It’s Halloween – and going to the Dead Man’s Party! (hat tip JT):
Corelogic reported September sales yesterday, and Doom-Doom Diana rejoiced.
She wrote an article with the headline ‘Southern California suffers its worst housing slump in over a decade’, and reported that sales were down 18%. Then she tweeted the article with the same soundbite (above).
But further down in her own article was this gem:
“There was one caveat to last month’s sharp annual sales decline — this September had one less business day for recording transactions. Adjusting for that, the year-over-year decline would be about 13 percent, still the largest in four years.”
Even though she knew it was really only the worst in four years, she pushed the worst-in-decade angle. Rather than commit to honest reporting, she would rather distort the truth in order to attract the maximum eyeballs.
What’s really happening?
It is natural for homebuyers to tap the brakes when rates and prices are going up at the same time. It’s not because they don’t want to buy. It because they wonder if prices will come down, and they don’t want to pay too much.
The result? Sales naturally go down.
I’m glad to see that buyers are paying close attention – they should!
People are moving fast and are addicted to soundbites. We been trained to live in a binary world, and just want to hear if the market is going up or down, like with stocks and bonds.
I’d rather get into the minutiae and ramble on about all the variables. But realistically, who is going to listen when Doom-Doom Diana will give you a sexy hot take in one sentence?
The other tenet that determines the housing market is the seller’s mantra: “I don’t have to move, I have plenty of time, and I’m not going to give it away!”
Sellers get a vote.
If they aren’t going to sell for less, then we roll into Stagnant City. In the past, banks had to sell for what the market would bear, and they would lead the market down as they scrambled to get out.
But banks aren’t required to foreclose any more.
Which leaves us with the question: Which seller has to sell for whatever the market will bear today, even if it is substantially below their perceived value?
The answer is ‘None’. Today’s home sellers might knock off a couple of bucks, but they’re not going to give it away.
So let’s determine a way to gauge the market in an easy binary way, and measure the most important tenet – are sellers capitulating?
Sellers always want more than the last sale nearby. Here is a simple way to follow the trend to see if sellers are getting what the last guy got – the month-over-month changes in the Case-Shiller Index:
Recently, sellers have been getting about what the last guy got, or a little more. But if we see a series of negative numbers over the next few months, we know that buyers are winning.
Sellers have loads of equity – more than ever – so you would think they wouldn’t mind giving some of it back to make a deal. But homes are personal, and the ego is a funny thing. It would take a full panic for sellers to capitulate.
The San Diego Case-Shiller Index has begun its usual flatness a little earlier this year, and we might see it drop a couple of points in the coming months. But never fear, Blitzy is here!
“Following reports that home sales are flat to down, price gains are beginning to moderate,” said David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices in a release. “Rising prices may be pricing some potential home buyers out of the market, especially when combined with mortgage rates approaching 5 percent for 30-year fixed rate loans.”
“There are no signs that the current weakness will become a repeat of the crisis, however. In 2006, when home prices peaked and then tumbled, mortgage default rates bottomed out and started a three year surge,” said Blitzer. “Today, the mortgage default rates reported by the S&P/Experian Consumer Credit Default Indices are stable. Without a collapse in housing finance like the one seen 12 years ago, a crash in home prices is unlikely.”Link to CNBC article
San Diego Non-Seasonally-Adjusted CSI changes:
As expected, the June and July numbers were revised, making the August reading the second consecutive MoM decline.
The previous peak was 250.34 in November, 2005.
I only put this on here because I want you to learn with me, side-by-side.
I spent a couple of bucks on a Facebook ad, and got 812 clicks.
Buyers are interested!
There is a demand right below the surface, and a property that looks under market will get hundreds of buyers to respond. Hire me to handle!
I’m standing way too close to the camera here. Do yourself a favor – put your device down, and stand on the other side of the room when watching this:
For those who insist on reminding us that rates are still historically low, here’s a colorful demonstration of where we’ve been. Today’s rates are as high as we’ve seen this decade – which is all people remember! (Click to enlarge)
Now that the media is trumpeting a slower housing market every day, you’d think there might be more sellers hitting the panic button and listing their house for sale this year, rather than wait for the Glut of 2019.
But this week, the number of new listings dropped 32%! The count from the previous week was 101, but we only had 69 new listings in the past seven days.
The number of pendings is holding up too (+1 this week).
Let’s compare the exact time in question when things started feeling different towards the end of the selling season.
NSDCC Sales between Aug 1st and Oct 15:
In 2014, mortgage rates had been coming down – from 4.43% in January to 4.04% in October – and the median sales price was 24% lower too. Yet we had more sales in 2018!
By the Spring of 2019, you can bet that any talk of a year-end slowdown will be shrugged off and blamed on the holidays – and that next year’s pricing will be right back to (overly) optimistic.
Buyers – it won’t get better next year!
Get Good Help!
Here are the stats for the NSDCC detached-home market (La Jolla to Carlsbad):
|Oct 28, 2015|
|Feb 1, 2016|
|Mar 23, 2016|
|June 21, 2016|
|Aug 17, 2016|
|Dec 4, 2016|
|Apr 21, 2017|
|July 16, 2018|
|Oct 28, 2018|
NSDCC Actives Median Price = $2,250,000
NSDCC Pendings Median Price = $1,399,000
Only 12% of the actives are under $1,000,000, and 33% are over $3,000,000 (was 10% and 35% last reading). You could say pricing has slid down 2% since July, but pricing stats are just good for trend-watching over the long haul.
The 3.31 ratio is the highest on the chart, and if it was due to an explosion of active (unsold) listings, it would be more troubling. If more homeowners were nervous, we’d see a higher total of listings today, instead of waiting for spring.
The areas in red have had prices go up too fast, and sellers are holding out.
Areas circled in green are active and healthy.
The Del Mar and Solana Beach samples are smaller and will be more volatile.
A good example of today’s market conditions. At first, you would think a bank-owned house in the prime Derby Hill community in Carmel Valley would garner a lot of attention, and sell quickly. But this one isn’t tricked out with extras, and it’s not a canyon lot either.
Like most sellers, they added a little mustard to their list price – but they were on the market for 55 days before finding the buyer:
Another example of how the Redfin estimates aren’t generated from some snazzy algorithm – they are just tied to the list prices.
Above is the before-MLS-entry estimate of $823,185.
Below is their estimate after the MLS listing got into their system: $732,229