A blog reader asks:
I wanted to get your thoughts on pricing. As you mentioned we are up 17%, though wages are not increasing. Low rates, foreign buyers, and lack of inventory (whether artificially created or organic) are keeping things afloat.
Do you see any kind of resistance to pricing increases with low rates and low inventory? The CV median price is probably in the 9’s for probably around 3k sq ft. At what point do people say, “wait a sec this is just too expensive”? What is the foreseeable ceiling, if any, do you see?
I posted the +17% story to show the realtor propaganda being pushed on people. The realtor association isn’t lying to you, they are just too lazy to dig any further, or publish an explanation. Yet these soundbites are influencing the common perceptions.
The reality?
There is a 10% range of pricing for all neighborhoods, depending on location and condition. Today’s buyers recognize how slushy prices can be, and are diligent about comparing the benefits of the subject property to the comparables – far more diligent than agents or sellers.
The buyer discipline should keep prices range-bound in a community like Carmel Valley, where it is easier to compare apples and apples.
Here is an example.
There are three different Carmel Valley neighborhoods that have a 3,708sf plan. The locations and conditions of each home can be dramatically different (some are on canyons), but to simulate a same-house-sales comparison, let’s review the recent history:
2009 – $1,025,000, $1,220,000, $1,250,000, $1,325,000, and $1,380,000.
2010 – $1,050,000, $1,059,000, $1,100,000, $1,125,000, $1,200,000, and $1,265,000.
2011 – $1,000,000, $1,068,000, $1,217,500, and $1,250,000.
2012 – $970,000, and $1,100,000.
Even though the SD Case-Shiller has risen 8.5% since the trough in May, 2009, would you pay $1.3-something for a 3,708sf model today, unless it was on a canyon and had all the trimmings?
There are exceptions, but they are usually those that are decked out. Here’s an example:
The house we saw on Reedley was highly upgraded by a remodeling firm who used it for a showcase that ultimately was featured in Luxe Magazine. It is 3,502sf at the end of a cul-de-sac, and closed for $1,450,000:
http://www.sdlookup.com/MLS-120048842-4738_Reedley_Terrace_San_Diego_CA_92130
But the same model across the street has been struggling to sell since 2010, listed at $1,449,000:
http://www.sdlookup.com/MLS-120060301-4745_Reedley_Terrace_San_Diego_CA_92130
You might see an occasional high sale, but buyers are determined to stay within reason. I think we will stay in today’s range, and while it’s not a hard ceiling, there are several things to keep prices under control in the higher-end areas like Carmel Valley:
1. Buyers have more tools than ever to monitor pricing.
2. Buyers believe that mortgage rates will stay low for 1-2 years.
3. Buyers hope for shadow inventory to appear.
4. Buyers have waited this long, they aren’t going to overpay now.
5. Buyers are more suspicious of realtors than ever.
6. Pardee’s new developments are going to control everything for the next two years.
There are probably a majority of the ‘people’ who have said, “wait a sec this is just too expensive”, but either they stay on the sidelines or adjust their vision, because there is no shortage of Carmel Valley buyers today. I expect CV prices to bounce around today’s ranges for the foreseeable future, as long as rates are in the 3s and 4s.
The soundbite version:
Carmel Valley, 92130 detached-home sales for Oct/Nov:
2011 = 60 sales
2012 = 78 sales (+30%)
2011 = $314/sf
2012 = $325/sf (+3.5%)
2011 = $862,500 median sales price
2012 = $875,250 median sales price (+1.5%)
Even though sales are scorching and rates are at all-time lows, CV buyers are being very disciplined. But it is easier for buyers to stay rangebound when comparing such similar tract houses.
Look at 92130 chart in right-hand column too >>>>
Some DataQuick factoids on the November 2012 housing market. For six Southern California counties, here are some interesting findings:
Moveup homes in the $300-800,000 range rose 34.6% in sales year over year, while starter homes below $200,000 fell 18.7% year over year.
Sales of homes foreclosed over the last 12 months accounted for 15.3% of all sales, down from 16.3% in October and 31.6% in November 2011.
Short-sales – homes sold for less than their mortgage balance – made up 26.6 percent of resales in November, down from 27.6% in October and up from 25.4% in November 2011.
Jumbo loans above $417,000, the previous conforming limit, accounted for 21 percent of November purchases, up from 20.7% in October and 14.6% in November 2011. The peak usage was close to 40% in August 2007.
Mortgages broke down as 5.7% for adjustable rate loans, the rest fixed-rate loans. Of all loans approved, 15.9% were FHA-insured loans.
Absentee buyers, mostly investors and second-home buyers, bought 28.3% of homes in November, compared with 28.4% in October and 25.1% in November 2011. Of these buyers, 54% paid all cash.
All-cash buyers accounted for a near-record 33% of buyers in November, up from 32.8% in October and 29.8% in November 2011. They paid a median $263,000 in November, up 27.1% from a year ago. Of these, 62% were absentee buyers.
The rate of flipping – the sale of the same home twice in a six-month period – stood at 6.2% in November, up from 6.1 percent in October and 3.7% in November 2011.
The typical mortgage payment for November buyers was $1,146, up from $1,115 in October and $1,049 in November 2011. Adjusted for inflation, the typical payment was 51.7 percent below the charge in the spring of 1989, the peak of the prior real estate cycle. It was 60.4% below the current cycle peak in July 2007.
I really follow the “typical mortgage payment” number. Invaluable for general trends.
Anyway, either rates stay low OR prices fall so those of us casually shopping feel no real impetus to hurry. As to inventory my opinion is that there are many years worth of normal sales backlogged. they won’t be fire sale prices but there are six years worth of 55-65 year olds who would have sold 2006 to 2012 who are going from “able to sell” to “need to sell.”
Summary, “range bound” by disciplined buyers and sellers sounds spot on.
P.S. still considering “The Bet v2.”
Buyers will appear to be disciplined after they factor in the HOAs+MR fees.
In CV, you can expect to be anywhere in the $400 – $800 range (higher?) when you factor in both HOA’s and MR. In Carlsbad, HOA’s + MR can be in the $250 – $400. Aviara tacks on another fee, The Master fee…or whatever it is called…that I think is another $80 – $100.
Therefore, my point is that those extra fees combined is a lot of extra purchasing power in a very low rate environment.
For the record, I do not invest in properties that carry maintenance/service fees or Mello-Roos. There are a few instances of $75-$200/yr nuisance “Homeowner’s Association dues” but I don’t count those.
That is just personal preference not economic advice. All one need do is include dues/fees/assessments in the “net present value.” NPV is a powerful tool to evaluate the economics of a purchase. Still, if you are going to live there it takes a back seat to affordable and meets your needs.