Something price could fix…..
California pending home sales downshift for third straight month in March
LOS ANGELES – Even with a strong performance in March closed escrow sales, a shortage of available homes and robust price growth that’s eating away at affordability stifled pending home sales for the third straight month, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) said today.
Following seasonal factors, REALTORS® responding to C.A.R.’s March Market Pulse Survey saw elevated market activity, with an increase in floor calls, presentations, and open house traffic for the third month in a row.
Pending home sales data:
• Based on signed contracts, statewide pending home sales decreased for the third straight month in March on a seasonally adjusted basis, with the Pending Home Sales Index (PHSI)* declining 4.5 percent from 112.5 in March 2016 to 107.4 in March 2017. On a monthly basis, California pending home sales dipped 2.9 percent from the February index of 110.6.
• March’s pending sales decline is the greatest so far this year, portending sales activity in the usually busy spring homebuying season will be dampened, primarily due to demand outstripping the supply of active listings, which was 12 percent lower than in March a year ago.
• At the regional level, Southern California remains the bright spot in the state, which led both in closed escrow sales in March and the smallest decrease (-1.3 percent) in March non-seasonally adjusted pending sales. In fact, Los Angeles and Riverside counties were the only two areas of Southern California that saw an increase in pending sales from a year ago, at 1.6 percent and 3.1 percent, respectively. Pending sales fell 3.6 percent from March 2016 in Orange County, 5.6 percent in San Diego County, and 8.0 percent in San Bernardino County.
http://www.car.org/aboutus/mediacenter/newsreleases/2017releases/mar2017pendingsales
Isn’t that stat meaningless without knowing the # of listing? Wouldn’t increase in inventory + increase in average DOM be more telling?
I know it’s the California Association of Realtors, which has been around for more than 100 years, but they still publicize any change in the median sales price as “Home Values go Up or Down”. Don’t expect much.
I don’t think anyone that is knowledgeable about the current macroeconomic environment would be buying right now. So the only buyers left in the pool are uninformed (IMHO). So naturally with less people in the pool, less pending sales. That’s usually the first shoe to drop. We get a few rate increases and some geopolitical action and voila! And everyone will say they didn’t see it coming. Not a crash this time but I’d bet 20-30% down from here with 2 years.
Tom – We’re talking NSDCC, right?
I’ll take that bet, but first I’ll lay out why I’m so confident.
Last time around we had desperate sellers and others strung out on neg-am loans that were told they’d never survive if they didn’t dump their house. But in spite of a full-blown mortgage crisis, values around NSDCC didn’t decline more than 20%.
Kamala has since outlawed foreclosure in California, and made it policy that lenders give a loan-mod to those in trouble.
Every home buyer since has has to qualify for their mortgage, and 30% paid cash. If 50% of them lost their job, they would exhaust savings before selling – I’m guessing that will take more than 2 years.
But the reluctance by sellers to lower their expectations is the ace up my sleeve. We will be Stagnant City for years before elective sellers voluntarily take a 20% to 30% haircut.
All of your analysis is reasonable but I’m counting on the event that the market never sees coming until it’s too late.
A lot of homes this time around have been bought up by investors (at the bottom as smart money tends to do). When alternative investments become more attractive (there’s no place to put money right now), the next wave of sellers won’t be forced sellers but those that want to reallocate.
And although I know this is a weak argument my gut says there’s just not that many dual income households making $200k to buy a starter home in SB.
Lastly, I know you’ve addressed this but I think baby boomers will start selling (and will soon draw down their stock portfolios as a requirement by law – forced minimum distributions). I don’t believe the housing market will hold up when the eventual stock market storm comes. But I don’t think it’ll be a crash – hence the 20-30%. But I do think it’ll be years in the making and years of stagnant city after that. But that cracker box in DM for $2 million will be $1.5 (and will still look expensive compared to anywhere else).
Is Tom in Sonoma?
Tom – The investment properties have been able to stand on their own due to the high and rising rents – any additional equity that builds up is icing on the cake. Investors cringe at the thought of paying taxes, and if Trump somehow gets his back-of-napkin tax ‘plan’ to pass by tinkering with the 1031 exchange, we’ll never see another rental property sell.
I am surprised we haven’t seen more baby boomers take the money and run, and we could definitely see occasional pockets where 5-10 downsizers bail out the same season/year and have the swollen supply suck down everyone’s equity nearby. But thaty would be way different than today’s onesy-twosy.
I regularly see sellers who can walk with $700,000 and say no, and instead they demand $710,000. For the market to turn around so abruptly that they are willing to dump 20% to 30% below today’s comps would take a mind-numbing unforeseen event that caused sheer panic. But I guess it could happen – earthquake, terrorists storm the border from Mexico, the N. Korean nut-job finally gets a missile to launch, meteor strike, aliens arrive – there could be events.
But everyone has to live somewhere, and if something radical were to happen, I think they would be more likely to hunker down than move to Idaho. If it was something crazy would buyers buy at any price? Probably not – it would just freeze up.
Tom,
I have been making this prediction every year for the last 5 years, and got my behind handed over to me every time.
Ground level fact is that a dual income family making $200k CAN NOT afford and should NOT be looking to buy the starter home in Costal Southern California. There are plenty of places in-land from San Marcos, Vista, Escondido to Temecula and beyond to buy the starter home, where it is affordable.
Coastal land is limited and is almost all built out. Prices in Coastal cities would always be high till the the time people like Ocean Breezes and beautiful sunsets over Pacific.
In my opinion only, we are in the last great hurrah of Cali RE. Jim cites factors that will mitigate a housing downturn but not prevent it. How many buyers qualified with two incomes? Lots! When one of those jobs goes away in the next downturn..they’ll be lining up for loan mods. Banks can’t float everybody. People have short memories but many will just want out. Those that bought at the top will hate paying on a underwater asset, and those whose equity and small downpayments evaporated will walk away like last time. If cap gains rate gets lowered the rotation out of housing will be enabled even without 1031s. Rental RE is like a dividend paying stock…the rent/divi is nice but no pro investor wants to leave big coin on the table. No Chinese money will be flowing due to capital restrictions to ride in to catch the falling knife. Again in my opinion only, fast forward 20-30 years and rising seas take out tens of thousands of water front residences in coastal California. That will the black swan to trump all RE black swans. Just speculating on one of many likely scenarios.
That’s a little doomy, Ken!
This boom is being fueled by cash that otherwise is sitting in account at <1% interest. Down payments of 25% to 50% are the norm, and the last crisis proved that just because your home's value went down doesn't mean people will panic and sell. Why? Because they have to live somewhere, and they bought for the long-haul.
By pro investor you mean Blackstone or these guys? They aren’t going to panic sell unless the bottom drops out of the rents. Mom-and-pop investors are long-termers too, and like the monthly cash flow. The heavy tax when you sell will keep them holding, instead of selling.
“many likely scenarios”?? Feel free to give us your list!
If you ask me, the biggest threat are baby-boomer liquidations upon death. The kids are more likely to need the money, and they panic sell all the time. Those signs you see on freeway off-ramps? The ones who offer all-cash in a week? Those look very tempting to a group of siblings who have been waiting for years to cash in on this free money.
This company is offering a big-corporate version of quick cash, and they are off to a good start. If they and/or others are successful with peddling the quick/convenient sale, there could be momentary dips in value but they and all flippers are professional resellers. Though if you see them starting to take some hits, it could be a precursor to trouble. But all I see is flippers making six-figures on every deal.
I have been making this prediction every year for the last 5 years, and got my behind handed over to me every time.
I feel ya!
Ken,
The ice is already back up to where it was when mentioned in Scott and Shackletons logs 100 years ago. Climate change is real and the world is getting colder.
I keep thinking about Ken’s many scenarios. What else could tip us over?
Our government needs to be more effective in producing a positive outcome. Read last paragraph:
https://mishtalk.com/2017/04/30/economic-reality-bottom-50-of-americans-no-longer-matter/#more-45600
We’ll be fine in 20-30 years – Kayla will be in charge!
The low rates and cash investors distorted the market to where we are now. We are 30% above the where the 100 year average would normally have us. Bad policies will come back to bite us. Dollar could crash, interest rates could go way up, stock market could crash, government could admit they can’t pay the debt, just to name a few.
http://wolfstreet.com/2017/05/01/are-american-debt-slaves-getting-in-trouble-again/
Enjoying the commentary from all points of view!
In my opinion, economics tells us only a few things that appear certain besides death and taxes.
-trees don’t grow to the sky
-all markets are cyclical by nature
-cyclical markets function on “greater fool theory” and fear/greed paradoxes
-housing is a necessity, but 500K+ prices are aspirational in nature for most
With the above in mind, my questions are :
-when?
-possible catalysts?
-how deep?
In my opinion one rule applies for sure:
– it never happens the same way twice
Ha! Love it!
And probably extremely accurate to how it actually came about! 🙂
Hello Ty Webb, and thanks for contributing!
I’ve seen an occasional piece by the wolfstreet guy – isn’t he a doomer? If there are people overloaded with consumer debt that own their house, I’d encourage them to sell it – I have buyers waiting!
My fear is that they are part of those being left behind – those who rent and work for the Man. Unfortunately they won’t have any impact on our real estate market unless they do own a house. If so, they can leverage it further and kick the can down the road.
Government debt? Boy, do we have the right guy in the saddle. Trump is the King of Bankruptcy, and I’m guessing that before he is done, he will be using it as a weapon. If China steps out of line, he’ll do a big number on the treasuries they are holding so nicely for us.
And as W.C Varones said so eloquently, it’ll be a Big Number 2!
With the above in mind, my questions are :
-when?
-possible catalysts?
-how deep?
1. When you least expect it!
2. We’ve covered the usual – earthquake, terrorist, etc. but let’s look at others. Change in government? Trump sure is that, but he may have heightened the real estate anxiety! If local government had a big turnaround and made it easier on builders, it could theoretically impact the resale market but we’re out of land. It would need to be a game-changer, like sub-dividing Camp Pendleton or a floating city (which should be an option).
3. How deep? Rich people would have to get disgusted with the thought of home ownership. Even if there are pockets of baby boomer liquidations, rich people are the market-makers and they have been glad to soak them up so far. It would take riots in the streets to change it, which are possible. How deep? Maybe a 10% to 20% dip in prices, which would only bring out more pent-up demand.