The local Case-Shiller Index slowed its ascent in October, but you won’t see many current homeowners complaining about a 19.72% increase for the last 12 months:
The U.S. housing market could be in the early stages of yet another bubble, warned Robert Shiller, co-founder of the Case-Shiller index.
“In the housing market, it has its own momentum right now as people see it coming back. We’re sort of in the beginnings of another housing bubble,” the Nobel Prize-winning economist told CNBC.
Compared to a year earlier, prices were up 13.6 percent, beating expectations of 13 percent and marking the strongest gain since February 2006, when the increase was 13.8 percent.
Housing prices have been rising since early 2012, and a rebound in the sector has helped the U.S. recovery gain steam.
But the more subdued monthly gains “show we are living on borrowed time and the boom is fading,” David Blitzer, chairman of the index committee at S&P Dow Jones Indices, said in a statement.
“The key economic question facing housing is the Fed’s future course to scale back quantitative easing and how this will affect mortgage rates,” he said.
“We have a futures market that’s predicting the increase won’t stop until after 2018 so we still have time to go, but it might be weaker,” said Shiller.
“Things are changing fundamentally, and it seems people are less excited about big homes,” said Shiller, referring to housing trends. “The financial crisis kind of put a damper on that enthusiasm, especially big homes far away from the city center. There’s this new urbanism afloat. Housing is not one thing. It’s not monolithic. I think there might be a trend toward more urban living.”
Back on October 22nd, I said that I thought we’d be seeing zero appreciation in 2014, mostly due to overly optimistic sellers rushing to market with their over-priced turkeys. The resulting glut, combined with rising rates, would cause buyers to cool off, and regain some negotiating power.
I’ve been looking for supporting evidence since – but can’t find any!
Instead, there is mounting evidence pointing to the contrary – that the local real estate market in 2014 will be set ablaze again in the coming weeks.
Here are the reasons:
1. Rose Bowl Parade – There will be 70 million people watching the Rose Parade on Wednesday, so let’s consider the predicted high temperatures around the country for January 1, 2014:
DesMoines, Iowa: 14 degrees
Chicago, Illinois: 25 degrees
New York City: 33 degrees
San Diego, CA: 68 degrees
Pasadena, CA: 76 degrees
Usually it is cold for the parade, but this year’s heat wave should cause millions to jump in their car and move to California – and pay whatever it takes to stay.
2. The Chargers pulled off one of the all-time miracles in NFL history, which must mean fate is on their side. Traveling to Cincinnati, Denver, and New England is nothing we can’t handle, and then boom, we’re in the Super Bowl, where it will probably be snowing. But with Dennis Gibson cheering from the sidelines, the Bolts come through again – all while TV cameras are showing bikinis on the beaches back home – boosting homebuyer demand from more snowbirds.
3. Higher prices aren’t bringing more sellers to market….yet. The feared glut of inventory has yet to materialize, and what’s worse is the count of new listings for November-December is 19% lower this year than in 2012. Even if the first two points above don’t matter much, the inventory count will determine our fate, and so far it looks like our low inventory is continuing.
4. Higher rates aren’t mattering much. The buyer pool has been too rich with cash to let mortgage rates get in the way. Yellen has said that she will keep rates low, so if we top out around 5%, buyers should keep buying.
5. Thin trading skews the numbers. With the banks sticking with their no-foreclosure policy, there is no pressure on over-encumbered sellers to keep waiting it out. Even those who have positive-but-thin equity will be more tempted to let it ride another year, hoping to doube or triple their winnings. Inventory, and sales, could drop further.
6. Prices can keep going up as sales fall. NSDCC detached-home sales should be about 7% fewer this year than in 2012, which reminds me of the 2003-2004 change. Sales in 2004 dropped 8% from 2003, and plunged another 13% in 2005 Y-O-Y, even though prices kept going up through 2005.
7. Buyers appear more fearful of rising prices than anything. The last few months has seen buyers scrambling to lock up anything they can get their hands on, and it appears to trump all concerns. For a house not to be selling, it has to have soemthing really wrong with it – looks at Richard’s La Costa listing. He has five offers, and it’s going to sell for at least full price.
Someone told me last week that any buyer who listened to me about being cautious in 2013 is now 20% behind in pricing, and is still fighting heavy competition. With relatively-low rates virtually guaranteed for 2-3 years, it appears to be a solid bull market locally.
Push back my zero-appreciation to 2015, because I think we’re going to see another +10% in NSDCC prices in 2014.
There have been 145 new listings inputted this month, 171 that have gone pending, and 178 that expired, cancelled, or withdrew. It leaves us with 703 active listings (there is some overlap below in the active-listings counts due to the value-range pricing), of which 81% are priced over $1,000,000:
North SD County’s Coastal Region (La Jolla-to-Carlsbad)
The UNDER-$800,000 Market:
NSDCC Active Listings
The $800,000 – $1,400,000 Market:
NSDCC Active Listings
The $1,400,000 – $2,400,000 Market:
NSDCC Active Listings
The OVER-$2,400,000 Market:
NSDCC Active Listings
New listings and new pendings should start picking up this week – last year there were 2.4x as many new listings in January as December:
Housing foreclosure authorities LoanSafe.org and YouWalkAway.com have created a new website to help people re-enter the housing market after having been through a previous foreclosure. The website is called AfterForeclosure.com and helps those most affected by the housing crisis take charge of their financial future and own their own home again.
Price reductions should be done in smaller increments until offers start coming in – or if you do a big dump, the agent should be suited up and ready to conduct an effective bidding process. P.S. The agent has since raised the price on this one to $649,000:
There are areas where you can sell your house today for the most money ever – higher than the last peak. Yet look how few sellers have been hitting the market lately:
The frenzy that erupted at the end of 2012 was boosted by ultra-low rates, but the lack of inventory drove buyers – and prices – crazy too.
There are still a few days left in 2013 to pad the total, but if this dry spell continues into 2014, we could see prices jump…again. It would be a somewhat artificial bump too, because with low volume you can’t come to solid, reliable conclusions.
But that hasn’t stopped buyers recently – we’ll see if they dig in, or cut loose!
Our Christmas-dinner conversation last night included a few thoughts about real estate, and reflecting back on the frenzy conditions in spring.
The Frenzy of 2013 was slowed somewhat by higher rates & prices. But it doesn’t mean it won’t kick up again – because it could.
Buyers have a lot of woulda, coulda, shouldas about not getting in when rates and prices were lower, but enough time has passed. All they can do now is look forward and decide if each listing is worth buying at today’s price and rate, or keep waiting.
How the early market develops will depend on how reasonably the new listings are priced. If they are within reason, they might get gobbled up and some sales momentum could start building again.
It looks like sellers have been fairly reasonable lately.
Here are the NSDCC detached-homes listed between December 1-20, and sales closed in the same period:
LP Avg $/sf
SP Avg $/sf
Despite the 29% increase in the average sold pricing, there were more closed than listed, which feels like a seller’s market.
Consider that the number of new listings were fewer than last year, and they were priced within 7% of last year’s group (the ones that helped ignite the frenzy), and it looks like the stage is set for a fast start to 2014.
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