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Big Money Moving In

NEW YORK, July 29 (Reuters) – Beset by COVID-19 and its fallout, local landlords are offloading their properties to cash-rich institutional investors, and America’s real-estate market may never be the same.

Before the pandemic, boyhood friends Michael Murano and Richard Tyson owned 96 rental units in their hometown of Rochester, New York. They offered accommodation to low-income tenants, many in the service industry, from rooming houses to single-family starter homes.

Today, they’re well on their way to liquidating the entire portfolio. Two-thirds of the units are already gone. The buyers? Large investors with all-cash offers.

“It broke my heart to sell 15 single-family homes to just one, out-of-state big corporate investor,” said Tyson, a 38-year-old U.S. Navy veteran.

“The last thing we need is to be exporting wealth out of this community, and limiting wealth creation here. But I knew we had to get the hell out of affordable housing – fast – because this was going to be a tidal wave coming at us.”

Many of America’s landlords have gone a year and a half without being paid by tenants, who’ve been protected by several state and local eviction moratoria as well as an umbrella federal ban enacted 11 months ago.

The owners have been waiting for $46 billion to help them survive without that income. The funds were approved by Congress months ago, but bureaucracy creaks; only $3 billion has reached them so far, according to U.S. Treasury Department data.

Now the eviction ban is about to end – on Saturday. Yet thousands of local landlords have already quit the business. And a growing number, like Tyson and Murano, are on their way out.

Taking their place: institutional investors, broadly defined in the industry as firms owning more than 1,000 units.

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NSDCC July Sales, Preliminary

It’s looking more normal every day, though by the time the last sale is recorded, this month’s total should be around 300 sales (though the median SP will say about the same at +29% YoY):

NSDCC (La Jolla to Carlsbad) July Sales

Year
Number of Detached-Home Sales
Median Sales Price
Median DOM
2016
273
$1,100,000
45
2017
260
$1,243,250
19
2018
271
$1,280,000
27
2019
281
$1,300,000
22
2020
351
$1,423,350
17
2021
272
$1,840,000
11

A civilian said to me yesterday, “You just wait until the eviction moratorium is over, and prices start dropping right back down!” Sales would need to drop to zero before the vast majority of sellers will consider making any significant concessions on price. You might see an occasional sale under comps, but there will be a reason – inferior location, bad condition, etc.

I’ll keep this photo handy!

Frenzy Monitor

The total number of pendings have been rapidly descending with frenzy-escrows closing out.  But new listings should taper off from now on, so we’ll see which drops faster:

NSDCC Actives and Pendings

Town/Area
Zip
Feb 2nd
May 12
May 26
Jun 9
Jun 23
Jul 14
Jul 28
Cardiff
92007
11/16
9/12
10/11
8/14
10/11
14/7
14/6
Carlsbad NW
92008
17/19
19/30
19/23
20/24
21/23
18/24
23/19
Carlsbad SE
92009
9/38
19/60
13/57
19/49
21/44
27/42
29/29
Carlsbad NE
92010
1/12
5/13
6/13
8/14
7/15
8/19
7/13
Carlsbad SW
92011
2/17
8/16
4/17
4/19
11/16
12/24
6/24
Carmel Vly
92130
26/43
20/65
23/63
23/65
30/65
27/60
31/48
Del Mar
92014
43/13
34/26
34/26
32/20
37/19
42/12
36/21
Encinitas
92024
39/45
33/54
32/56
33/61
36/65
42/50
43/53
La Jolla
92037
101/46
82/40
87/47
88/48
88/41
89/38
84/47
RSF
92067
96/35
83/54
72/53
80/38
79/42
72/42
66/45
RSF
92091
3/7
1/6
3/6
1/3
1/2
1/3
Solana Bch
92075
11/10
6/9
7/8
12/6
14/10
17/12
17/7
NSDCC
All
356/294
321/386
308/380
330/364
355/354
369/332
357/315

In the previous FM, I said that the March-May period had to be the hottest of all-time, but we had 400+ pendings from June 22nd to November 30th last year – with a peak of 491 pendings on September 7th.

We can also track the average market times too.  Any upward trends here would indicate market slowing:

There is slowing of market times in all price ranges but averages of large sample sizes don’t move quickly.

Sharp Dressed Man, RIP

We lost Dusty Hill today, bass player of ZZ Top. He was 72 years old.  I had the Tres Hombres 8-track blaring through the desert sky back in the 70s, and I saw them play at Feyline Fields in Tempe around 1976 when they headlined a 5-band, day-long bash.  So this is my ZZ, with Dusty on co-lead-vocals:

Coastal North Sales

Another reflection on the current state of the local market.

While it feels a little softer and active-inventory counts have risen (though still well below previous years), the demand has been voracious, and it would need to cool off dramatically before any panic sets in.

There have been 100+ higher-end sales in EACH of the last three months, when, prior to the pandemic, we never had more than 48 in a month!

The number of sales is a leading indicator. Let’s keep an eye on them!

San Diego Case-Shiller Index, May

Phoenix edged us out again for the top spot in May, but the San Diego CSI went up 12.4% between February and May, which looks like a record for four months of appreciation – and at these prices!

San Diego Non-Seasonally-Adjusted CSI changes

Observation Month
SD CSI
M-o-M chg
Y-o-Y chg
Jan ’20
264.04
+0.2%
+5.1%
Feb
265.34
+0.5%
+4.6%
Mar
269.63
+1.6%
+5.2%
Apr
272.48
+1.1%
+5.8%
May
273.51
+0.4%
+5.2%
June
274.91
+0.5%
+5.0%
July
278.00
+1.1%
+5.4%
Aug
283.06
+1.8%
+7.6%
Sep
288.11
+1.8%
+9.4%
Oct
292.85
+1.6%
+11.5%
Nov
295.64
+1.0%
+12.3%
Dec
297.52
+0.6%
+13.0%
Jan ’21
301.72
+1.4%
+14.3%
Feb
310.62
+2.9%
+17.1%
Mar
320.81
+3.3%
+19.1%
Apr
331.47
+3.3%
+21.6%
May
341.05
+2.9%
+24.7%

“Housing price growth set a record for the second consecutive month in May 2021,” says Craig J. Lazzara, Managing Director and Global Head of Index Investment Strategy at S&P DJI. “The National Composite Index marked its twelfth consecutive month of accelerating prices with a 16.6% gain from year-ago levels, up from 14.8% in April. This acceleration is also reflected in the 10- and 20-City Composites (up 16.4% and 17.0%, respectively)”.

The market’s strength continues to be broadly-based: all 20 cities rose, and all 20 gained more in the 12 months ended in May than they had gained in the 12 months ended in April. Prices in 18 of our 20 cities now stand at all time highs, as do the National Composite and both the 10- and 20-City indices.

“A month ago, I described April’s performance as “truly extraordinary,” and this month I find myself running out of superlatives. The 16.6% gain is the highest reading in more than 30 years of S&P CoreLogic Case-Shiller data. As was the case last month, five cities – Charlotte, Cleveland, Dallas, Denver, and Seattle – joined the National Composite in recording their all-time highest 12-month gains. Price gains in all 20 cities were in the top quartile of historical performance; in 17 cities, price gains were in top decile”.

“We have previously suggested that the strength in the U.S. housing market is being driven in part by reaction to the COVID pandemic, as potential buyers move from urban apartments to suburban homes. May’s data continue to be consistent with this hypothesis. This demand surge may simply represent an acceleration of purchases that would have occurred anyway over the next several years. Alternatively, there may have been a secular change in locational preferences, leading to a permanent shift in the demand curve for housing. More time and data will be required to analyze this question”.

“Phoenix’s 25.9% increase led all cities for the 24th consecutive month, with San Diego (+24.7%) and Seattle (+23.4%) close behind. As was the case last month, prices were strongest in the West (+19.9%) and Southwest (+19.8%), but every region logged double-digit gains.”

Everything’s a Million

Ok, ok, the prices have gone nuts and you’re wondering what you can buy if you just go a little further out.

Here’s an estate-like property on a half acre in the rural area of Vista just outside of Shadowridge that’s still south of the 78 so it’s closer than you might think.

It’s a 3br/2.5ba, 2,630sf house on a half-acre with pool that listed for $1,099,000. Sounds reasonable, right?

It closed for $1,240,000 on July 7th.

Inventory Watch

Last week we saw the big dropoff in the Under-$1,000,000 range as the pricing of low-end homes between La Jolla and Carlsbad shot upward. Today there are four houses for sale under $1M.

Here is the $1,000,000 to $1,500,000 range:

On July 29, 2019, we had 192 active listings (avg. $494/sf) and 120 pending listings.

Last year at this time we had 122 active listings (avg. $544/sf) and 169 pendings.

Today we have 45 actives (avg. $693/sf) and 85 pendings.

The number of active listings has collapsed, dropping 77% in two years. No wonder the average cost-per-sf has increased 40% during the same period!

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