The last time the market took off, it was for different reasons (easy money, shorter-term thinking, and more move-ups), but the market psychology should be similar this time around – because buyer exhaustion is inevitable.
Here is how it looked then – during the first part of 2003 you could feel the market bubbling up, and by summer it was evident in the closings.
From June, 2003 to May, 2004, average pricing rose from $331/sf to $469/sf, which is a 42% increase:
Here’s the SD Case-Shiller graph, which reports three months late and documents the whole county, which lagged behind the coast:
Case-Shiller Home Price Index: San Diego, CA data by YCharts
The big difference this time is that while it feels like a frenzy with prices increasing, the overall stats are far more moderate than last time. Comparing last July’s $366/sf to last month’s average of $420/sf, the increase is 15%:
This frenzy is focused on the quality properties, which apparently doesn’t float all the boats higher this time (or at least not as high), and the fraud is keeping a damper on the statistical increases too.
If a frenzy can stay red hot for about a year, then we should be wrapping up this version shortly – probably in the next couple of months. Future pricing trends should fall more in line with the averages (sub-10% annually), with an occasional outburst.
Jim, if the frenzy isn’t lifting all boats then I don’t think the buyers are that desparate yet like they were back in 2004. To lift the inferior properties buyers will have to realize what they want is out of their league and start compromising. Do you see signs of that happening?
Agreed, and this must be the most orderly frenzy of all time.
Last time the threat of being priced out forever seemed real for people, and it made them crazy. For most realtors, it was their only closing pitch.
After losing a bidding war now, buyers are disappointed but shrug it off and try not to overpay the next time too. They’d rather wait, than settle for inferior.
Buyers are much more knowledgeable now about values, and market movements that they aren’t getting buffaloed by fear tactics or mis-information.
Jim, here in Western Sonoma County quality makes a huge difference. Buyers are much more informed and if you overprice even a nice home it will sit. !7400 Willow creek in occidental closed in 10 days for $1.25MM, all cash.There were 3 all cash offers in the first two days on the market. 8790 Sonoma Highway in Kenwood has been on and off the market for almost 5 years. And despite the fact that the current asking price of $1.595MM is a good one, it’s staler than last weeks popcorn and hasn’t sold ( It started at $2.799MM). 152 Bloomfield rd is another property that listed too high, they are asking $1.595MM and it should be $1.3-$1.35MM.It will end up bringing $100K less than it would have if properly priced. These are all very nice properties and examples of how important listing at the right price is.
Another datapoint…Just came back from a presentation by Bruce Norris. I basically walked away with 2 things:
1. California has historically had buy > rent almost always. Today in many areas buy is cheaper than rent.
2. Rent vs buy is still a no brainer today
Bruce is still very bullish on price growth. His recommendation buy and hold.
With that said, Im wondering if we are experiencing a temporary buyers fatigue in some areas. A resting spot before the large price gains.
In Carmel Valley, I’ve seen some very premium Lexington’s go for a high price ($1.9m) but they were on extremely large view lots. Afterwards, it seemed like anyone with a Lexington or Derby Hill priced their home at simply ridiculous prices ($2 million or more!) and now I seem these homes sitting unsold on the MLS. Excluding the few extraordinary homes, other CV homes seemed to have increased in price maybe $100-$150k in the past 2 years, but I don’t see prices going up the $300k that sellers have priced into them (versus prices from 2 years ago). And the more homes that sit on the market, the lower their prices will be.
“They’d rather wait, than settle for inferior”
This is a little surprising since prices are clearly heading higher. What does waiting buy you in an increasing market? I guess they could wait to find a “special deal” but that seems a little like a seller holding out for that “special buyer”.
@Pemeliza … I see your point. From buyer’s perspective, it is very important to figure out “What is the COST of waiting ?” At mid-range, it’s probably about $25,000 per year in Rent, and at High End it’s probably around $45,000 in rent every year.
But then again, as potential buyers we all want the “Panoramic Ocean Views from our cul-de-sec house in a quiet and high-end neighborhood of NSDCC” … and we all want that for under One Million.
May be I will burn another 50k in rent this year to find that elusive property, which will be visible only to me when it comes on MLS … and I will be able to negotiate $100K less on the listing price … sure I can Dream On. In the mean time, in the real world out there, my ass was royally handed over to me (once again) today, as my “fairly priced” $1M+ offer on Heron circle was rejected in favor of a “non-analytical type” $1.5M.