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.
Good points. I’ve seen many listings withdrawn, so I wonder whether these seller will re-list in the coming weeks or if they were frustrated and opted to rent out these properties. Thoughts? In November, the median home price for resale detached homes in 92009 dropped from $790k to $730k month-over-month, according to DataQuick. Any idea what happened? Thanks. Terry
the line on the Chargers making the superbowl is 18 – 1. I’ll take that bet every day of the week. The AFC if horrifically weak and no one was expecting to play the Chargers.
The open houses that I held this weekend brought out about 120 people. There were neighbors looking, investors hoping for an opportunity to make a profit after the first of the year and capitalize on the low inventory, but the majority of visits were from buyers that have had their eye on a prize for at least a few months. Many had made offers. Some lost out to investors, some have lost out to better financed offers, some didn’t move on offers because the home needed a little to much work. My listing has plenty of things for a buyer to be scared of, but the price was attractive enough for some lucky buyers to step up, take on the challenge, throw fear aside and get out of the game and on with their lives. Their sight is set on the future that they are going to build with their family in this house. If they have qualified with their lender they know what their payment will be in 30 days and the price they are paying won’t matter once escrow is closed. One thing they won’t need to worry about is paying more next month when another home in the same neighborhood hits the market.
Happy New Years eve Jim and followers here at the bubbler. Have some bubbly tonight and enjoy this incredible run of “winter” weather we are enjoying. Our real estate market seems to be running hand in hand with the weather. Just when you think in can’t get any better as a home owner, it does!
I too should raise my prediction from 7.2% but I’d like to keep my wager on those Padres world series tickets. Happy New Year!
San Diego, Sonoma, Ventura… all prove that you don’t have to sell the median home to the median buyer. You just need one buyer. And yes, the Rose Parade will uncover some of those buyers.
Pretty much the only way NE gets to the Superbowl is if SD beats Denver at home. Tall order but I’ll be cheering up until that point.
Predictions, interest rates will drop to ~4% by mid-year. Rising rents will attract retail investment. Home builders will get off their butts, planning offices will be inundated.
Correction on #6 above – I checked again today and 2013 sales just passed 2012’s number of sales, which probably adds more fuel to why prices can continue upward.
Last year’s 2013 predictions on price:
Gary Shilling: -8%
Mark Hanson: -7%
Barry Ritholtz: -5%
Diana Olick: +5% to +7%
Jim the Realtor: +6%
NSDCC detached-sales avg $/sf:
2012: $378/sf
2013: $437/sf
+16%
NSDCC detached-sales avg $/sf, 4th quarter:
4Q12: $401/sf
4Q13: $485/sf
+21%
Momentum is upward, and with virtually no pressure on sellers to dump on price, they will hold out.
Happy New Year!
My thoughts – With the recent and pending layoffs from the Vista Equity moves (Omnitracs, Websense, Active), and usual downsizing from HP, Sony, and others, I suspect the market will be soft thru the spring.
My bet is a soft spring and hot summer.
To keep the predictions all in one place:
Rob Dawg said +8%, almost all in the first half of the year.
From Dataquick:
San Diego median price in December:
2012: $366,000
2013: $420,000
Fannie Mae forecast calls for 6.2% annual home price increase in 2014, 4.8% gain in 2015