in the U.S.
A Utah mortgage entrepreneur named Richard Ferguson runs the Chenoa Fund on behalf of the Cedar Band of the Paiutes, a tribal government in Utah. It is providing about $100 million a month in loans to borrowers who can’t meet FHA down-payment requirements.
While many cities, counties and state housing finance agencies also provide similar help, they typically limit the loans to local residents. Chenoa operates nationally. HUD said government agencies must document that they are helping borrowers buy property only within their jurisdictions. Tribal governments, it said, may only offer assistance to members living on tribal land or elsewhere.
“This is obviously very concerning,” Ferguson said in a phone interview. “It appears that HUD is trying to put the tribe back on the reservation.”
The C.A.R. sent out this paper that reviews the current housing dilemma, which boils down to having to improve zoning regulations to facilitate more/better infill projects because the more-mature cities are out of land for the most part. She also included this:
However, the paper also offers evidence that cities can use their control over the development process to limit access to housing, sometimes in problematic ways. The finding that less housing is built in cities with both higher homeownership rates and White populations is sadly consistent with existing research on NIMBY opposition to local housing development (Lewis & Baldassare, 2010; Scally & Tighe, 2015; Whittemore & BenDor, 2018). These studies examined opposition to building multifamily or affordable housing; it is striking that in this study cities with more homeowners and larger white populations had less single-family development. This finding serves as yet another warning that racial exclusion from White communities continues to limit housing opportunities for people of color.
The N.A.R. reported today that pendings dropped 1% month-over-month, but as been the case lately, Yunnie is broadcasting the least-alarming data. In the graphic above, you can see that the year-over-year drops were much larger – particularly in the west.
In this video, he explains that ‘unaffordability’ is the problem in the west, and we need to build more homes:
Mortgage ratesmoved lower for the 6th straight day, bringing them very close to the best levels since late 2017. Perhaps more impressive (or telling) is the fact that rates haven’t even had a single “bad day” since March 1st. It’s impressive because it’s been an incredibly long winning streak (we usually see a day here or there with rates nudging a bit higher). It’s telling because it’s exactly what you’d expect to find as the backdrop for what has been the single best month for mortgage rates in more than a decade.
The past 2 weeks have acted as a forceful breakout after several months spent in an increasingly narrow range. Such breakouts often carry momentum, especiallywhen there are surprising economic updates or central bank policy at the scene of the crime (as there was with last week’s Fed announcement and European economic data).
Now we’re waiting to see how low we can go. It hasn’t made sense to bet on a bounce in rates so far, but that could change soon. In general, there are only so many winning days that can be strung together before the rates market blows off a bit of steam. When that happens, it will be important to note how big the bounce is and whether it lasts more than a single day. If it simply presents itself as a single, token day of correction, rates will likely be heading even lower.
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