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Remote Work Caused 1/2 Of Price Surge

There are many who insist that real estate will follow its historical trend, and I like to say ‘it’s different now’ just to irritate them.

What are the things that are different?

Every buyer has had to qualify for their mortgage and use a sizable down payment, the vast majority have been buying their forever home (even if they didn’t know it at the time), and homeowners at the coast will likely be paying six figures in capital-gains taxes if they sell – which means that they need to leave San Diego to really make it worth moving.  As a result, the number of people who are willing to sell has plummeted, which has kept the pressure on pricing.

The demand is different too. Back in the old days, it used to be loosely tied to incomes, but that flew out the window decades ago around here. The influx of affluent people has helped, but there is also a big difference that these researchers have explored – working from home:

It’s no secret that Americans’ newfound remote work lifestyles drove demand for larger homes with more comfortable workspaces.

What’s new: That demand may be responsible for more than half of the surge in real estate prices during the pandemic, according to a working paper published by the National Bureau of Economic Research.

  • It’s one of the first papers that aims to quantify how remote work reshaped the housing market.

Why it matters: If the research holds up, it signals a fundamental shift in the housing market — that it wasn’t just low-interest rates and fiscal stimulus that drove up housing prices.

By the numbers: It found that remote work led to about 15 percentage points of the 24% average increase in house prices between December 2019 and November 2021.

Details: The paper’s authors are John A. Mondragon, an economist at the Federal Reserve Bank of San Francisco, and Johannes Wieland, of the University of California, San Diego’s economics department.

  • The researchers found that after controlling for COVID migration, regions with the highest rates of remote work experienced much higher home price growth during the period.
  • They also observed a similar effect on residential rents — along with declines in commercial rents — in these areas.

What they’re saying: This implies a shift in demand, as many pandemic homebuyers and renters sought to upgrade to larger, and more expensive homes to support their telework lifestyles, said Mondragon.

The bottom line: Policymakers like those at the Fed would be wise to pay close attention to the evolution of remote work because it will help determine the future of home prices — and of overall inflation, the economists wrote.

https://www.nber.org/papers/w30041

Inventory Watch – Happy 4th!

This should be about it.

If there hasn’t been a surge of inventory by now, it’s not coming – at least not this year.

There might be some nice action over the next couple of weeks as buyers try to land a deal before school starts, but there won’t be big discounts – they will have to pay the price.

It will probably be the same in 2023 too.

How do I know?

Ask any potential, or actual, home sellers around the coast:

“You already have to pay six figures in capital-gains taxes when selling your home (and if they are selling a home they have owned since the 1970s or 1980s, it could be $500,000 to $1,000,000 in taxes).

“How do you feel about lowering your price by $100,000 or $200,000 too?”

“How do you feel about losing that much money?”

Their answer will tell you everything about the future of our market – they’re not going to give it away!

It’s been the craziest six months of real estate ever! Expect it to get downright boring from here.

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Harry Gesner, RIP

Hat tip to Rob Dawg for sending in the news that one of the most engaging architects of our time has passed away at age 97.  Harry lacked formal architecture training, but that didn’t stop him from designing 100+ houses.  My favorite is the Sandcastle (above), the house he built himself from reclaimed woods and other parts found at the junkyard. He lived there for the second half of his life, and he used to sit up in the tower to do his designing!

A couple of links to view his work:

https://www.pinterest.com/domester/harry-gesner-architect/

https://www.instagram.com/explore/tags/harrygesner/

Here are quick interview questions plus a Vimeo film linked at the bottom with clips of the Sandcastle interior (at the 9:15-min mark) and his 1958 Mercedes Benz 190SL that he converted to electric power:

Modernism’s Maverick: A Conversation with Harry Gesner

Fewer Are Moving

These are excerpts from Scott G’s newsletter yesterday:

The most recent migration headlines concern Silicon Valley. The narrative: It sucks and everyone is leaving. Venture capitalists who built their fortunes in the Valley say they’re “over” it. The Bay Area is “crashing” and has become “unhinged” with wokeness. “San Francisco is Detroit and Miami is the future,” claimed a recent VC transplant. Elon Musk relocated Tesla from California to Texas, saying California state laws were “fascist.” Newspapers across the country report on a “tech exodus,” with quotes and anecdotes from aggrieved tech workers. California’s dead. (So is New York.) Tech’s moving to Texas and Florida, and the money will follow.

We’ve been to this movie before — it’s called bullshit. In 2005, Silicon Valley was losing its edge and hemorrhaging jobs. In 2009 it was shrinking, on the brink of death. In 2010 it was on the brink of death again. In 2012 the Golden Age of the Valley was over. In 2014, San Francisco was declared the next Detroit. However, the next Detroit has HQs within a 15 mile radius whose combined market caps rival the GDP of Germany and Japan combined. I know, apples/oranges … both are fruit. You get the idea.

Ninety-seven percent of startups stayed in the Bay Area in 2020. Of the 1.2% that moved, a fifth went somewhere else in California, and another fifth went to New York. The Valley still dominates the startup scene. Last year firms domiciled in the Bay Area received over a third of total U.S. venture capital funding. Austin and Miami received 1.5% and 1.4%, respectively — less than Seattle, Philadelphia, or D.C. I don’t believe a city can sustain a robust technology sector unless it has a world-class engineering school (e.g., Berkeley, Stanford, etc.). Also, declining quality of life and overwhelmed infrastructure is an apt descriptor of … Miami. And Miami’s population actually declined in 2021.

The tech exodus narrative is a distraction. The real domestic migration trend is…..less migration. Specifically, people aren’t moving. In 1948 roughly a fifth of Americans changed residences. That number has been steadily declining since. During the pandemic, we read opinion pieces about everyone quitting their job and moving to Maine. There was a feeling that migration habits were changing; in reality the song remains (increasingly) the same. In 2021, only 8.4% of Americans moved — an all-time low.

It’s been happening for several decades, though nobody can figure out why. An aging population and a younger cohort described as the “complacent generation” are factors, but there must be more. Lack of portable health care and a decline in the lifestyle once sought in the West could also be explainers. My theory is that, like everything else, mobility has become a luxury item costs can only be borne by college grads (who are themselves increasingly anchored by student loan debt).

The problem isn’t that a tech Karen is leaving the Bay Area, it’s that not enough people are leaving any area. “Remote Work” should be called “Work from Home” as it’s decreasingly remote, just at home. Six in 10 people who move stay within their county; eight in 10 stay in-state.

The Squeeze on Buyer-Agents

We are witnessing the demise of buyer-agents.

The squeeze is coming from several directions, and all are rooted in the fact that there isn’t enough business to go around. Thankfully, half of the realtors are of retirement age, and will drift away naturally.

The pending class-action lawsuits will likely de-couple the commissions, and sellers won’t be paying a bounty to buyer-agents like they have since the beginning of time. Agents who can justify their value and services can always contract with buyers, and we’ll see where that goes. But it won’t go very far.

There are also forces within the industry that are deliberately putting the squeeze on.  Opendoor has developed a nice little package of exclusive listings presented to buyers at a 2% savings if they don’t mind just placing their order online:

https://datadoor.io/articles/game-of-homes-opendoor-exclusives

Because the people who put this together have never been realtors, it never occurs to them that paying a buyer’s agent has value. Homebuyers who get good help are going to feel more comfortable paying more the home, and conversely, with no help, they will want to pay less to compensate.

Is the tease of a 2% discount enough? We will see.  But it’s another example of the pressure to squeeze out the buyer-agents, and Opendoor thinks they are passing the savings along to the buyers.  But does any seller want to have buyers floating around, hoping to figure out the buying details on their own and cope with buyer’s remorse? No! It’s why the I-Pay-One companies never last because they don’t get it – buyers need and want help.

Instead, what has developed during a raging seller’s market is the thought that eliminating buyer-agents is a good thing.  The message is clear – we don’t respect what you do, we don’t think we need you, and we don’t care what you think about it.

Redfin has no respect either.

On homes that they own – and can pay any rate – they are down to 1.75%:

They are giving buyer-agents the double middle-finger salute, and they don’t care what you think about it. Another option would be for them to pay a healthy commission and earn some respect for themselves, but that doesn’t occur to them either.

It would be worth it to champion the value that buyer-agents bring to the table, but nobody appears interested in that angle.  Instead, they think the cost-cutting somehow justifies it, without considering – if it results in buyers paying less, then did you get anywhere?

Attractive Pricing Works

I mentioned the strategy we employed on Avenida Sierra.

After a low-priced new listing came on the market at $1,350,000 the day before we were going to launch, we lowered our list price from $1,595,000 to $1,395,000 to ensure that we were as attractive as any of the six competing listings (four of which had hit the market in the previous week).

Because the $1,350,000 was only seven doors up the street, we had to go head-to-head. You can’t just shrug it off – if we would have launched at $1,595,000, all we would have done is help them sell!

How did it turn out?

We received multiple offers, and I ran our sales price up to $1,550,000!

It is easier to go up on price, than down!

We are the only listing that has been marked pending too:

I raised the list price to reflect the sales price, and send a message to others that more is possible!

June Listings and Sales, Preliminary

We knew at the beginning of June that we wouldn’t get to 200 sales, just by the number of pendings:

NSDCC June Listings and Sales

Year
# of Listings
# of Sales
L/S
2015
527
340
1.55
2016
513
312
1.64
2017
416
360
1.56
2018
476
299
1.59
2019
435
282
1.54
2020
448
274
1.64
2021
386
357
1.08
2022
301
170
1.77

Our precipitous drop in the number of listings has to be considered when examining the current market conditions – and not only are there fewer listings than ever, but the quality of the homes coming to market is on the lower end. People are hanging on to the best homes!

After rates and prices have doubled, if you are going to buy a home now, you want to hold out for a good one! Yet we have fewer quality choices than ever before.

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