A year ago, I guessed our NSDCC sales would be down at least 5% in 2018, and it looks like it will be closer to -10%. While I’m confident that sellers will refuse to lower their price expectations much in 2019, I doubt that home buyers will just go along as they have in the recent past.
The disconnect will probably mean that the 2019 sales of detached-homes between La Jolla and Carlsbad will drop another 20%, which will change the landscape considerably from the robust sellers’ market we’ve enjoyed over the last nine years.
Homeowners waiting for the top of the market will move closer to the exits, and we will probably have 5% to 10% more listings early next year – with no let up in pricing. Potential homebuyers who are starved for quality guidance will be conservative and adopt the wait-and-see approach.
It guarantees a slow start to 2019, and a real standoff.
The worst part about the real estate industrial complex is that they provide no help whatsoever on how to deal with market conditions. They push Yunnie up to the microphone every month to report the latest sales counts, but that’s it.
Consumers and realtors are left to their own devices to figure out what to do.
Buyers will want somebody else go first.
Who will go first? With the rise in mortgage rates, we have already lost almost the entire move-up market. My rule-of-thumb is that if you want to stay in your same area, you have to spend 50% more than what your house is worth to make the move. In other words, if your house is worth a million, the houses you see listed for $1.1 or $1.2 million nearby aren’t enough of an upgrade – you only get, what, one more bedroom?
But if you bought that home for $800,000 with a mortgage rate of 3.5%, the thought of having to spend $1,500,000 with a 5% mortgage rate will send your head spinning:
Your home’s appreciation generated the bigger down payment, but you have to pay more than twice as much monthly, and it isn’t fully tax deductible either. How many people NEED to move that bad?
So if the move-up market is comatose, then who’s left?
Those who don’t own a house here yet – the first-timers and newcomers.
They are at a disadvantage from being new the area, and are probably somewhat unfamiliar to the game – so it’s likely that they will be conservative. But the 2019 market will be entirely dependent upon them paying what the sellers want, or close.
I doubt we’re going to see fewer listings next year, so if there are 5% to 10% more listings – all with optimistic prices – and buyers are waiting to see what happens, there will be many more for-sale signs around. That alone will cause buyers to pause.
Only the vastly-superior homes will be selling, and everyone will struggle to get the price gap right between the creampuffs and dogs. The fixers will need heavy discounts, but thankfully, there is a floor. I’ve probably taken 100 inquiries on my Brava listing – the flipper/investor action is still strong, though they are slightly more conservative about next year too.
Realtors could provide the solutions, but will they?
Here are the typical responses to taking a higher-priced listing:
SELLERS: “Let’s add a little mustard to my list price.”
TOP AGENT: “The market is soft, and virtually all active listings are priced above what the market will bear. An attractive price will help to set us apart, and our expertise will help to clinch the sale in a timely fashion.”
REGULAR AGENT: “Let’s try the value range pricing!”
NEW AGENT: “What the heck, we can always lower the price later!”
Will the home sellers be sufficiently motivated to price their home sharply? For those who have been waiting for the top of the market, the answer is no. They are only selling if they can get their price – especially if they plan to move up in the same area.
We’re headed for a showdown – who will blink first?
There will be a healthy market for for the well-location remodeled homes, but the rest will sit a while before they figure it out – and many will not.
Annual sales dropping 20%?
We’ve been here before, and survived it. We will survive this round too – we don’t have the shock of a market driven by no-qual loans all of a sudden shifting to qualifying-only, like we did in 2008:
Where will prices go? It will be a very soft landing, because without foreclosures and short sales, there won’t be desperate sellers dumping on price – they will wait it out instead.
Heck, they’ve waited this long, what’s a couple more years?
It will be case-by-case though. There will be a few great deals, some retail sales, and a lot of standing around. Welcome to Stagnant City!
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