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Category Archive: ‘Market Conditions’

Shiller On Tax Reform

Shiller is sticking with the irrational exuberance that plays into housing decisions – and I agree:

The co-creator of the much-watched S&P/Case-Shiller home price index doesn’t think the mortgage interest deduction really matters to the housing market.

“It’s not big,” said Yale economics professor and Nobel laureate Robert Shiller.

He also doesn’t think home prices will fall if the cap on the amount of mortgage debt (currently $1 million of debt) one can deduct interest payments on is cut in half. About 2.9 million borrowers have mortgages with an outstanding balance higher than $500,000, according to Black Knight.

“The general idea is it would push prices down if people are rational,” which Shiller says they are not when it comes to housing. He is the author of the bestselling book “Irrational Exuberance.”

He does, however, think that if homeowners can no longer deduct their property taxes, or if the amount they can deduct is limited under the new tax plan, that would be a big deal — at least to rich people.

“That is going to be a substantial hit to people who are paying a lot of property taxes, and it might be a consideration that you make before you buy a big mansion in some high property tax state,” said Shiller.

While economists, housing advocates and housing industry lobbyists argue the effects of the Republican tax plan and worry about the possibility of higher interest rates, Shiller, who has studied the economics of housing dating back to the 1800s, sees very little rhyme or reason to any of it. The human factor — the emotional aspect of most people’s single largest investment, a home — is far greater than the market stimuli that are accorded such importance.

“I tend to think it’s not as great as you imagine because people are people, and I don’t find that historically home prices have relied at all predictably to changes in things like interest rates,” said Shiller, pointing to the huge boom in housing in the last decade. Interest rates didn’t move at all during that time.

That boom, instead, was fueled by a complete crater in any type of lending standard in the mortgage market. People were offered loans at almost no cost, so they took them — and never believed that home prices could fall. In the early 80’s during a huge spike in interest rates to double digits, home prices fell slightly, but people kept buying homes.

“Things happen that have no explanation,” said Shiller.

Click to play video below:

Robert Shiller on GOP tax plan and home prices from CNBC.

Posted by on Dec 7, 2017 in Jim's Take on the Market, Market Buzz, Market Conditions | 5 comments

Cash Sales

For those who might have seen this article and worried about competing with cash buyers, there hasn’t been much difference around here lately.

NSDCC Detached-Home Sales, Jan-Nov

Number of Cash Sales
Percentage of Total Sales, Jan – Nov

An excerpt:

Meagan Freeman and her boyfriend have been looking for a midprice house in the Seattle area for six months but keep running into a hurdle: cash buyers swooping in and snatching up their properties.

It has happened three times, she said, most recently two weeks ago. The couple bid on a home in an unfashionable suburb they believed was a sure bet in the midst of a dreary Seattle November, when the market typically is slow.

Instead, the 27-year old said, a cash buyer won out yet again.

“It is definitely discouraging,” she said.

Five years after the housing market hit rock bottom, mortgage credit is finally returning to the healthy levels of the early 2000s, before the boom-bust cycle began. But all-cash deals remain well above normal levels, even as prices in many markets have pushed to record highs.

In all, 28.8% of U.S. home sales this year have been all-cash transactions, according to Attom Data Solutions, a data provider. That was down from the peak of more than 40% in 2011 and 2012, when investors were buying homes at a furious pace to turn into rentals. But the percentage of cash deals stands much higher than the 20% or so common in the early 2000s, and it has edged up from 28.6% last year, according to Attom.

Read full article here:


Posted by on Dec 6, 2017 in Jim's Take on the Market, Market Conditions, North County Coastal | 0 comments

San Diego is Equity Rich

The share of equity-rich properties rose to a new high—26 percent of homeowners with a mortgage in the third quarter, according to ATTOM Data Solutions’ Q3 2017 U.S. Home Equity & Underwater Report.

In the third quarter, there were more than 14 million U.S. properties considered equity rich, which is when the combined loan amount secured by the property is 50 percent or less of the estimated market value of the property. The number of equity-rich properties is up by 905,000 compared to a year ago, according to the report.

ATTOM Data Solutions found these areas (in metros with a population of 500,000 or more) had the highest share of equity-rich properties:

  1. San Jose, Calif.: 61%
  2. San Francisco: 56.4%
  3. Los Angeles: 45.3%
  4. Honolulu: 43.9%
  5. Oxnard-Thousand Oaks-Ventura, Calif.: 38.7%
  6. Seattle: 38.7%
  7. San Diego: 38.3%
  8. Portland, Ore.: 36.7%
  9. Austin, Texas: 35.8%
  10. Stockton, Calif.: 35.2%


Posted by on Dec 5, 2017 in Jim's Take on the Market, Market Conditions, Short Sales | 14 comments

Rich’s SD Housing Graphs

Our friend Rich Toscano has his latest San Diego housing analysis here:

In spite of record prices, the inventory has been setting recent lows:

Yet, sales have been mostly better than every year since the Frenzy of 2013!

Fewer homes for sale but more sales?

Are sellers doing better to improve their homes before selling, or are buyers so desperate that they are buying crap they wouldn’t have bought during the last couple of years just purely because of the scarcity?

Full report here:

Posted by on Nov 27, 2017 in Jim's Take on the Market, Market Buzz, Market Conditions, Rich Toscano | 1 comment

More Predictable in 2018

Last year at this time we were in shock at the thought of what a Trump administration might mean for our real estate market – there was no telling what was going to happen!

It’s not a stretch to say that next year should be easier to predict!

Factors to consider for your 2018 predictions:

  1. Trump will name new leaders of the CFPB and the Fed, and both people should push for easier money.  I don’t think we’ll be seeing no-doc mortgages any time soon, but the new regimes could strive for more things like higher production of the low-down-payment Fannie/Freddie loans (not that the lower-end markets need much stimulus!).
  2. Goldman Sachs said yesterday that they expect the Fed to raise rates four times next year.  But the recent Fed moves haven’t resulted in a corresponding increase in mortgage rates – so we might get into the mid-4% range, which isn’t the end of the world.  The buyers – or sellers – can always buy down the rate if needed.
  3. The tax reform will get watered down and passed when no one is looking, and buyers will forget about it quickly because it’s so hard to calculate the actual impact. Rising rates are much easier to figure.
  4. The overall inventory of homes for sale probably won’t change much.  There might be occasional spurts of listings here and there, but there is still no place for seniors to go that’s better than where they are today.  We should have the same or slightly more estate sales, but no significant increase, and with the taxation so heavy on long-time owners, they and their families will just wait until they croak.
  5. More affluent people from higher-end markets who are thinking about retiring will see coastal San Diego as a terrific option.
  6. Our recent real estate boom since 2009 has caused sellers and agents to be extremely optimistic.  Yesterday an agent complained about getting ‘lowballed’ when she got an offer that was $25,000 under the bottom of their range a week before Thanksgiving.  It will take months – or years – before anyone notices, let alone reacts, to a major shift in buyer trends.
  7. We are numb to the news.  Mass killings are a regular event, sexual deviants are a dime a dozen, and it’s hard to imagine that Trump could say anything that would be a shock now.  The news might be what’s causing buyers to want to hurry up and hunker down!

Expect more of what we’ve had recently – low inventory, and higher prices.  But I do think we are way overdue for sales to decline – I already guessed 5% fewer NSDCC sales in 2018, and it could be worse.

Posted by on Nov 21, 2017 in Forecasts, Jim's Take on the Market, Market Conditions | 8 comments

San Diego’s October Report

This company surveys real estate agents every month around the country – here is the October report from San Diego realtors:

Low inventory is the constant theme, but there are 5,157, houses and condos for sale in the county currently.  Maybe we just need to get better at correcting the reasons why those aren’t selling, and boom, we’d have instant inventory!

Price-wise, I would disagree with the 16.7 time-to-sell index. Prices are at least as good as they were in May, and instead of 3-6 buyers for every house, we’re down to one or two. You only need one!

When is the best time to sell? When everyone else isn’t!

Posted by on Nov 15, 2017 in Jim's Take on the Market, Local Flavor, Market Conditions | 1 comment

Bubble Talk

Excerpted from MND:

Someone must have passed a law; if it is November, you must publish something debunking bubbles.  The saturation point is near, but the latest contribution, from Freddie Mac’s Chief Economist Sean Becketti, provides a better (and much longer) analysis than most, so we will attempt to summarize his arguments as to why, despite rapidly rising home prices, we aren’t in a bubble.  Or as he says, “Not yet.”

The concern, he says, is understandable. Scars remain from the last bubble and there are plenty of warning signs regarding a new one:

  • House prices have been on a tear for the last five years, growing about twice as fast as the long-run average and outpacing income growth by a cumulative 42 percent over the last 17 years;
  • The number of large metropolitan statistical areas (MSAs) with unusually-high house-price-to-income ratios has grown from five in 2011 to 17 today. At the height of the last bubble there were 27.
  • An increasing share of MSAs with relatively stable construction costs nonetheless have suspiciously high house prices per square foot.

It is difficult to spot a bubble before it bursts, but Becketti says there are three defining characteristics.  First, they are fueled by self-fulfilling predictions, i.e. prices rise simply because people expect them to. Nobel Laureate Robert Shiller called them “a kind of social epidemic” where price increases generate enthusiasm among investors, who then bid prices higher. The feedback continues until prices get too high, and the bubble bursts.

That is the second defining feature of bubbles, they do indeed burst. Not just correct, a normal part of the ups and downs of asset prices, but crash, reflecting a sudden realization that prices have become unsupportable.

The third defining feature is the central role easy credit plays in their growth.  When lenders begin to believe that price increases can go on forever, they grow less concerned about whether borrowers can repay the loan.  Bubbles collapse when lenders finally get worried and restrict riskier types of credit. Paradoxically, Becketti says, in the last decade lenders restricted credit, thus pricking the housing bubble and triggering the burst they were trying to avoid.

Hunting for bubbles is problematic.  Since prices might make a soft landing, it is tempting to monitor conditions a bit longer rather than act.  Identifying a bubble can spook people and trigger a crash that didn’t need to happen. Becketti admits that Freddie Mac is “stuck.” A potentially-destructive house price bubble “is one of the key risks we have to manage as best we can.”

The company has talked before about its two-part approach to identifying bubbles, first by comparing the current median house price to the median income (PTI) ratio to a historical norm of 3.5. They have found a national PTI above 4.1 is unusual enough to merit further analysis. It broke through that outlier in 2004, started to collapse in 2006, hitting bottom at 3.3 in 2011. It is currently approaching, but is still under the 4.1 threshold. Because bubbles can be local or regional, Freddie Mac also tracks the PTI ratios for the 50 largest metro areas and as noted earlier, 17 are currently a cause for concern.

The inventory shortage is strong evidence against a price bubble and the slow rate of increase in construction suggests any eventual price adjustment will be gradual rather than a collapse.

A second piece of evidence is a bubbles’ reliance on easy credit. Freddie Mac looks for signs of credit deterioration. Increasing delinquencies and defaults tend to appear very late in a bubble’s life, so it isn’t surprising that the company’s book of business “has exhibited stellar credit performance to date.”

A much earlier sign is an increase in leverage; declining home equity. But the reverse is currently the case.  While house prices have risen rapidly since 2001, outstanding mortgage debt has barely budged. “Homeowners, at least in aggregate, are not funding a spending spree with the equity in their homes.”

So far, no sign of an imminent bubble, however there are those fast-rising home prices. Becketti says maybe they are looking in the wrong places for evidence. The national PTI ratio provided plenty of early warning about the last bubble, enough to have taken corrective action before It burst. But one possible warning sign isn’t enough, confirming evidence is needed.

Read the full report here:

Posted by on Nov 14, 2017 in Jim's Take on the Market, Market Conditions | 6 comments

The Big Stagnation, Part 2

In September, I touched on the Big Stagnation:

Just talking about the GOP tax changes could slow down the market.  Because the N.A.R. and others are suggesting publicly that home values could drop 5% to 10%, won’t potential home buyers wait to see if it happens?

The demand will still be there; it will just be more picky than it is today.

The move-up market is where we could see real impact from the proposed tax changes.  If potential move-uppers don’t move, they would keep their mortgage-interest deduction and lower property taxes.  If they do move and get a loan over $500,000, they’ll enjoy paying on a new mortgage for 30 years with no MID, and pay higher property taxes.

They won’t calculate the exact cost of losing the MID (it’s not that much) – and instead, it will be the last straw and they will just quit thinking about moving because they’re disgusted with politicians.

We will also lose a few who need to stick around longer to qualify for the tax-free gain on the sale of their house, due to the change of having to own/occupy the house for five out of the last eight years to qualify.

End result: Fewer people willing to move up, which would have a significant impact on the higher end market.   True, the move-up buyers won’t be listing their lower-priced house for sale either, which would create a net-zero change, and potentially make the inventory tighter, which would be better for the remaining sellers.

But there hasn’t been a shortage of homes for sale listed over $1,000,000 (there are 1,395 homes for sale today in San Diego County priced over $1,000,000, and 327 sold in October).

Higher-end sellers will have to wait even longer for the trickle of buyers to reach them.  Plus, if a neighboring seller or two dumps on price to unload theirs, the lower comps could add another six months to the selling timeline, or longer.  The sellers who claim to be in no rush will be tested!

The environment will be compounded by the lack of experience in dealing with this type of market by everyone involved. For the last seven years, if you wanted to buy a house, you had to pay the sellers’ price….or more.  Will that continue?  Yes, for those selling a perfect house at the perfect price.  But it will be too easy for buyers to pass on the clunkers or OPTs.

S-t-a-g-n-a-n-t  C-i-t-y.

The lower end should stay red hot, but it won’t be trickling up as much.

And that’s not considering the possibilities of higher interest rates, earthquake or other natural disaster, nuclear war, or recession!

Posted by on Nov 7, 2017 in Boomer Liquidations, Boomers, Jim's Take on the Market, Local Government, Market Buzz, Market Conditions | 6 comments

Data Declines

The data keeps pointing to a slowdown, and like a Yu Darvish hanging curveball, once it’s in flight, there’s not much you can do.  Few sellers need to sell bad enough that a substantial price reduction will be considered – and there isn’t enough competition to cause any fear.  For buyers who keep reading about the threat of rising rates, it can be very frustrating.

Here’s how the C.A.R. describes it:

• Pending home sales have declined on an annual basis for eight of the last nine months so far this year. After a solid run-up of closed sales in May, June, and August, continued housing inventory issues and affordability constraints may have pushed the market to a tipping point, suggesting the pace of growth will begin to slow in the fall.

• C.A.R.’s Market Velocity Index – home sales relative to the number of new listings coming on line each month to replenish that sold inventory, or market indicator of future price appreciation – suggests that there continues to be upward pressure on home prices through the fall. Home sales continue to outstrip new listings coming online to restock sold units.

• The Market Velocity Index dipped from 53 to 52, implying that there were 52 percent more homes sold than new listings, meaning the supply of homes available for sale continued to drop.

However, fewer homes are coming to market, in spite of record pricing:

NSDCC # of Houses Listed Between August 1 – September 30th:

2016: 848

2017: 738

Diff:  -13%

All SD County # of Houses Listed Between August 1 – September 30th:

2016: 6,006

2017: 5,346

Diff:  -11%

NSDCC # of Houses Listed In September Only:

2016: 413

2017: 337

Diff:  -18%

All SD County # of Houses Listed In September Only:

2016: 2,836

2017: 2,473

Diff:  -13%

With fewer homes to sell, the percentages of pending and closed sales have nowhere to go but down – and we’re doing fine, considering the inventory.  The declines in the pending and closed sales are in line with, or better than the decline in new listings.

Posted by on Nov 2, 2017 in Jim's Take on the Market, Market Conditions, North County Coastal, NSDCC Pendings | 5 comments

Baby-Boomer Housing

These responses point to a massive downsizing trend!



It’s all about millennials these days. Everything seems to center around these special snowflakes. But what about the original “me” generation? We’re talking about baby boomers, of course. What do these roughly 76 million Americans want when it comes to housing?

Well, they want multicar garages, for one thing. According to a recent survey by national homebuilder PulteGroup, they were the top feature boomers were looking for in a new home, followed by open decks or patios; eat-in kitchens; and a private yard.

About 38% of boomers plan to buy a home within the next three years, according to the report. About 11% expect to purchase a residence within the year.

The survey was of 1,043 folks between the ages of 50 and 65 who plan to buy a home in the next decade.

“Retirement marks a new phase in a baby boomer’s life, and it only seems natural to relocate or move to a new home when transitioning away from their primary career, or from the day-to-day rearing of school-aged children,” Jay Mason, vice president of market intelligence for PulteGroup, said in a statement. “It’s not surprising that the 55+ buyer wants a variety of options and choices in their homes.”

According to the survey, 39% of respondents said the main reason they’re moving is because they want to retire, 33% want to downsize, and 30% want to move to a more desirable location.

“One thing we know about boomers is they are not done yet,” says Amy Lynch, president of Generational Edge, a Nashville, TN–based company that consults with companies on generational differences in employees. “As a group, they are starting encore careers and also going back to school. And they often move to be near their millennial kids, who are having kids.” They also start new families of their own, through divorce or remarriage.

All of these situations may require a move. About 26% of boomers plan to stay in their current cities, but just move to a different home, while 34% want to remain in the state, but in a different city or town. Also, 38% hope to cross state lines.

Their top retirement destination? You guessed it: Florida. It seems you just can’t beat all of that year-round sunshine. The state was followed by fellow warm-weather states Arizona, North Carolina, and South Carolina. The cost of living is lower in these states than on the pricier West Coast or in the Northeast.

About 82% of boomers wanted to be someplace affordable, and 74% want to be close to their preferred health care programs.

But boomers don’t want to just pack up and leave their grandchildren. Being close to kids was their top consideration when choosing a new community. They also want to be near the water and park or other green space.

“We are in a period in this country where family life and family connections are very strong,” says Lynch. “There’s a lot of regret among boomers because they worked so many long hours when their kids were young. With grandkids, there’s a chance to make up for that.”

Posted by on Oct 26, 2017 in Boomer Liquidations, Boomers, Jim's Take on the Market, Market Buzz, Market Conditions, The Future, Thinking of Buying?, Thinking of Selling?, This Is America | 11 comments