How much inventory is too much?
We’ve had 12% more NSDCC listings this year than in the first nine months of 2012, and stoked by ultra-low rates, the extra inventory helped build sales momentum. Comparing the nine-month totals, sales increased 10% this year, and average pricing is up 15%.
If there is an increase in inventory next year, will it help, or hurt? Depends on price – will sellers put a reasonable price on them?
What do buyers consider to be ‘reasonable’?
Lately, buyers want to pay about what the last guy paid:
| NSDCC | |||
| 31-60 Days Ago | |||
| 0-30 Days Ago | |||
| Today’s Pendings |
This sentiment should continue, because buyers don’t mind paying what the last guy paid. Any 2014 seller who is willing to take what the last guy got, should have no trouble selling – and we should see brisk activity on those.
The sellers who don’t ‘need’ to move and have been waiting to get max money won’t be able to resist tacking on that extra 10%. But today’s buyers are staying in line with recent sales, and if that commitment continues, it could lead to a standoff and possibly a glut of unsold homes.
What could cause buyers to ignore the comps next year?
If mortgage rates slip back into the 3%s, the frenzy might pick up again. Today you can get a conforming loan at 4% with one point – so we are close.
I have vastly under-estimated how much buyers are willing to pay this year, and the disconnect from the comps. Sellers have benefitted this year, because buyers are just paying whatever it takes to get a house.
Will it continue? It could, so take my zero-appreciation talk with a grain of salt.
Last October we weren’t even sniffing $400/sf yet, and now look where we are. Could we just be passing through $475/sf too? Maybe, and adding one percent per month is still 12% per year!
We could be experiencing an off-season breather, and appreciation could take off again next year. Sellers will be forcing the issue, can buyers restrain themselves? If rates are in the 3s, it will be easier for buyers to justify paying more.
Do you have data on what the difference was between list price and sales price?
This would seem to be a forward looking indicator.
Also, I wonder if using median sales price is a better measure than $/sf. Because from here forward we are going to have some move-up buyers and they’ll be going for bigger homes which have lower $/sf but higher sales prices.
Meant looking back further on the SP/LP.
Arpil and May were 98% SP:LP, but the other months this year were all 96% or 97%. The high-enders skew it though.
Here are the SP:LP and number of NSDCC sales per month UNDER $1,000,000:
Jan – 98%, 114
Feb – 99%, 111
Mar – 99%, 193
Apr – 99%, 161
May – 99%, 204
Jun – 99%, 161
Jul – 99%, 165
Aug – 98%, 184
Sep – 98%, 117
The combo of 98% and 117 sales for September are probably signaling more slowdown coming. But to be hitting that high on the SP:LP has to mean that plenty are selling over list price.
Random note – there are probably 2,000 realtors working in this market.
Jim,
For the list price half of the equation, is it based on the original list price or the LP at time of sale (if reduced)? And what LP is used for properties with range pricing?
I agree that if rates are in the 3’s it is very easy to justify adding a little mustard and getting a deal done. I am also wondering if the use of ARMS and/or IO financing that seems to have come back into play is/will juice the market.
I thought of that about the same time you did – I will have to check on the range pricing, but those will probably skew everything and render the metric useless.
All are figured on the LP at the time of sale.
You will also see some agents lower their list price to the sales price so they can boast about how great they are on pricing.
Not so fast on assuming a slowdown just because there were only 117 sold under a million last month.
It might be due to the under-$1M going extinct. More sold over than under in September:
OVER-$1,000,000 SP:LP and Sales, Sept 2013
Jan: 93%, 71
Feb: 96%, 79
Mar: 95%, 108
Apr: 96%, 141
May: 96%, 162
Jun: 96%, 172
Jul: 96%, 133
Aug: 96%, 172
Sep: 95%, 144
@DaCounselor
“I agree that if rates are in the 3?s it is very easy to justify adding a little mustard and getting a deal done.”
If the buyer is in it for the long haul (10+ years), then the difference between 4.5% and 3.5% is negligible with regard to adding mustard.
” I am also wondering if the use of ARMS and/or IO financing that seems to have come back into play is/will juice the market.”
The second loans (i.e. ARMs) are back in flavor again and are most likely responsible for the frenzy lasting a little longer than it should have this year. However, these 2nd loan options are being offered to only the most credit worthy….for now.
Jim –
Curious to see your thoughts about long term trends in the SD market, especially factoring the constraints on Gen Y buyers. Looking at Carlsbad, Encinitas, really all of North County the cheapest starter homes seem to be north of 500k, which would require an annual income of what 150k +? I am 30 making almost just under 6 figures but think I am in the minority within my age group. California still has a net migration out of the state, and most of the current home owners seem to be baby-boomers. Absent the federal reserve and foreign buyers, how can SD prices possibly maintain in the long term?
I think the deck is getting re-shuffled. Carlsbad and even Encinitas used to be a place where 30 year olds could buy starter homes. Those days are quickly vanishing and wont return. In another 10 years the concept of a 30 year old buying a starter home in Encinitas will be as far fetched as buying one in Newport Beach or La Jolla. Get used to it. With rates as low as they are 2014 is gonna be another boom year. I think 10% is in the bag. If I was a buyer I would do my best to get into escrow before Christmas. Spring is gonna be a blood bath for buyers this year.
Just curious, are you a realtor, or normal person? I believe you aren’t a realtor, correct?
Absent the federal reserve and foreign buyers, how can SD prices possibly maintain in the long term?
I think it has gotten to the point where real estate is for rich people only, and there seems to be enough rich people that all boats keep floating – at least for now.
One key ingredient is that those that got in recently aren’t leaving – they have bought for the long-term, which is going to keep inventory low.
We had about ten years’ worth of boom (1997-2007) with lots of move-ups and mom-and-pop investing. But NSDCC prices have already gotten so high that investors aren’t interested in buying for rentals, and move-ups are tough to finance, plus you have to buy so much higher price-wise to make it worth it, that moving is prohibitive.
The buyer pool is loaded with Qualcomm and bio-tech employees, and rich retirees. My buyers have typically been renters or out-of-towners, with very few move-uppers.
We sold a $1.75M house to a first-time buyer!
I will have to stand by my feeling that lower rates = stronger likelihood to add mustard, long haul purchaser or not. A drop from 4.5% to 3.5% will drop a payment on $800K by about $600/month – and you can borrow about $100K more at the lower rate with the same payment – so here comes the mustard.
Regarding starter homes, I believe in this era they are called condos and townhomes and can be had in the price range mentioned above. Starter SFRs (3/2, 1500 sq. ft) are not much more are they? Another byproduct of the modern era is the predominance of the dual income household, you are competing with them for properties.
Most NSDCC RE is obtained by those with means. It was an area that was pretty much off the radar for a long time but no more. Not only is there much local interest but also regional, national and international interest in the area. Very desireable = lots of competition. Hard to see values not trending up over the long run.
I am in agreement with Mozart and Karlsgood. Coastal Carlsbad and Encinitas are now for Richie Richs only. These are becoming more and more like Coastal Orange County. First Time buyers should probably look into San Elijo Hills, before its too late.
Besides Qualcomm + BioTech + Rich Retirees + Foreigners… we have one more “developing” class of buyers in North County. Folks who like to work for Silicon Valley Corporations but rather live in San Diego area. Not sure how many of those you ran into, but I do know few in my circles. Count has been snowballing in the recent years.
And just imagine how that will be once they add a few feet to Carlsbad airport so they can have non-stops to San Jose and SFO? As pricey as people think north county is getting, apples to apples, it is still half price when compared to prime housing areas in SV.
Sorry to disappoint but just a humble educator. Probably been in NC longer than most having lived here since the mid 80’s. Have done very well buying and selling real estate over the years. One thing that constantly impreses me is the calibur of agents in this marketplace. Yeah, I’ve seen tons of crazy, incompetent ones but I have also run into dozens of bright, ethical and extremely competent agents. I think we are truly blessed to have so many around here present company included.
I agree with the posters that said prices will continue to go up in Encinitas etc. Something similar happened in Irvine in recent 5 years. A quiet suburban community became “hot” with the move up set and prices quadrupled since 2000 in quick order. As other areas becomes unlivable (pick your reason, I am not going into details some of which may generate controversy) , the few remaining “good ” areas become de facto islands that attract even more and more demand . Just witness the steep drop off in price as one crosses from Irvine into Tustin.
The whole foods in Encinitas was a game changer and signaled (a leading indicator of ) meaningful gentrification in the years to come — price appreciation will follow.
Thanks Karlsgood, and I agree. There are many competent agents in the area, and I wish we heard more from them – here or elsewhere.
I bought a house in Waters End in Carlsbad (92011) in May 2012. A very nicely upgraded model match in a poorer location in the development just closed for $120,000 more than I paid 16 months ago, about a 16% increase. Unbelievable. Plus, it sold at the first open house.