I was asked yesterday about the chances of the bubble bursting.
My answer was, “No chance”.
But these things run in cycles, and eventually won’t the market will cool off?
Yes…..some day…..and when it happens, our market will stagnate, rather than see prices decline. Sellers would need to be desperate to sell for less, and there are too many other alternatives and stop-gaps in place now to prevent desperation.
A. Reverse mortgages – The H.U.D. backed down the loan-to-value last week, but for anyone who is 62 or older, the reverse mortgage will be a viable – though costly – alternative to selling and moving.The average borrower at current interest rates will be able to borrow roughly 58% of the value of their home, down from 64%, and allows them to take the equity out of the house through lump-sum withdrawals, regular payments, or a line of credit. The loan does not need to be paid off until the borrower dies, sells the house, or moves.
What about the younger, working folks who don’t qualify for a reverse mortgage and could be impacted by the next recession?
B. The foreclosure rules have changed, and the banks would rather let you slide, than kick you to the curb. Don’t feel like making your payments for months or years? No problem, just send in what you can, and they will kick around your loan-mod application until things get better.
Want to sell quick?
C. Discount your price 20% to 30%, and a flipper will cash you out in a week. But that doesn’t tank prices, because the flipper will apply some lipstick and sell it for retail in the next 2-3 months, keeping the neighborhood values afloat. Could flippers get stuck with some dogs? Yes, but they are flush and full of ego – how many do you see already who just keep re-freshing their listing at the same price, and holding out for those six-figure gains? Plenty.
Don’t want to discount?
D. There are thousands of realtors who will take your listing at any price and hope for the best. This is how the market will go stagnant – and Rancho Santa Fe is the example, where today there are 213 houses for sale. They just wait for someone to come around and pay the seller’s price.
The best reason of all for why our housing market won’t burst are the high rents. If the next recession hits hard, and distressed homeowners think about cashing out, they need to leave town to make it worth it. If they want to stay in the same neighborhood, the rents are so high that it makes more sense to stay put. Remember how the layoffs at Qualcomm caused a big concern around Carmel Valley? Yet prices haven’t tanked – and the 92130 has 85 active listings and 61 pendings today.
Everyone who financed a purchase in the last few years had to qualify through strict guidelines, and, as a result, the affluent have ruled the market. They won’t get the jitters if the ride gets bumpy; no, they are in for the long haul.
The pricing triangle above demonstrates the importance of an attractive list price. These percentages are probably cut in half during the off-season, but there are still buyers – I’ve run into two bidding wars this week!
Instead of the seller trying to ‘win’ the negotiation with one buyer, they should price it so that demand for the home is maximized. In that way, the seller will not be fighting with a buyer over the price, but instead will have multiple buyers fighting with each other over the house.
Realtor.com, gives this advice:
“Aim to price your property at or just slightly below the going rate. Today’s buyers are highly informed, so if they sense they’re getting a deal, they’re likely to bid up a property that’s slightly underpriced, especially in areas with low inventory.”
Most homes have some sort of bonus room whether it be a basement, attic, extra space in the master suite, or maybe even that bedroom that’s a tad too small to fit a queen bed. The majority of people think about ripping a wall down and adding to that walk in closet – hey, I’m one of those people too! However, there are a few ideas that would work that wouldn’t be as costly!
If it’s near the kitchen, place a table for two and a plant and VIOLA! You have your own cafe!
2. Kids’ Playroom and/or Storage
Kids can never have enough things. If you have an actual room, this is a great place to have your kids play in! If you only have enough room for shelves, that works too! This would be a great place to not only store toys, but books, games, and even DVDs!
3. Bunk Beds
Let’s say your room is too tight for that queen or full bed – perfect time to install some bunk beds. Add some drawers underneath to ensure you see some floor plus keep it clutter free! Yes, this might only work for children but who would really pass up on a cozy place to sleep?
4. Home Office
I assume this one would apply to a lot of readers out there. When building a home office in a confined space, think about putting storage and shelving above your desk/computer rather than next to it on the ground. You can install a light fixture on the ceiling or wall to clear up room on your desk as well!
5. Guest Room
There are ways to trick the eye to make a small room seem much larger! The colors, the art, everything you do can make a room seem bigger or smaller. Here is another great article with creative ways to completely transform your bedroom!
We saw this happen in Bressi Ranch when Jenae and Company went on their 100% financing spree. Her victims weren’t deadbeats – instead, they had good credit scores and other assets, and they were just duped into the get-rich-quick scheme. When it didn’t pan out, they dumped everything.
The grim tale of America’s “subprime mortgage crisis” delivers one of those stinging moral slaps that Americans seem to favor in their histories. Poor people were reckless and stupid, banks got greedy. Layer in some Wall Street dark arts, and there you have it: a global financial crisis.
Dark arts notwithstanding, that’s not what really happened, though.
Mounting evidence suggests that the notion that the 2007 crash happened because people with shoddy credit borrowed to buy houses they couldn’t afford is just plain wrong. The latest comes in a new NBER working paper arguing that it was wealthy or middle-class house-flipping speculators who blew up the bubble to cataclysmic proportions, and then wrecked local housing markets when they defaulted en masse.
Analyzing a huge dataset of anonymous credit scores from Equifax, a credit reporting bureau, the economists—Stefania Albanesi of the University of Pittsburgh, the University of Geneva’s Giacomo De Giorgi, and Jaromir Nosal of Boston College—found that the biggest growth of mortgage debt during the housing boom came from those with credit scores in the middle and top of the credit score distribution—and that these borrowers accounted for a disproportionate share of defaults.
As for those with low credit scores—the “subprime” borrowers who supposedly caused the crisis—their borrowing stayed virtually constant throughout the boom. And while it’s true that these types of borrowers usually default at relatively higher rates, they didn’tafter the 2007 housing collapse. The lowest quartile in the credit score distribution accounted for 70% of foreclosures during the boom years, falling to just 35% during the crisis.
So why were relatively wealthier folks borrowing so much?
Recall that back then the mantra was that housing prices would keep rising forever. Since owning a home is one of the best ways to build wealth in America, most of those with sterling credit already did. Low rates encouraged some of them to parlay their credit pedigree and growing existing home value into mortgages for additional homes. Some of these were long-term purchases (e.g. vacation homes, homes held for rental income). But as a Federal Reserve Bank of New York report from 2011 reveals (pdf, p.26), an increasing share bought with the aim to “flip” the home a few months or years later for a tidy profit.
“Why are you selling your house?” might seem like a perfectly innocent question from home buyers, but watch out—if you’re the home seller they’re asking, this is one of the diciest questions you can answer.
The reason: Pretty much any explanation you give is bound to contain revealing info that these home buyers could use against you, thereby compromising your negotiating power.
So, what’s a bad answer?
Well, there are many, actually, like these doozies below.
‘I got transferred for my job’
This is one of the most common reasons why people sell their house. In fact, 17% of people surveyed by the moving company Allied Van Lines said they’ve been relocated for a job. Nonetheless, revealing this to home buyers could make them think that you’re desperate to sell fast and, in turn, lead them to make a lowball offer.
‘Our family needs a bigger house’
Trading up? Don’t relay that to home buyers. The reason is pretty simple: “You don’t want to give buyers the idea that the house may not be enough room for them, either,” says Crawford. Similarly…
‘Now that our children have left the nest, we’re ready to downsize’
Downsizing makes total sense for empty nesters and retirees, but likewise, you don’t want home buyers to think that your house is too large and difficult to maintain.
‘We need a smaller mortgage payment’
There are a couple of reasons why this response is a bad idea. First, you don’t want to give the impression that the house is too expensive or overpriced. Second, you don’t want home buyers to presume that your finances are in such poor shape that you’d accept a lowball offer. Put simply, “Never discuss your financial situation,” says Beckman.
‘We’ve already bought our next house’
If you want to fetch top dollar for your house, don’t divulge that you’ve already purchased your next home. “It makes the home buyer think that there’s a sense of urgency and that you have to sell quickly,” says Crawford—which is a valid assumption, considering that a lot of people can’t afford to carry two mortgages at once.
‘We want a quieter neighborhood’
Steer clear of saying anything that could paint the neighborhood in a negative light. Even saying that the area is quiet could backfire. “You don’t know what a home buyer wants,” says Beckman. For instance, some people are drawn to areas with a hopping night life (and the noise that entails), or at least a place where the streets aren’t barren by 8 p.m.
‘We need to move closer to our parents to help care for them’
Many people move to be closer to family—and in some cases, it’s out of necessity. However, there’s no need to share that information with home buyers, since this suggests you have to sell your home pronto.
‘My back problems make it too difficult for me to climb the stairs’
A number of home sellers move out of two- or three-story houses for health reasons. However, you don’t want to draw attention to the fact that there are a lot of stairs throughout the home, since it could scare off older home buyers or home buyers with young children.
‘Our utility bills are through the roof’
Energy-efficient home features are all the rage nowadays, which makes sense when you consider that home owners spend on average $1,945 a year on their energy bills. But some home buyers still overlook utility costs when they go house hunting. So, the very last thing you want to do is draw attention to the fact that your gas or electric bills are expensive.
‘The house is too difficult for us to maintain’
No one wants to buy a money pit. So, even if you’re selling a clear fixer-upper, don’t mention maintenance costs to a home buyer. Also avoid talking about repairs that you just never got around to making, like repairing the bathtub caulking, as well as big projects like replacing the 20-year-old water heater—all reasons for home buyers to think twice about making an offer.
With September starting on Friday, the June report feels a bit historical, especially when it is a weighted three-month average. But it shows that the first half of 2017 was strong sellers’ market in San Diego:
San Diego Non-Seasonally-Adjusted CSI changes:
At this rate (+5.4% in six months), we’re going to set a new record this year!
The highest reading of the San Diego NSA CSI was 250.34 in November, 2005.
The most-recent low point was 144.43 in April, 2009.
“The trend of increasing home prices is continuing,” David Blitzer, chairman of the S&P index committee, said in a statement. “Price increases are supported by a tight housing market” with both the number of homes for sale and days a house is on the market declining for the past four to five years.
“Rising prices are the principal factor driving affordability down,” Blitzer said.
The other day, an appraiser mentioned to me that he had just completed a study comparing the prices of one-story houses vs. two-story.
He had done a similar study ten years ago, and found that the premium being paid for a one-story then was about 5%.
Today, he found that the premium is about 14% – more than double!
We speculated whether it would double again over the next ten years. When you consider how short the existing supply of one-story homes is today, and that builders are still addicted to the two-story model, it is pretty easy to guess the premium will increase further!
Here’s a sample of houses sold between La Jolla and Carlsbad this year.
NSDCC Houses Between 2,500sf and 3,500sf Sold 2017 YTD
# of Stories
# of Sales
You can get a better ‘deal’ on a two-story home, but as boomers get older and unload two-story houses, that market could get glutty, and the quality one-story houses be even more sought-after.