I went to the grand opening today of these $2,000,000 tract homes and thought because of the rain that I might be the only one there. Wrong! There were hundreds of people – and this isn’t Carmel Valley – not even close:
Category Archive: ‘Thinking of Buying?’
How can the market keep going? Generational wealth distribution!
Among respondents with an annual income over $100,000 who anticipate familial help with a down payment, the average expected level of support is over $50,000, enough for a 20 percent down payment on the national median condo price.
This is more than twice the expected down payment assistance of those making between $50,000 and 75,000, and over ten times that of those making less than $25,000, who expect to receive $4,358 on average.
This finding highlights the chronic nature of wealth inequality — not only do lower-income millennials have less purchasing power themselves, but their families have less support to offer.
We find that when it is available, familial down payment assistance can put homeownership much closer in reach.
Among millennials earning more than $50,000 and expecting help with a down payment, we estimate that 32.8 percent will be able to acquire a 20 percent down payment within the next five years, compared to 19.8 of those with similar earnings but no expected down payment assistance.
Among those earning less than $50,000, the prospects are notably worse, but those who expect down payment help still see a significant step up compared to those expecting no help. While help from family can make homeownership a more attainable goal, this option is available to a minority of millennials, with the largest benefits accruing to those earning the highest incomes.Link to Article
Another tour of one of the new models in PHR:
Kayla returned from Manhattan for the long Thanksgiving weekend, and we were talking about the sluggishness in New York City market, which has been going on for 2+ years. By now agents have learned that there’s no use fighting it – you have to learn to adapt.
It was in the year of her birth, 1991, when I experienced my first market slowdown. All I knew was that there wasn’t a buyer for miles, and with a newborn child, I need to hurry up and figure this out!
This is my third time around the block, so I offered her a few ideas.
First let’s acknowledge how it works in a seller’s market. Buyers find a house that is a good fit, and they buy it. Agents might offer up a strategy to get a discount, but for the most part, buyers pay the sellers’ price. It’s binary – it is yes or no, is this the right house? If it is, then pay the price.
Now it’s different, and if you can get a buyer to look at homes, their answer will be the same everywhere – ‘no’. Because they are looking for any reason not to buy – and every house has one – once they find it then it’s game over. But rather than just saying no to every house and never buying anything, let’s take it a step further.
At what price would you be a buyer?
Price will fix anything, and the price itself is usually the problem – it’s too high.
If the buyer would be interested at a lower price, then all you have to do is present a powerful case to the seller and listing agent to see if there is enough motivation to at least listen, and hopefully make a deal.
If you just make a lower offer without justification, I can already tell you what the answer will be: “No, and get off my lawn”.
To get something, you have to give a little. Here are ideas:
- Make an clean offer with quick close date. These work best on vacant properties where sellers might be eating an extra payment.
- Make an offer using older comps, and point out that the Case-Shiller pricing (or other) has retreated back where it was X months ago.
- Make an offer based on the cost of the needed improvements, and include contractor quotes when possible.
In all cases, include a photo of the family and pets, and an introduction that explains the offer. Usually the listing agent will just forward the explanation right to the sellers, so it’s a way to have influence over the outcome. Without an introduction and explanation, the listing agent has to justify the low price himself, and he won’t try too hard and risk looking bad.
We need price discovery!
The only way to find out what the seller might take is to put an offer on the table. It may seem risky to be among the first to take the plunge, but by April/May we should see more people finding a way to make a deal. Those will probably be with the sellers who have been trying to sell for 90+ days, and are tired of the process. Let’s give it a shot!
Home sellers and agents will conveniently write off today’s market sluggishness as typical year-end slowdown, and in 2019 they will simply do what they’ve always done – put a bloated list price on their real estate.
You can’t blame them – it’s their chance to win lottery-type money. If you got to name any price, you’d want more, not less, right? It is a common mistake to over-price a home though, and homebuyers need to beware.
But over-pricing has been around since the beginning, and is just a reflection of how motivated the sellers are – which in 2019 will be ‘not much’.
What are the additional challenges that will be with us in 2019?
A. The realtor industry favors the home-sellers. Realtors have a contract with the sellers, so no surprise that listings are the name of the game. But now that realtor teams dominate the landscape, the new and inexperienced agents are dispatched to represent the buyers – who won’t be too impressed with the lack of quality assistance offered on today’s market conditions. Buyers without proper guidance will be happy to stay on the fence, unless they find the perfect home, and then they will….
B. More Buyers Will Go Direct to Listing Agent. With fewer experienced agents being willing and able to represent the buyers, we’ll see single agency (disguised as dual agency) become more popular than ever. Consumers don’t really seem to care, as long as the deal gets done, and listing agents encourage the idea. Expect more blatant attempts to exploit the practice, like…..
Glenn first played the race card and tried to disguise his coming-soon plan as a ploy to reach all consumers, rich and poor (but was going to refer low-income people to outside agents). Now he is trying to force N.A.R. to insist on prominently displaying the listing agent on all websites, with a link back to their website. If passed, will be the final dagger in the buyers getting their own representation.
Here he attempts to sell the concept as fair and clear (start at bottom):
C. Coming Soon. The traditional brokerages are promoting their listings on their company websites before putting them on the MLS/open market, and you can’t blame them. Zillow and Redfin started it (see above), and now it’s a war.
But what are buyers going to do, monitor every real estate website? Yes, at least the ones that allow you to set up auto-notifications. If you see one you like, and you inquire with the listing office/agent – who do you get? The faceless internet agent who reps the seller but will process your order as long as it’s reasonable. It gets worse – there is one listing agent in north county who insists that you do a 30-minute, in-person consultation and then agree to see at least two of their listings before they will show you their coming-soon listing advertised on Zillow (and not in the MLS).
D. Sea Change in the Home-Selling Business. The market plateau will cause more desperation among realtors, and the disruption that everyone has been predicting will finally arrive – it will just look differently than people expected. Eliminating the traditional buyer agents will be uncomfortable, especially for older consumers who were used to having their own agent represent them in previous transactions. We should see fewer sales as a result.
E. Fewer Sales Means Fewer Comps. We had 10% fewer sales in 2018, which means fewer comps to help buyers easily reach a conclusion on values. Add in the built-in reluctance to trust the listing agent and we could have a downward spiral of fewer sales….which leads to even fewer comps. Stagnant City!
F. Creampuffs only. At these lofty prices and with fewer comps to justify exact values, nobody will want a fixer unless they can get a real deal. There should be a price gap of roughly 10% between the ‘puffs and the fixers in older neighborhoods, but will sellers agree? Will buyers be willing to pay +10% for a creampuff when they see a fixer down the street not selling, even when priced for less? They did in a frenzy, but now?
G. Prices Might Not Change Much. Buyers going directly to the listing agent won’t find much of an audience for lowball offers. Going direct only means you have an inside shot at buying the house at the sellers’ price, not that you’re going to get a deal – unless it’s been on the market for months.
H. No Help Anywhere in Sight. You won’t hear about any of these market changers in the mainstream media – instead, we will be pelted with reminders that homes are unaffordable and other doomy assumptions to explain fewer sales. Nobody will look beyond the usual excuses – instead, we’ll see more reflections back to previous cycles that have no relation.
Example: This guy compares the 1990s bust caused by the S&L crisis – but ignores that we bail out the banks now, so no bank bust is coming:Forbes article on 1990s bust
Conclusion: In 2019, potential home buyers will be hearing more doom talk and getting less help. They will see more listings at higher prices, and more escrows falling out. It will be natural for them to proceed cautiously, and be resigned to the fact that if they don’t buy this year, prices aren’t going up much so let’s be picky and wait it out – maybe another year or two!
Sellers might get miffed, but they will shrug it off and blame the market or their agent for no sale. Prices won’t be going down much (mostly because only the superior homes will be selling…and getting their price). Sellers will be picky and wait it out – maybe for another year or two!
In the meantime, the industry will be transitioning into single agency.
This talking-head guy was trying to create a ruckus about the new limit on SALT deductions being the cause of the real estate slowdown, but he backed into what will be the real effect.
Higher mortgage rates and the limit on SALT deductions might keep those who are money-conscious from moving up, which means fewer higher-end sales.
But fewer sales don’t automatically mean lower prices.
The affluent pay the price to get the home they want, and those not so fortunate lower their sights and buy a cheaper house (which is very unlikely if you’ve ever looked at million-dollar houses and then try to price-down and consider those in the $800,000 range).
These guys want to put labels on it like The New Normal, but home sellers will adapt the old normal – pay my price or close, because I’m not giving it away:
A year ago, I guessed our NSDCC sales would be down at least 5% in 2018, and it looks like it will be closer to -10%. While I’m confident that sellers will refuse to lower their price expectations much in 2019, I doubt that home buyers will just go along as they have in the recent past.
The disconnect will probably mean that the 2019 sales of detached-homes between La Jolla and Carlsbad will drop another 20%, which will change the landscape considerably from the robust sellers’ market we’ve enjoyed over the last nine years.
Homeowners waiting for the top of the market will move closer to the exits, and we will probably have 5% to 10% more listings early next year – with no let up in pricing. Potential homebuyers who are starved for quality guidance will be conservative and adopt the wait-and-see approach.
It guarantees a slow start to 2019, and a real standoff.
The worst part about the real estate industrial complex is that they provide no help whatsoever on how to deal with market conditions. They push Yunnie up to the microphone every month to report the latest sales counts, but that’s it.
Consumers and realtors are left to their own devices to figure out what to do.
Buyers will want somebody else go first.
Who will go first? With the rise in mortgage rates, we have already lost almost the entire move-up market. My rule-of-thumb is that if you want to stay in your same area, you have to spend 50% more than what your house is worth to make the move. In other words, if your house is worth a million, the houses you see listed for $1.1 or $1.2 million nearby aren’t enough of an upgrade – you only get, what, one more bedroom?
But if you bought that home for $800,000 with a mortgage rate of 3.5%, the thought of having to spend $1,500,000 with a 5% mortgage rate will send your head spinning:
Your home’s appreciation generated the bigger down payment, but you have to pay more than twice as much monthly, and it isn’t fully tax deductible either. How many people NEED to move that bad?
So if the move-up market is comatose, then who’s left?
Those who don’t own a house here yet – the first-timers and newcomers.
They are at a disadvantage from being new the area, and are probably somewhat unfamiliar to the game – so it’s likely that they will be conservative. But the 2019 market will be entirely dependent upon them paying what the sellers want, or close.
I doubt we’re going to see fewer listings next year, so if there are 5% to 10% more listings – all with optimistic prices – and buyers are waiting to see what happens, there will be many more for-sale signs around. That alone will cause buyers to pause.
Only the vastly-superior homes will be selling, and everyone will struggle to get the price gap right between the creampuffs and dogs. The fixers will need heavy discounts, but thankfully, there is a floor. I’ve probably taken 100 inquiries on my Brava listing – the flipper/investor action is still strong, though they are slightly more conservative about next year too.
Realtors could provide the solutions, but will they?
Here are the typical responses to taking a higher-priced listing:
SELLERS: “Let’s add a little mustard to my list price.”
TOP AGENT: “The market is soft, and virtually all active listings are priced above what the market will bear. An attractive price will help to set us apart, and our expertise will help to clinch the sale in a timely fashion.”
REGULAR AGENT: “Let’s try the value range pricing!”
NEW AGENT: “What the heck, we can always lower the price later!”
Will the home sellers be sufficiently motivated to price their home sharply? For those who have been waiting for the top of the market, the answer is no. They are only selling if they can get their price – especially if they plan to move up in the same area.
We’re headed for a showdown – who will blink first?
There will be a healthy market for for the well-location remodeled homes, but the rest will sit a while before they figure it out – and many will not.
Annual sales dropping 20%?
We’ve been here before, and survived it. We will survive this round too – we don’t have the shock of a market driven by no-qual loans all of a sudden shifting to qualifying-only, like we did in 2008:
Where will prices go? It will be a very soft landing, because without foreclosures and short sales, there won’t be desperate sellers dumping on price – they will wait it out instead.
Heck, they’ve waited this long, what’s a couple more years?
It will be case-by-case though. There will be a few great deals, some retail sales, and a lot of standing around. Welcome to Stagnant City!
Get Good Help!
Corelogic reported September sales yesterday, and Doom-Doom Diana rejoiced.
She wrote an article with the headline ‘Southern California suffers its worst housing slump in over a decade’, and reported that sales were down 18%. Then she tweeted the article with the same soundbite (above).
But further down in her own article was this gem:
“There was one caveat to last month’s sharp annual sales decline — this September had one less business day for recording transactions. Adjusting for that, the year-over-year decline would be about 13 percent, still the largest in four years.”
Even though she knew it was really only the worst in four years, she pushed the worst-in-decade angle. Rather than commit to honest reporting, she would rather distort the truth in order to attract the maximum eyeballs.
What’s really happening?
It is natural for homebuyers to tap the brakes when rates and prices are going up at the same time. It’s not because they don’t want to buy. It because they wonder if prices will come down, and they don’t want to pay too much.
The result? Sales naturally go down.
I’m glad to see that buyers are paying close attention – they should!
People are moving fast and are addicted to soundbites. We been trained to live in a binary world, and just want to hear if the market is going up or down, like with stocks and bonds.
I’d rather get into the minutiae and ramble on about all the variables. But realistically, who is going to listen when Doom-Doom Diana will give you a sexy hot take in one sentence?
The other tenet that determines the housing market is the seller’s mantra: “I don’t have to move, I have plenty of time, and I’m not going to give it away!”
Sellers get a vote.
If they aren’t going to sell for less, then we roll into Stagnant City. In the past, banks had to sell for what the market would bear, and they would lead the market down as they scrambled to get out.
But banks aren’t required to foreclose any more.
Which leaves us with the question: Which seller has to sell for whatever the market will bear today, even if it is substantially below their perceived value?
The answer is ‘None’. Today’s home sellers might knock off a couple of bucks, but they’re not going to give it away.
So let’s determine a way to gauge the market in an easy binary way, and measure the most important tenet – are sellers capitulating?
Sellers always want more than the last sale nearby. Here is a simple way to follow the trend to see if sellers are getting what the last guy got – the month-over-month changes in the Case-Shiller Index:
Recently, sellers have been getting about what the last guy got, or a little more. But if we see a series of negative numbers over the next few months, we know that buyers are winning.
Sellers have loads of equity – more than ever – so you would think they wouldn’t mind giving some of it back to make a deal. But homes are personal, and the ego is a funny thing. It would take a full panic for sellers to capitulate.
For those who work in Sorrento Valley and always wanted the convenience of living close – but Carmel Valley was always more than you wanted to spend – then you may want to consider my new listing!
Sought-after Summerset Court home conveniently located on the edge of Sorrento Valley where you can walk/bike to Qualcomm and Green Flash Brewery! Remodeled kitchen with quartz counters and new appliances, open floorplan, vaulted ceilings, and dual-pane windows/doors. Garage has epoxy floor and storage cabinets too, and no Mello-Roos! Bring your lawnmower for the extra-large grass backyard in a VERY quiet neighborhood overlooking the canyon – great value!
List price is $649,000. Zestimate is $694,235!
Open house 12-3pm Saturday and Sunday August 25 & 26.
Should buyers wait a while to see what happens to the housing market?
Are we just seeing the usual end-of-selling-season malaise when where all of the motivated sellers have succeeded, and just the OPTs are stacking up?
Or has the market shifted…..for good? Is this the peak?
I think it depends on your needs:
- Only buying a premium property – then stay in the hunt. In the last downturn, the prices of the premium properties held up well – most had less than a 10% decline in value, and that’s before people started hoarding real estate (not selling for any reason).
- Only buying a single story – then stay in the hunt. The one-story market is red-hot, with demand far out-stripping supply, especially in the newer-home or view categories.
- Willing to buy a fixer – be patient. Buy when you see the appropriate gap of 5% to 10% between the creampuffs and the ones that bark at traffic. If the home is in original condition, the gap should be larger.
- Only want to steal a property – very unlikely in the near-term. Sellers aren’t that motivated, and only a small minority might consider selling for less than 5% of list.
We should be in a stagnant state for months, as everyone waits to see what happens next spring. But I think buyers will be similarly picky then too.
We’ll see the same or similar psychology take over the whole country at the same time – which is the way it always happens. What needs to adjust is the sellers’ trend to expect more than what the last guy got.
Here is a discussion guided by our friend and realtor Tom Stone about the market in Sonoma County (follow the link) – and check the comment section too, where Tom mentions the solution. Hat tip Eddie89!Link to Full Article on Wolf Street