Mortgage rates calmed down yesterday, retreating back to 4.125%, but with all the hysteria about Trump, things sure seem unsettled.
How will we know if our local market is getting into trouble?
Watch three things:
- Inventory/sales relationship
- High-end market
- Actives/pendings ratio
Apply these to your local micro-market, because results will vary by neighborhood. I started this blog in September, 2005, when it was becoming obvious on the street that change was afoot.
We had a great lesson in 2006 – the inventory took off, and sales plunged:
La Jolla-to-Carlsbad, Jan – Nov
||Median Sales Price
The 2016 inventory has increased, but it’s more in line with the average now – which, excluding 2006, is 4,869 per year. Sales aren’t plunging either, so we’re in good shape, at least for now.
How about the high-end market?
Sales are down slightly in La Jolla this year, compared to 2015 (320 vs. 336), but the Ranch is hopping! There have been 13% more sales in the 92067 this year, compared to 2015, and sales in August-through-November are up 46% year-over-year!
I’ll come back to the Actives/Pendings ratio, but at least we have guideposts that look relatively health today!
There was one more business day last month than there was in November, 2015, but it’s impressive to just keep up with previous years when we are at higher price points.
NSDCC November Sales
||# of Sales
The big difference is on the lower end.
In November, 2012, there were 37 regular houses sold under $600,000, and last month there were only four – and they were of the patio-home variety.
- The share of homes selling above asking price edged up from 27 percent a year ago to 28 percent in October. Conversely, the share of properties selling below asking price dropped to 44 percent from 47 percent in October 2015. The remaining 28 percent sold at asking price, up from 25 percent in October 2015.
- For homes that sold above asking price, the premium paid over asking price rose to 9.1 percent, up from 7.7 percent in September and 8.9 percent a year ago.
- The 44 percent of homes that sold below asking price sold for an average of 8.9 percent below asking price in October, the lowest since May 2015. The premium paid in both September and a year ago was 12 percent.
- Nearly six in 10 properties for sale (59 percent) received multiple offers in October, down from 63 percent in September and 64 percent from October 2015. October marked the seventh straight month of declining multiple offers.
- The share of properties receiving three or more offers fell to 30 percent, the lowest level since the beginning of this year. Thirty-five percent of properties received three or more offers in September, and 36 percent of properties received three or more offers a year ago.
- Compared to a year ago, there was an increase in the share of homes receiving three or more offers in homes priced $400,000 to $499,000 and $2 million and higher, while the share of low- to mid-priced homes experienced a decrease in three or more offers, particularly in homes priced $300,000 to $399,000, which dropped the sharpest – from 43 percent in October 2015 to 18 percent in October 2016.
- About a third (31 percent) of properties had listing price reductions in October, up from 25 percent in September and down from 32 percent in October 2015.
- Nearly half (45 percent) of REALTORS® were concerned about high home prices and housing affordability, while 26 percent indicated they were concerned about a lack of available homes for sale. REALTORS® also were concerned about a slowdown in economic growth, lending and financing, rising interest rates, and policy and regulations.
- REALTORS®’ optimism of market conditions over the next year has been trending downward for the past few months but is still in positive territory at an index of 54 in October, unchanged from September but down from 57 in October 2015.
San Diego County looks like the best in the state (highest index):
*Note: C.A.R.’s pending sales information is generated from a survey of more than 70 associations of REALTORS® and MLSs throughout the state. Pending home sales are forward-looking indicators of future home sales activity, offering solid information on future changes in the direction of the market. A sale is listed as pending after a seller has accepted a sales contract on a property. The majority of pending home sales usually become closed sales transactions one to two months later. The year 2008 was used as the benchmark for the Pending Homes Sales Index. An index of 100 is equal to the average level of contract activity during 2008.
What is the consensus on the Trump impact on our local real estate market?
After speaking to agents on broker preview the last couple of days, I think we can divide the buyer pool into two camps:
- There have never been more reasons to wait-and-see.
- But some buyers will want to hurry it up, before anything else happens.
Yellen made it sound like the next Fed move is imminent, which hopefully means next month. There is 1/4% (or more) already baked into the market, so if they do bump the Fed Funds rate, it should have a calming effect on mortgage rates – it did last time. If we can stay around the current 4%, it should motivate people to buy before it goes higher.
But there is also the anxiety that comes with buying or selling that gets aggravated by uncertainty. Have you ever felt more desire to hunker down?? The motivated buyers and sellers want to get it done.
I think we will see a very active selling season – and it already is!
NSDCC October Sales and Pricing
||# of Detached-Home Sales
||Median Sales Price
Our current momentum should carry us well into 2017. But look at the stumble in 2014 – I’m more worried about 2018.
It would be natural to assume that sales start dropping off once we get into November. But do they?
November has the most holidays of the year (three) when the county recorder’s office is closed. Let’s compare the number of NSDCC closings per business day:
||October Closings Per Day
||November Closings Per Day
You can see that November usually keeps up with October as far as number of closings per day – and November exceeded October sales per day last year!
In spite of the election, we are coming off a hot October.
Last month’s 11.3 is based on this morning’s count. There will be late-reporters that will drive the number close to 12 – like it was during the 2012 election, which was also the beginning of the Real Estate Frenzy of 2013.
I don’t think we are heading for a frenzy next year, but with rates up slightly, it looks like this month is going to be sizzling! There are 398 pendings today!
I have a new listing this week that we decided to put on range pricing for two reasons; A) we’re not doing all the repairs needed, and B) if you only have one price, buyers will want to deduct for repairs, even if the repairs are already priced in.
Of the 495 NSDCC houses that have sold over the last sixty days, 127 of them (27%) were on range pricing. Here is how they did:
Sold ABOVE the top of the range: 7
Sold at the top of the range: 5
Sold at the bottom of the range: 8
Sold UNDER the bottom of the range: 70
Going with range-pricing is a gamble that I don’t think sellers or listing agents recognize – over the last two months, most NSDCC houses (55%) listed on the range sold for UNDER the bottom price, which had to be a disappointment. It wasn’t just the high-enders either – it was across the board.
It leaves us with a couple of questions:
- Is pricing so inaccurate that the bottom of the range is too high?
- Do buyers look at the bottom price and go down from there?
I have never seen a buyer jump for joy over range pricing.
Yesterday I mentioned the idea of slightly more inventory could lead to more sales and faster-rising prices – but too much could freeze up the demand.
Is there history upon which we can reflect?
We know that the local market in 2013 reached full-blown red-hot frenzy level. Inventory for the first nine months rose 12%, and sales rose 10% – and pricing went ballistic. We probably won’t see it that hot again.
NSDCC Listings and Sales, First Nine Months (Jan-Sept.)
||Number of Listings
||Number of Sales
But consider the 2014-2015 differences.
The inventory went up 4%, and sales went up 8%! But there wasn’t much increase in list pricing (under 4%), which probably helped to soothe the buyer anxiety, and keep things moving. The median sales price did rise 6%!
How about this year?
Another 3% increase in inventory, but a 4% decline in sales. But look at the increase in the median pricing – an 8% rise in the median list price and 7% increase in the median sales price, with both at all-time record highs.
There is a fine balance between sales and price, but I think if sellers can keep their pricing enthusiasm in check, the party will keep rolling! Can we all live with appreciation around 0.5% per month, where it has been for the last three years, and expect that it could be a little less as prices enter the stratosphere?
Rich has posted his September report here:
It is remarkable how similar this year’s inventory has been to last year’s – and the trajectory is virtually identical as well.
Sales have been strong too, in spite of the higher pricing:
Judging by those graphs, market conditions are ideal – could it get any better?
I think so! If we had about 10% more inventory, the demand would soak it up and probably cause prices to go up faster too. I say 10% because it wouldn’t be that noticeable – if there was a 20% or more increase in inventory, buyers would most likely adopt a wait-and-see attitude because historically, we are overdue for a correction. But it’s been different this time – higher prices haven’t brought more sellers to market.
Rich is also back at the Voice of San Diego!
This data is from NSDCAR’s HomeDex report – full copy here:
They include attached and detached homes together – some big increases here:
At the beginning of September, I said that the local market felt hot enough that we could pass the August numbers.
Last month had two fewer business days than August, but even if you factor that in, we didn’t quite make it – but with that surge of new pendings we should see plenty of sales closing over the next 30-60 days.
NSDCC Detached-Home Sales
||Number of Sales
||Median Sales Price
Going into the election of 2012, our local market exploded – but prices were relatively cheap then. Could we see another surge during this election cycle?