The non-seasonally-adjusted San Diego Case-Shiller Index had another strong reading for May, setting a new all-time high of 257.46!
“Home prices continue to rack up gains two to three times greater than the inflation rate,” says David M. Blitzer, Managing Director & Chairman of the Index Committee at S&P Dow Jones Indices. “The year-over-year increases in the S&P CoreLogic Case-Shiller National Index have topped 5% every month since August 2016.
Unlike the boom-bust period surrounding the financial crisis, price gains are consistent across the 20 cities tracked in the release; currently, the range of the largest to smallest price change is 10 percentage points compared to a 20 percentage point range since 2001, and a 25 percentage point range between 2006 and 2009. Not only are prices rising consistently, they are doing so across the country.”
“Continuing price increases appear to be affecting other housing statistics. Sales of existing single family homes – the market covered by the S&P CoreLogic Case-Shiller Indices – peaked last November and have declined for three months in a row. The number of pending home sales is drifting lower as is the number of existing homes for sale. Sales of new homes are also down and housing starts are flattening. Affordability – a measure based on income, mortgage rates and home prices – has gotten consistently worse over the last 18 months. All these indicators suggest that the combination of rising home prices and rising mortgage rates are beginning to affect the housing market.”
San Diego Non-Seasonally-Adjusted CSI changes:
The previous peak was 250.34 in November, 2005. We are 3% above that now. We can probably expect the SDCSI to cool down in the second half of the year, just like it did the last two years!
Let’s note that in 4Q17, the cumulative change for the index was -0.1%.
Giorgio got a big publicity boost for the documentary film last week when he was featured on the Chris Hayes podcast. I hate to tease the crap out of it – the film will be released at some point, I promise. But in this 50-min podcast he lays the whole thing out:
He wrote this article about it too – an excerpt:
In May 2010, in the depths of the housing crisis, I was awarded a grant to photograph a collection of abandoned developments Inland Empire, California. With the mortgage market at a standstill and stocks creeping up from record lows, it seemed there weren’t many buyers for these brand new 5,000 square foot homes.
I rented a car for $12 a day and drove through an endless maze of freshly packed asphalt roads that wound their way through burnt down orange groves, making room for these half-built totems to a globalized housing market gone awry. On many streets, the eery quiet was interrupted only by Tyvek wrap flapping in the wind. Everything around me seemed to be slowly succumbing to the entropy of the brutal desert conditions, and I felt an overwhelming sense of alienation. What the hell had we built here?
At the top of this mountain pass, I came upon an empty home which had perhaps the best view of the entire development. Perched at the edge of the mountain face, overlooking Lake Matthew and miles of vast desert land, the only window facing this awe-inspiring, million-dollar view was a small bathroom window just above the attached garage. It was a profound moment, as this image has become emblematic to me of the utter lack of human intentionality that has overtaken home development in America today.
Simply put, the American single-family home has become a globally traded commodity, with no mission other than to be sold. Defining a home’s value has become increasing tied to a narrow set of assumptions (as are most commodities). And, overwhelmingly, that value is driven by size (price per square foot). But a home’s value should be a much more complex calculation. One that takes not just size into account, but also accounts for its lasting cultural and social impact.
Hat tip to Eddie89 for sending in this article on the prospects of Zillow’s ibuyer program, which looked a little sketchy to me too until it was divulged that these ibuyers are primarily in it to make the fee income, and if they can make a profit by selling the houses for more it will be icing on the cake:
Steve Eisman, an investor known for his correct bet against subprime mortgages a decade ago, told Bloomberg News that he’s taken a position against Zillow Group Inc. ZG, -7.08% calling its new venture into selling houses “a terrible business.”
That Zillow venture, then called “Instant Offers,” was announced in April, to mixed analyst reviews. “We are big fans of this pivot,” said Stephens’ John Campbell at the time. A few weeks later, RBC Capital downgraded the stock, saying the shift into what is now called Zillow Offers set the company up for a “transition year” even as the stock remained overvalued.
In response to a request for comment on Eisman’s remarks, a Zillow spokeswoman emailed, “we think Zillow Offers is an attractive service for sellers in all types of housing markets. In a slower market, our offer might seem even more attractive to a seller.” Zillow shares, which had been up more than 50% for the year to date, tumbled nearly 7% after Eisman’s appearance.
If Steve wants another reason, he should consider how realtors react to change in the market. Yesterday, I saw an agent in a private realtor Facebook group ask for alternatives to the Zillow advertising he has been doing, which is exceedingly expensive. Historically, the minute the market turns, realtors stop spending money, and I think that time is here.
If you rent out your entire home or even a room in your home (or your vacation property) for at least 15 days in a given year, you can get a surprising tax break under Trump’s new federal tax law!
How it works: As a short-term landlord, you can get around the new law’s caps on deductions for property taxes and mortgage interest.
Example of Deducting Property Tax: Let’s say that your annual property taxes total $14,000. Trump’s new law lets you deduct a maximum of $10,000 of combined property taxes and state and local income taxes. Say you rent out 50% of your home for half the year, but use the home yourself for the other half of the year. You can deduct 50% of that six months’ worth of property taxes–25% of th total property tax bill, or $3,500, on federal Schedule E, “Supplemental Income and Loss.” You can also deduct $10,000 on your Schedule A for itemized deductions, giving a total deduction of $13,500 rather than just $10,000.
Example of Deducting Mortgage Interest: Under the new law, for any first or second home you bought after 2017, you can deduct interest on up to $750,000 of the mortgage loan (compared with the $1 million previously). But rental property has no such cap. So if you rent out, say, 50% of a home that carries a $900,000 mortgage, you can deduct interest paid on the first $750,000 of the loan, as well as interest on half the remaining $150,000.
Note: Even if you opt for the standard deduction, rather than itemize–which means you can’t take the standard type of property tax and mortgage-interest deductions–you can still take deductions corresponding to the amount of time your house or a portion of it was rented out.
The recent changes to the tax law are very new, and it’s unclear how the IRS will interpret them, so talk to a professional to make sure you’re in the clear. Give him/her this link:
When I first saw this graph, I thought it was the perfect way to sum up the changes in the marketplace since the 2000-2009 era. Back then, people were younger, there were plenty of homes for sale, and prices were relatively affordable, so we always had a very fluid move-up and move-down market.
But to see that average tenure has doubled between 2009 and 2017 is striking.
Have the number of sales changed?
NSDCC Annual Sales of Detached Homes
Number of Sales
Annual % Chg in MSP
Given the huge change in price and that more people are staying put than ever, it is shocking to see that sales have been relatively consistent in recent years.
How do you explain it?
It must mean that the demand is fueled by those who don’t have a house yet – first-timers, and those coming from out of town. It explains why they jump at buying when they see a good one – they don’t have one yet. Those who already have a house here aren’t as impressed.
The population has grown 25% in San Diego County since 2000, and 30yr-fixed mortgage rates are about half of what they were then. But for sales to be this strong when repeat movers are so scarce, is remarkable!
P.S. We’ve had 1,620 closings this year, with a median SP = $1,321,500.
Hat tip to JT who sent in this doomy article about home sales:
Southern California home sales hit the brakes in June, falling to the lowest reading for the month in four years. Sales of both new and existing houses and condominiums dropped 11.8 percent year over year, as prices shot up to a record high, according to CoreLogic. The report covers Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties.
Sales fell 1.1 percent compared with May, but the average change from May to June, going back to 1988, is a 6 percent gain.
The weakness was especially apparent in sales of newly built homes, which were 47 percent below the June average. Part of that is that builders are putting up fewer homes, so there is simply less to sell.
“A portion of last month’s year-over-year sales decline reflects one less business day for deals to be recorded compared with June 2017,” noted Andrew LePage, a CoreLogic analyst. “But affordability and inventory constraints are likely the main culprits in last month’s sales slowdown, which applied to all six of the region’s counties and across most of the major price categories.”