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Category Archive: ‘Market Conditions’

Scarcity Club

People ask, “Are we in a bubble?”

If you mean a market where prices have escalated rapidly, then yes!  The SD Case-Shiller Index is +59% in the last eight years – an average of 7% per year!

We’ve seen 7% appreciation per year before – what’s remarkable is how long this hot streak has lasted.  We’ve had eight years of solid appreciation before (1997-2005), but that was fueled by no-qual loans.  This time, buyers are faced with strict underwriting guidelines, but they want a house bad enough that they find a way.  The unusual twist is how exploding prices haven’t caused more long-timers to sell – as a result, we’re as competitive now as ever. This is the strongest market any of us have ever seen!

Causes:

  • Current homeowners don’t need to move.
  • Current homeowners can’t find a better value.
  • Low supply of new homes.
  • Buyers on the fringe fear that they could get priced out.
  • Severe traffic makes buyers reluctant to go farther out.
  • Too many people live here now.
  • Too many realtors now.
  • The rich get richer.

The common theme is scarcity.

For buyers and sellers, it can be a wicked ego-and-greed cocktail mixed with some basic hoarding instincts.  Winning becomes more important than money – and buyers keep paying more for a house in order to join the club!

Posted by on Mar 25, 2017 in Jim's Take on the Market, Market Conditions | 0 comments

“Severe Housing Drought”

We are used to headline porn, but this one sounds startling – are we having a Severe Housing Drought?

http://www.cnbc.com/2017/03/23/this-is-whats-behind-the-severe-housing-drought.html

In the article, she says that nationally we have the fewest homes for sale than at any time in the last 18 years.  But are they just selling faster, which would give the appearance of low inventory?  If we have a similar number of houses being listed and they are selling faster, I wouldn’t consider that a drought, let alone a severe drought.

First, let’s compare the total supply and number of closed sales in 2017 to previous years – these are the numbers from January 1st to March 15th:

NSDCC (La Jolla to Carlsbad)

Year
# of New Listings
Median LP
# of Solds
Median SP
Median DOM
2013
1,042
$1,149,000
518
$842,950
31
2014
1,029
$1,295,000
464
$981,500
30
2015
1,043
$1,345,000
459
$1,145,000
31
2016
1,145
$1,489,900
421
$1,105,584
26
2017
987
$1,499,000
431
$1,200,000
24

This year’s number of new listings is 7% below the average of the last four years, but I wouldn’t call that a drought. If I watered my grass 7% less, it wouldn’t die. Besides, 40% of all listings don’t sell, so maybe the fewer listings just means fewer OPTs? The number of closed sales is much lower than previous years, but better than 2016.

How about the rest of the county?

San Diego County

Year
# of New Listings
Median LP
# of Solds
Median SP
Median DOM
2013
6,749
$479,000
4,426
$402,000
30
2014
7,077
$539,000
3,544
$475,000
28
2015
7,129
$569,000
3,582
$500,000
30
2016
7,146
$559,925
3,634
$532,500
24
2017
6,347
$639,500
3,696
$560,000
20

There are 10% fewer listings this year, compared to the average of the previous four years, but sales are HIGHER than any of the last three years. There isn’t a perfect relationship between listings and sales, because some of the closed sales were listed before January 1st. But the trend looks fine.

I don’t keep a record of the number of houses that are pending, but a couple of months ago we were around 300 in NSDCC (between La Jolla and Carlsbad).

Here is today’s count:

Area
# of Active Listings
# of Pendings
Median DOM
NSDCC
795
413
22
San Diego County
3,485
3,070
15

The reason we have a record-low number of homes for sale is because they are selling so fast.  Severe drought isn’t the right adjective – can we call it scorching hot?  Half of the pendings found a buyer in 15 days!

With half of the upcoming closed sales finding their buyer that fast, it means they probably paid the seller’s price, or close.  The other half are sellers who are willing to wait until they get their price!  It means the pricing trend should continue upward.

I think we’re back in the frenzy zone!

Posted by on Mar 23, 2017 in Frenzy, How Hot?, Inventory, Jim's Take on the Market, Market Buzz, Market Conditions, North County Coastal | 0 comments

Fed Hikes, Mortgage Rates Lower

Mortgage rates fell at their fastest pace of the year following today’s rate hike announcement from the Fed.

If you’re wondering why mortgage rates fell while the Fed’s rate moved up, you’re not alone. Fortunately, the explanation is simple. Financial markets had already fully accounted for the chance that the Fed would hike rates today. They’d even gone a step further an begun to account for a faster pace of future rate hikes. And it was that future outlook that allowed for our pleasant surprise.

As it turns out, the median forecast among Fed members didn’t see the Fed Funds rate ending the year any higher than the previous batch of forecasts (both for 2017 AND 2018). While there was no way to know exactly how much markets had prepared for the forecasts to move higher, it was certainly more than “not at all.” In other words, rates had recoiled in fear over the past few weeks, expecting to see a very scary monster today. When the monster turned out to be cute and cuddly (relatively), rates calmed down quickly.

The average lender offered mid-day improvements that brought rates 0.125% lower, on average. In terms of conventional 30yr fixed rates, most lenders are back down to 4.25% now on top tier scenarios.

Read full article here:

http://www.mortgagenewsdaily.com/consumer_rates/717877.aspx

Posted by on Mar 15, 2017 in Interest Rates/Loan Limits, Jim's Take on the Market, Market Conditions | 0 comments

NSDCC Listing Symmetry

We have enjoyed an incredibly consistent market recently!

If we see a surge in new listings, it would be welcome relief for buyers. They would have more to choose from, and temper the price expectations of sellers.

But we’re not seeing any change yet – in fact, the number of new listings has been so consistent, it is mind-boggling!

NSDCC New Listings, March 1-10:

Year
# of New Listings
Median List Price
# Marked Pending 3/1-15
2013
166
$1,175,000
40
2014
161
$1,279,000
21
2015
170
$1,244,941
31
2016
177
$1,399,000
41
2017
170
$1,398,500
38

Our record-high prices aren’t bringing out any additional sellers!

There should be more listings marked pending today, so the 38 should match or exceed last year’s 41.

Posted by on Mar 15, 2017 in Jim's Take on the Market, Market Conditions, North County Coastal | 1 comment

The Millennials’ Housing Disadvantage

Everything about the real estate market favors those who got in years ago (location, zoning, traffic, property taxes, etc.).  Today’s desperate search for reasonably-priced housing is futile at best, and invites table-tilting by all involved. The rich get richer! Hat tip to Bill W:

LINK

Excerpt:

The problems facing millennials include an economy where job growth has been largely in service and part-time employment, producing lower incomes; the Census bureau estimates they earn, even with a full-time job, $2,000 less in real dollars than the same age group made in 1980. More millennials, notes a recent White House report, face far longer period of unemployment and suffer low rates of labor participation. More than 20 percent of people 18 to 34 live in poverty, up from 14 percent in 1980.

They are also saddled with ever more college debt, with around half of students borrowing for their education during the 2013-14 school year, up from around 30 percent in the mid-1990s.

All this at a time when the returns on education seem to be dropping: A millennial with both a college degree and college debt, according to a recent analysis of Federal Reserve data, earns about the same as a boomer without a degree did at the same age.

Downward mobility, for now at least, is increasingly rife. Stanford economist Raj Chatty finds that someone born in 1940 had a 92 percent chance of earning more than their parents; a boomer born in 1950 had a 79 percent chance of earning more than their parents. Those born in 1980, in contrast, have just a 46 percent chance.

Since 2004, homeownership rates for people under 35 have dropped by 21 percent, easily outpacing the 15 percent fall among those 35 to 44; the boomers’ rate remained largely unchanged.

In some markets, high rents and weak millennial incomes make it all but impossible to raise a down payment. According to Zillow, for workers between 22 and 34, rent costs now claim upward of 45 percent of income in Los Angeles, San Francisco, New York, and Miami, compared to less than 30 percent of income in metropolitan areas like Dallas-Fort Worth and Houston.

The costs of purchasing a house are even more lopsided: In Los Angeles and the Bay Area, a monthly mortgage takes, on average, close to 40 percent of income, compared to 15 percent nationally.

Home ownership rates in California are among the nation’s lowest, with Los Angeles-Orange having the lowest rate of the nation’s 75 large metropolitan areas. For every two homebuyers who come to the state, five families leave, notes the research firm Core Logic.

Like medieval serfs in pre-industrial Europe, America’s new generation, particularly in its alpha cities, seems increasingly destined to spend their lives paying off their overlords, and having little to show for it.

No wonder that rather than strike out on their own, many millennials are simply failing to launch, with record numbers hunkering down in their parents’ homes. Since 2000, the numbers of people aged 18 to 34 living at home has shot up by over 5 million.

Home ownership rates in California are among the nation’s lowest, with Los Angeles-Orange having the lowest rate of the nation’s 75 large metropolitan areas. For every two homebuyers who come to the state, five families leave, notes the research firm Core Logic.

The irony is that the state’s progressive policies are contributing  to a less mobile society and a potential demographic crisis. For one thing, fewer young people can form families—Los Angeles-Orange had one of the biggest drops in the child population of any of the 53 largest metros from 2010 to 2015.

This also has a racial component, as homeownership rates African American and Latino households—which often lack access to family wealth—have dropped far more precipitously than those of non-Hispanic Whites or Asians. Hispanics, accounting for 42 percent of all California millennials, endure homeownership roughly half that seen in other parts of the country.

This is not the planners’ happy future of density dwelling, transit-riding millennials but a present of overcrowding, the nation’s highest level of poverty and, inevitably, a continued drop in fertility in comparison to less regulated, and less costly, states such as Utah, Texas, and Tennessee that have been among those with the biggest surges in millennial migration.

Once identified with youth, California’s urban areas are now experiencing a significant decline in both their millennial and Xer populations. By the 2030s, large swaths of the state—particularly along the coast—could become geriatric belts, with an affluent older boomer population served by a largely minority servant class. How feudal!

Read full article here:

LINK

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Posted by on Mar 12, 2017 in Boomers, Jim's Take on the Market, Local Government, Market Buzz, Market Conditions, The Future | 3 comments

Modern Communes

Because millennials are more likely to stay single longer, these communal living arrangements should flourish.

They are probably an extension of the mini-dorms around college campuses.  Next year, our youngest will be splitting $9,800 per month to live with 13 other women in one apartment.  Their landlord inherited a dozen apartment houses, all in Westwood! H/T daytrip:

LINK

Zander Dejah, 25, pays $1,900 a month rent to live in a downtown San Francisco house with at least 40 other people, many of whom sleep in bunk beds.

Dejah is a resident of The Negev, a communal living space that styles itself as a home for millennial tech workers to brainstorm ideas, write code and create apps, even if they have to share toilets and bathrooms with dozens of others. (Related photo essay: here)

Houses like The Negev, located in a neighborhood known as “SoMa” or South of Market, have cropped up around San Francisco as an influx of young professionals, many of whom are tech workers, have faced the city’s notoriously high rents and apartment shortages. It has three floors and roughly 50 rooms, filled with bunk beds, beer bottles and laptops, according to residents.

Dejah, born and raised in New York, graduated last year with a degree in computer science and math from McGill University. Unemployed, he moved to California six months ago and found his room at The Negev on Craigslist.

“I thought New York was expensive,” said Dejah, who quickly landed a job as a virtual reality engineer at consulting firm moBack. “It’s basically an extension of college. We sort of live in a frat house.”

The home is certainly filled with parties on weekends, but the residents make sure to sit down every Sunday for a communal dinner, akin to a traditional family gathering.

While some say communal housing provides a solution for many first-time workers fresh out of college, such housing also has created its share of controversy. Housing advocates have complained that this new dorm-like style of living has pushed up rents and forced longtime residents to move out.

Alon Gutman, who co-founded a company called The Negev and began leasing the building on Sixth street in 2014, said, “We have never made somebody move out of that building,” adding that his tenants pay 30 percent to 50 percent less than others in the neighborhood.

“We are trying to solve the housing crisis and increase density in a positive way.”

The Negev company runs nine communal properties, three of which are in San Francisco. The others are in Austin, Texas, and Oakland, California.

The Negev properties, generally in run-down, low-income neighborhoods, are restructured to accommodate a large number of tenants, Gutman explained.

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Posted by on Mar 12, 2017 in Ideas/Solutions, Jim's Take on the Market, Market Conditions | 5 comments

San Diego Population Growth

How could home prices keep climbing? If more rich people come here.

LINK

San Diego County’s population is expected to swell to 4 million people by 2050, according to the latest official projections by the California Department of Finance.

That’s 700,000 more than the department’s official estimate of the population of San Diego County on July 1 of last year.

At 4 million people, San Diego County’s population would be larger than the current population of the state of Oklahoma, and just slightly smaller than Oregon.

The county’s residents in 2050 will be older and more diverse, according to the state projections released this week.

Hispanics will be in the majority at 41 percent of the population, with whites making up 38 percent, Asians 10 percent and blacks 5 percent. Individuals of mixed race will represent 6 percent of the population in 2050.

Residents 65 and older will make up 26 percent of the population in 2050, double the proportion now.

San Diego will not experience this growth alone. California’s population, which stood at 39.4 million on July 1, is forecast to grow to 49.2 million by 2050.

Posted by on Mar 11, 2017 in Jim's Take on the Market, Market Conditions | 2 comments

Seattle Real Estate

We are seeing the same low-inventory trends in most of the hip-and-happening markets around the country, like Seattle. Sam is a prolific blogger and an active realtor – here’s his take (h/t Susie!):

http://www.marketwatch.com/story/seattles-shortage-of-homes-for-sale-foments-disruptive-bidding-wars-2017-03-08

An excerpt:

The headlines read “Seattle’s real estate market is hot!” Under that glossy surface, Seattle real estate’s inventory dearth is a growing, unruly mess.

Home prices in King County rose 12% in February, but that’s no longer an attention-grabber. They rose 18% in the same period one year before.

Inventory is at just 1.1 months. The number of available homes for sale dropped 21% in one year. These crisis-level numbers should be astonishing, but they’ve begun to seem unremarkable. After all, inventory dropped 26% in 2015, 17% in 2014 and 10% in 2013.

The shock has worn off. We’ve been inundated with double-digit noise for so long in the Seattle real estate market that we’ve almost become numb to it. While that’s understandable, it’s also problematic.

King County is issuing 200 new driver’s licenses every day to people moving in from out-of-state. That doesn’t include in-state migration and in-county natural population growth. Meanwhile, the county is only issuing building permits for 27 new housing units per day.

The diverging trend lines of people and homes get further apart by the day, month and year. Prices rise swiftly.

Residents get squeezed. They “drive to qualify”. They live further out, commute longer distances, create more traffic gridlock, spend more on transportation, have less time to spend with their families and experience a diminished quality of life.

There’s no risky financing housing bubble to blame like there was a decade ago. Employment and in-migration in King County is forecast to rise exponentially in the coming years. These are people with real jobs, verified income and real down payments. There just aren’t enough homes, so prices continue to soar.

Read full article here:

http://www.marketwatch.com/story/seattles-shortage-of-homes-for-sale-foments-disruptive-bidding-wars-2017-03-08

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Posted by on Mar 9, 2017 in Inventory, Jim's Take on the Market, Market Conditions | 6 comments