More comments on the slowdown, plus a geyser:
Category Archive: ‘Market Conditions’
The full-blown frenzy we enjoyed in 2013 has been cooling off ever since, and I think we can call today’s market a bit soft. Home buyers are gradually gaining more power and control of the outcomes, and as we saw yesterday in the Inventory Watch, the unsold homes are starting to pile up.
There are signs of a slowdown everywhere – even on the MDLNY. They squeezed some market truth in at the 1:25-minute mark here:
Though they were talking about swanky NYC property, we have seen our higher-end inventory growing constantly too (today there are 512 NSDCC houses for sale listed over $2,000,000, when there were just 430 two months ago).
But now the lower-end is starting to feel it too.
You won’t see it on the official days-on-market metric of sold properties because those are the listings that dodged the bullet. It will be the rising count of active (unsold) listings that reveal the struggle.
How do you know if a listing agent is feeling it too?
Signs That A Listing Agent Might Know the Market Is Soft:
- They’ve Sold A Few Listings in 2018 – Listing agents who are actively engaged know that the market has changed, and that fewer inquiries/offers are the norm.
- Their Listings Are Sharp – Listing agent who are aware of a softer market know they must include excellent professional photos and video in their listings, and the listing remarks make you want to go see the home.
- Showings Available Immediately – The initial urgency of a new listing dissipates faster than ever, and a good listing agent wants to take advantage – they won’t make you wait days or weeks to see a house.
- No Extra Hurdles – We see listings loaded up with extra demands like having to include special forms or procedures just to make an offer. In a soft market, listing agents should make it easy to buy the home.
- Decent Commissions – A softer market is no time to be lowering the buyer’s agent commission – there are too many other homes to show and sell.
- Pushing The Product – To keep the urgency higher, a good listing agent is implementing every possible marketing tactic available. If you see a listing where the agent isn’t making any effort, you know they didn’t get the memo that the market is soft.
Buyers have enough reasons to be concerned about the homebuying experience (higher mortgage rates, rampant fraud and deceit, and significantly higher prices), and they won’t tolerate an ignorant listing agent who doesn’t recognize a shift in market conditions. It is too easy to wait-and-see now.
Get Good Help!
We’ll explore this topic more in the coming days and weeks!
The house I had listed in Carmel Valley closed yesterday for $1,080,000. We hit the MLS on the morning of Thursday, April 5th, and the marketing began right away with YouTube video on the blog, the 48-hour Facebook ad (above), and open house on the weekend.
Carmel Valley has been the hottest market in North County, so it was no surprise that we were getting 300+ hits on the ad and on the Zillow page.
The only offer was submitted on Tuesday, April 10th, and we questioned whether to counter at $1,090,000, or just accept the $1,080,000. We used this graph below to help decide it – the phone wasn’t ringing, and the Zillow views were dropping quickly:
My sellers signed the offer.
The initial urgency around a new listing dwindles faster than ever, and it doesn’t get better later, unless other higher-priced new listings happen nearby.
Is it a sign of a slowing market? Or just the reality of real estate sales in 2018?
Buyers have ample internet tools, and are making decisions in an instant.
An article based on research from a mortgage insurance company, who has a stake in the game (unlike economists). The image above shows virtually no risk of prices falling in Southern California over the next two years.
Housing bubble coming? According to one mortgage insurance company’s latest reports, there’s only a slim chance Southern California home prices will fall in the next two years.
Arch MI gauged the economic foundations of home values in 100 major metropolitan areas to determine local housing markets with “minimal” risk. Locally, Arch MI found solid performance among regional businesses and limited development of new homes as factors that should keep home prices firm.
Orange County was the riskiest market in the region — if having a 4 percent risk of a price decline in the coming two years is what you consider dicey. That compares with the county’s 28-year historical average of 25 percent chance of falling home values.
Arch MI noted Orange County’s home prices were up 12 percent in the two years ended in 2017 — only the 52nd highest among the 100 large metros studied. Per-capita homebuilding of 18 single-family homes per 10,000 residents — ranked No. 63 out of 100. Business output rose 5.2 percent last year, the 40th fastest growth nationally.
Los Angeles County had 2 percent risk of decline as 2018 started vs. a 1980-2018 average of 27 percent, according to Arch MI.
That score came as L.A. home prices surged 15.9 percent in two years — No. 32 biggest gain; per-capita homebuilding of 6 houses per 10,000 population was fourth slowest nationally; and business output rose 4.9 percent last year, No. 51 fastest.
In Riverside and San Bernardino counties, Arch MI found risk of home-price declines at 2 percent vs. a 28-year historical average of 25 percent.
Inland Empire home prices are up 15.6 percent in two years — No. 33 highest — as per-capita homebuilding of 26 per 10,000 — ranked No. 52 — while business output rose 5.5 percent last year, 29th fastest.
Arch MI doesn’t find much risk out of the region either: The nationwide risk of decline was 5 percent even after home prices rose 12.6 percent in two years. Yes, that was up from 2 percent a year ago.
“Housing markets in most cities are exceptionally strong due to a shortage of homes for sale,” Arch MI wrote. “Construction has lagged the growth in households and employment for nearly a decade. Even recent interest rate increases and higher taxes on some upper-income earners didn’t slow the market, as many had feared.”
Riskiest big markets, by Arch MI’s math? Texas and Florida!
No. 1 diciest was Houston (22 percent chance of price declines within two years) followed by San Antonio (20.3 percent); Tampa-St. Petersburg (19.2 percent); Cape Coral-Fort Myers (17.8 percent); Austin (17 percent); Fort Lauderdale (16.9 percent); and Miami (16.4 percent).
“Housing markets aren’t likely to cool until the economy slows, either from substantially higher interest rates or an unexpected economic shock,” Arch MI wrote. “Short of a war or stock market crash, housing markets could continue to surprise on the upside over the next few years.”Link to Article
The local NSA Case-Shiller set a new record this week too. From the U-T:
The San Diego County median home price soared to its highest point ever, $550,000, in March, said real estate tracker CoreLogic. Home prices increased 6.8 percent in a year, which experts attribute to a lack of homes for sale and a strong economy. The previous home peak was $545,000 in June. So that has led us to ask our panel of experts the following question this week.
Question: Are we approaching housing bubble territory?
Phil Blair, Manpower
NO: As high as our housing prices are now they seem reasonable when compared to the Silicon Valley and Seattle markets. San Diegans are struggling to get into the housing market but those in it are riding the prices up and the for-sale inventory continues to stay very low, meaning houses are selling at these current prices.
Kelly Cunningham, San Diego Institute for Economic Research
YES: Approaching bubble territory, but not yet reaching peak of price. The current median price of homes sold is “only” 6.7 times San Diego’s median household income. This is the same ratio reached in 2004, 1½ years before the ratio peaked at 8 times San Diego’s median household income at end of 2005. The primary reason prices are rising is demand for San Diego housing still far exceeds supply at the same time home construction lags.
David Ely, San Diego State University
NO: Rising interest rates will slow the pace of home price appreciation. However, conditions do not seem favorable for a collapse in home prices in the near term. Relative to the housing needs of the area, the supply of housing has been growing slowly. And, mortgage lending practices are not as relaxed as they were a decade ago so a fall in home prices is less likely to arise from an increase in foreclosures.
Gina Champion-Cain, American National Investments
NO: Even as interest rates increase, demand remains high and public policy designed to prevent creation of housing stock will ensure inadequate supply. These conditions will breed appreciation but not a bubble. Bubbles require rampant speculation fueled by irresponsible lending, neither of these conditions are present. The absence of “stated income” loans has shifted the under qualified consumer to rental living which removes those previously vulnerable mortgages from the market further reducing bubble risk.
Alan Gin, University of San Diego
NO: Housing prices are high and that is causing an affordability problem. But the increase is the result of economic fundamentals, not speculation. The local economy, particularly the labor market, is strong, which is increasing the demand for housing. The supply is much lower than in the last bubble, with residential units authorized by building permits at only about 10,000 a year, compared to 15,000+ in the mid-2000s. The only worry is a rise in interest rates, which would dampen demand.
James Hamilton, UC San Diego
NO: While San Diego house prices are back to the peak in 2006, the median income in San Diego today is 27 percent higher. In terms of the ratio of house prices to income, we’re back to 2002 values. Higher incomes and lower interest rates help keep homes affordable, and I don’t see the speculative component that we had in 2006. But higher interest rates and changes in tax law could bring home prices down.
Gary London, London Group of Realty Advisors
NO: The housing market may be peaking again after 10 years of buildup, but it is not bubbling. In fact, lender requirements are very stringent, eliminating the prior crash causation factors. It is housing scarcity that is causing the price increases: We are building at the rate of less than one-half the housing units required in the region, creating a shortage that is expected to reach 170,000 units by 2030. Add to that the reluctance of sellers to sell, resulting in very low listing levels, and the millennial demand for the almost extinct single-family home, and you have a perpetual shortage and bid up of pricing.
Norm Miller, University of San Diego
NO: While we are certainly unaffordable for many households that does not equate to a bubble, which by definition will collapse. Naïve analysts look only at price/income ratios, but we learned last cycle that the key to the collapse was the use of others people’s money via high loan-to-value (LTV) mortgages and a large percentage with second mortgages underwritten with loose standards. Currently, there is enough equity to suggest no pending collapse of the market. If significant subprime lenders enter the market again or we loosen up standards or interest rates jump 100 basis points, then that will put us in bubble land.
Jamie Moraga, IntelliSolutions
NO: Currently the demand is strong for homes in San Diego and our supply is low. Most homes don’t even stay on the market for a few days before they are in escrow. Prices are driven by both economic and income growth in addition to the ease of mortgage loans. Should we see an economic downturn and unemployment and interest rates start to rise, then that’s usually when we would see more delinquencies, foreclosures, and homebuyers deciding to hold off on making a home purchase.
Austin Neudecker, Rev
YES:. I am no real estate expert, but any market at a peak gives me pause for consideration. I would guess that low-interest rates are a contributing factor, and as the rates increase, prices may see an impact. Also, with recent layoffs (e.g. Qualcomm), San Diego needs to attract/build more companies with high-paid workers, yet we are still at historically low (official) unemployment (which is increasingly misleading as a metric).
Bob Rauch, R.A. Rauch & Associates
NO: A housing bubble is when housing prices, fueled by demand (any home buyer would be increasing demand by one house), speculation, and market exuberance, “run up.” At that time, speculators enter the market and increase demand for housing. If we believe that demand will decrease or stagnate, or if lots of new housing supply is built, then there could be a sharp drop in prices.
Lynn Reaser, Point Loma Nazarene University
NO: San Diego home prices are only now finally recovering to the prior highs reached a dozen years ago in early 2006. Demand is strong, powered by expanding jobs, incomes, and wealth. New supply has been inadequate, constrained by regulatory costs and other factors despite some positive steps by policymakers. As a result, San Diego has seen a net out-migration to other parts of the country of about 15,000 residents and home prices continue to climb.
John Sarkisian, Motion Ventures
NO: There is a shortage of housing that will continue to drive the cost of housing higher in the near future. Unlike the last cycle, housing prices are being driven by fundamental economics and not by creative financing products. It has been 10 years and prices are not significantly higher than before the last correction.
Chris Van Gorder, Scripps Health
NO: Bubbles are a function of speculation and reckless lending practices and I see no evidence of either in the current housing market. It is the lack of supply that has driven home prices higher, due primarily to the scarcity of land and a burdensome regulatory environment. These are issues that will not be resolved in the near term. That said, the impact of the recent tax reform bill and rising mortgage rates will likely slow the rate home price increases.Link to U-T Article
The real estate business has been too easy the last few years, and it appears a tougher market is coming, which will help weed out the agents. Unfortunately, downturns don’t discriminate – a slower market will cause the retirements of realtors young and old, of every age, and every color. Be happy it lasted as long as it did, and you made the best of it. I hope we all make it!
But let’s deal with the reality – we can handle the truth:
Apparently, this is a topic that draws interest. When first mentioned on Monday, we had the highest readership of the year:
P.S. The 60,949 is the # of comments over the years – thanks for being here!
Zillow is setting up their home-flipping business in Phoenix and Las Vegas, which are two very safe towns for taking a risk.
The vast majority of houses there are easy-to-value tract homes, and relatively inexpensive compared to the coasts. But Zillow’s stock price has plunged 10% since they announced their new venture.
In this cnbc article, Mahaney makes a good point. Having skin in the game will assist Zillow to better gauge and predict market conditions. When we still hear the typical market nonsense from N.A.R., Zillow could become the voice of real estate – if they’re not already:Link to CNBC article
In May 2017, Zillow announced the launch of Instant Offers, which enables home sellers in the Las Vegas and Orlando test markets to get cash offers from potential investors on Zillow’s platform. The company said homeowners prefer the process, and that most of them who requested an Instant Offer ended up selling their home with an agent.
“Home sellers welcome a hassle-free experience selling your home without decluttering your garage or taking the kids out of the house,” Rascoff said.
Rascoff said the company will take on collateralized debt to purchase the homes, and hopes to have between 300 and 1,000 homes held for sale by year’s end. He called the move “industry friendly,” benefiting buyers, investors and agents. He also said it could help stimulate the real estate market and open up new inventory for prospective buyers.
“There are people that are basically stuck in their home that would love to go buy another home, but can’t sell,” Rascoff said. “This could provide the ability to unstick people from their homes.”
Mahaney said that it will help Zillow test how much the real estate market is turning.
“This is an interesting experiment on the company’s part,” Mahaney said. “They’ve reached the point of scale with both real estate agents and with consumers. There are data points in the market that suggest this way of buying and selling homes is really starting to gain traction.”
The program will start this year in Phoenix and Las Vegas. Zillow didn’t say when it will expand into other markets.
I doubt any of the corporate flippers will ever come to the high-priced California coastal markets – with fewer tract homes and high cost, it’s too risky.
Of the fifty-two Carmel Valley houses listed for sale this year that are located south of the 56, my listing yesterday is the fourth least-expensive, which should help to propel the sale.
We saw the house with a pool that closed on March 15th for $1,197,000. But the most interesting comp is the house on Vereda Luna Llena that listed on March 20th for $1,150,000 ($51,000 higher than mine):
It has has similar square footage, backs to the same street, and has a detached garage in back. The yard is larger, but you also look at power lines too – and it went pending in 6 days:Photos of Comparable Pending
If all that matters is having good comps, then we should be fine. But any market can turn on a dime, or simply run out of buyers – and having comps nearby won’t be enough then.
Is the street behind a major hurdle?
There have been a steady flow of sales with not much discount for the road – this one just closed yesterday for $1,538,000.
We should have a good test of the market this weekend!
After being on Zillow for less than 24 hours:
Plus 143 views of the youtube tour in first 28 hours.
Another reason why the 2018 inventory might stay tight – seniors waiting until this thing passes to downsize. Currently, the counties of Alameda, El Dorado, Los Angeles, Orange, Riverside, Santa Clara, San Bernardino, San Diego, San Mateo, Tuolumne, and Ventura already permit such transfers, so the additional benefit would be for those who are moving to the other 47 counties.
My fellow REALTORS®,
I have great news to share! This week, C.A.R.’s Homeownership for Families and Tax Savings for Seniors Committee submitted nearly one million signatures to county elections officials throughout California. This will qualify the Property Tax Fairness Initiative (Portability) for the November 6, 2018, General Election ballot. We are one step closer to ensuring that seniors, the disabled and disaster victims can move freely throughout California without facing an unfair “moving penalty.”
This significant milestone illustrates the strength of our REALTOR® Party, demonstrating vision, leadership, and our grass roots campaign to improve housing opportunities for all Californians. Fixing California’s property tax system is critical to people across California and our state as a whole.
As champions for homeownership, REALTORS® face challenges with California’s property tax laws. You probably know a senior citizen who lives in a home that no longer fits their needs, but cannot afford to move and faces a massive property tax “moving penalty.” Our brothers, sisters, parents and grandparents shouldn’t be barred from downsizing or relocating to be closer to family because they cannot afford the property tax increase.
Similarly, severely disabled people may live in homes that are no longer safe or practical for them. Buying a more suitable home is often impossible because they face significant property tax increases when they move, even if they move to a less expensive home. Finally, disaster victims like those affected by the massive northern California wildfires and Santa Barbara mudslides have arbitrary and limited protections. Disaster victims, too, face a moving penalty if they choose to move outside of their disaster-torn county.
Passing the Property Tax Fairness Initiative reforms what is a confusing and inconsistent approach to property taxation. Senior homeowners can keep their existing tax base when they move, but only one time and only when moving to a home of equal or lower price within their current county of residence, or in 11 counties that allow an exemption. Moving to a high cost part of California is nearly impossible, regardless of circumstance. C.A.R.’s initiative fixes these issues so these homeowners can move throughout California and adjusts their property taxes up if their new home is more expensive. It allows people to move more than once, as circumstances may require. In short, it is the right thing to do for people who are already paying their fair share in property taxes.
Nobody should be penalized due to their life circumstances. That’s not right. Not in California.