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Different This Time

In last Saturday’s blog post, I mentioned three reasons why San Diego real estate was undervalued, and pondered that there are new market forces in play that we haven’t seen before.

While people will scoff at the idea that it could be different this time and insist that the market will always revert to the mean, there are new factors to consider that will have impact on the eventual outcome:

LESS SUPPLY

No foreclosures

Ultra-low rates locking in homeowners to their forever home.

Boomers are older than ever, and are aging-in-place (too old to move).

Holding real estate has never been so sexy.

Longest expected length of ownership ever.

MORE DEMAND

Population is more affluent than ever (SD County has 100,000+ millionaires, fifth in USA).

Work From Home has expanded the choices for buyers, increasing the demand in desirable areas.

Hoarding real estate is cool (high rents, kids to inherit).

Current homeowners have more equity than ever to use when buying again.

There are more people than ever in the homebuying ages.

We probably only needed supply OR demand to change by 5% or 10% to make a difference. But it seems like BOTH have changed more than that….in opposite directions, which has really stirred it up.

It used to be that when home prices were hitting new highs, sellers would come out of the woodwork to take advantage. But not this time – which is different!

Long-Time Frenzy

The frenzy conditions have been building for years – see this old blog post from 2017 (above).

We were discussing it all through the second half of last year that the 2021 Frenzy was going to be huge, and the signs were so obvious that even Ray Charles could see them!

But the foundation of people buying their forever home with a low-rate mortgage has been on-going since the last crisis bottomed out in 2009.

San Diego really should enjoy frenzy conditions longer than most areas – maybe longer than any area!

Interestingly, a check of our buyers, and buyers of our listings over the last 18 months shows that about 80% of them were local residents. We’ve had people move here from the Bay Area, Chicago, and NYC, but for the most part it has been move-uppers and move-downers.  Results may vary!

Open-House Crossroads

With the California Department of Public Health allowing open houses now, it would seem that we are getting back to normal.  The industry has done open houses for 100 years, so taking a few months off shouldn’t inhibit the practice from coming back.

Or will it?  It will.

Why? Because the covid-frenzy has condensed the selling process into a weekend. We only show homes by appointment now, and many listing agents demand that buyers show proof of ability to purchase just to see the home. It makes for a clean and tidy 5-30 qualified appointments over the first couple of days on the market, and then pick a winner. Job over.

Listing agents will resist having to work any harder. Instead, they will adopt the appointment-only plan, and then convince sellers that they don’t want random people wandering around their house.

What are the benefits of open houses? Why would we want them to come back?

REASONS TO HAVE OPEN HOUSES

The main reason to do open houses is to create real or imagined urgency – the fear of missing out.  There is nothing better to motivate a buyer than to see other competitors roaming around the house at the same time – it makes them think that they will lose out if they don’t act promptly.  Sellers deserve this benefit.

While demanding to show proof of ability-to-buy sounds good, it eliminates those legitimate buyers who do have the ability to purchase, but don’t want to show their financials just to see a house. We want to include these buyers who are currently shut out from the process. I know there will be agents who will scoff and declare that any buyer who is unwilling to show their underwear just to see a house isn’t a serious buyer anyway. But it’s just an excuse – the minute the frenzy is over, you’ll be back to showing homes to anyone with a pulse.

Interacting with buyers in person helps agents keep their chops up.

C.A.R. will be releasing more open-house guidance tomorrow. They will insist on booties and masks, and they might include a modified registration book where attendees state that they don’t have covid.

But don’t be surprised if agents are slow to adopt the old-fashioned open house techniques.

Open Houses Are Back

C.A.R. Communications. Leading the way.

The California Dept. of Public Health has just updated its guidance on open houses, and further updates are pending. The following is now on live on the COVID-19.ca.gov website. C.A.R. will be providing more details regarding this guidance so that REALTORS® are in full compliance, but the following is the information currently on the California State official website:

Shown properties, like open houses – effective immediately

In-person showings of properties, like open houses, are permitted and must follow the indoor gatherings capacity limits in the CDPH gatherings guidance. Check the Attendance section of the gatherings guidance for the capacity limits for each tier.

Open houses will be excellent for transparency and frenzy intel – just how heavy is the demand?

Frenzy Monitor

To gauge the frenzy intensity, let’s monitor the number of active and pending listings per area.

If the count of unsold homes starts to rise, we will know that pricing is becoming an issue.

NSDCC Actives and Pendings

Town or Area
Zip Code
Actives/Pendings, Feb 2nd
Actives/Pendings, May 12th
Cardiff
92007
11/16
9/12
Carlsbad NW
92008
17/19
19/30
Carlsbad SE
92009
9/38
19/60
Carlsbad NE
92010
1/12
5/13
Carlsbad SW
92011
2/17
8/16
Carmel Valley
92130
26/43
20/65
Del Mar
92014
43/13
34/26
Encinitas
92024
39/45
33/54
La Jolla
92037
101/46
82/40
RSF
92067
96/35
83/54
RSF
92091
3/7
Solana Beach
92075
11/10
6/9
NSDCC
All Above
356/294
321/386

We have 10% fewer active listings today than we had in the first week of February?

Yikes!

I’ll keep running this chart through the summer to help track the frenzy.

Low-Inventory Conditions to Persist

I already guessed that the runaway frenzy will start to temper in June. Here are reasons:

  1. Some of the craziest demand has been satisfied.
  2. Other buyers will take a break and go on vacation.
  3. Overly-optimistic pricing by some sellers.
  4. It’s been red-hot for 10-12 months.
  5. Newsom says the state will be 100% open by June 15.

Covid-19 has been blamed for why many potential sellers have delayed their plans to sell. But now that the pandemic is wrapping up and sellers have had a +20% gift of appeciation dropped in their lap, you’d think they would be flooding the streets with inventory.

But there’s no flood yet.  In May, 2019 we had 502 NSDCC homes come to market, but so far this month we’ve only had 119 new listings.

Could more inventory be coming?

Prop 19 was heralded as the solution to get seniors moving again – but we’re still waiting.  They should stop discriminating against younger people and let everyone take their old property-tax basis with them to their next home.

Owners of investment properties should be expediting their plans to trade for newer/better homes before they change the 1031 rules. This article says that investors will still be able to defer taxes on the first $500,000 profit, but Uncle Joe wants to tax the rest.  Americans hate the idea of paying taxes, so they will just keep their old property, rather than selling – which means less inventory.

Any potential seller who wants to stay local doesn’t see many homes that would make it worth the hassle of moving. Sure, selling their home sounds great, but we’re to the point where you need to leave town to really cash in – but who wants to do that?

Sellers have the most ideal market conditions of all-time to sell their home, yet they are holding back.

If we do see a slowdown this summer, it won’t be because of a flood of inventory.  It will be due to prices having gone completely bonkers – price will fix anything!

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