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:


But the same model across the street has been struggling to sell since 2010, listed at $1,449,000:


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.

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