Real Estate and SALT Deduction Limit

This talking-head guy was trying to create a ruckus about the new limit on SALT deductions being the cause of the real estate slowdown, but he backed into what will be the real effect.

Higher mortgage rates and the limit on SALT deductions might keep those who are money-conscious from moving up, which means fewer higher-end sales.

But fewer sales don’t automatically mean lower prices.

The affluent pay the price to get the home they want, and those not so fortunate lower their sights and buy a cheaper house (which is very unlikely if you’ve ever looked at million-dollar houses and then try to price-down and consider those in the $800,000 range).

These guys want to put labels on it like The New Normal, but home sellers will adapt the old normal – pay my price or close, because I’m not giving it away:

Fleming: This is the new normal for the housing market from CNBC.

Turkey Talk

We hope you enjoy a fantastic day with your families on Thanksgiving!

If you are sitting around the dinner table and real estate comes up, have your family and friends plug into this part-time blogger – it’s easy!

The Bubbleinfo mobile app is available at the App Store and Google Play, and I fixed them so you can now leave blog comments via the mobile app too.

All blog posts can be seen on Facebook too:

The twitter account doesn’t include every blog post, but I re-tweet other pertinent real estate topics.  Those can also been seen in the right-hand column here too >>>.


I appreciate you being here – Happy Thanksgiving!

Rolling Into Stagnant City

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:

Purchase Price
Loan Amount
Mortgage Rate
Mo. Payment w/taxes

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:

NSDCC Detached-Home Sales
Year-over-Year Change

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!

Get Good Help!

Which Home Sellers Might Panic?

Is there a chance our home values could drop 20% to 30% like we saw in 2009?

There aren’t enough homeowners who will sell for today’s market value.  If prices drop, wouldn’t there be fewer homeowners interested in selling?

Probably – unless there was a panic.

Who might panic?

Some think it would be the recent home buyers – they were the ones who paid too much, and would panic to get out while they could before losing money.  But this isn’t the stock market – they bought a home for the long-term, and like we saw during the last crisis, people don’t sell just because they are underwater – or heading that way.  They have to live somewhere, and they will hunker down.

It’s the long-time homeowners who could sell for substantially less, because they have a boatload of equity.  If they had to dump on price to sell their home, they could do it, and still make out fine.  But would they?

Will baby boomers wreck the future one more time?

We see articles claiming that 40% of boomers are broke or close, and they all can’t be renters.  But for long-time owners to finally capitulate and dump on price in a panic, other things would have to happen:

  1. They would NEED the money.
  2. Somebody else would have to go first (and second and third).
  3. We’d go back to cyclical real estate.
  4. Realtors encourage dumping.

Need the money?  They need to live some place too, and does anyone really want to move to Hemet?  Selling the long-time homestead and renting doesn’t sound desirable either.  But if older folks can cash out by selling the house and move in with their kids, they might do it – but do the kids want them?  It’s more likely that the aging will stay put, and have nurses live-in or visit, if for no other reason than to avoid the capital-gains tax on profits over $500,000.

Somebody else needs to go first – and it will take a few lower sales nearby to make it obvious that it’s time to panic.  Denial is more than a river in Egypt!

Previously there were real estate cycles.  In the 2000s, the exotic financing stretched out the up-cycle, but then the reversion was shorter than usual too – just a couple of years.  Why?  THEY CHANGED THE RULES, and stopped foreclosing.  This is the key fact – lenders always led the previous down cycles by dumping REOs for whatever they could get, and sucking down home values for all.  But now banks don’t have to foreclose on defaulters, let alone dump houses for whatever the market will bear.  Without banks being the catalyst to start the dumping, who else will do it?

Realtors could get the party started by telling sellers to dump and run.  But in reality, it works in the other direction.  Somewhat-desperate sellers would rather shop around for a realtor who will take the listing at their lofty price, than believe they’d have to sacrifice their hard-earned equity (not!) just to sell.  Desperation is so high among realtors that it’s not hard to find one who will take a listing with a price based on comps +10%.  For most agents, that’s all they’ve ever known, and they don’t read blogs.

Bottom Line: There may be a slew of negative soundbites, but unless homeowners see panic happening right around them, they won’t believe it.  Real estate ignorance is bliss!

Inventory Watch

The new listings dropped 28% from the previous week, and we probably won’t have many this week either as we head into Thanksgiving. The overall 2018 inventory has been in line with previous years, and that’s probably including at least 5% to 10% more refreshed listings than ever before:

Total Number of Listings, Jan 1 – Nov 15

We’ll get through the rest of the year, and then see what 2019 has in store – will there be a seller panic that will cause a flood of inventory?  P.S. Of today’s 928 NSDCC houses for sale, 500 of them, or 54%, are priced over $2,000,000!


Will Home Sellers Panic?

Wolf takes a linear view of the housing market on his blog, which doesn’t always factor in the emotional components involved in the decision-making, which is fine.  His content tends to be more on the alarmist, doomer side – like in this case where is his comparing the changes in year-over-year percentages to really magnify the concern:

I’m all for being on the lookout for seller panic.

What are the two simple signs of panic?

  1. New listings flooding the market.
  2. Many homes selling for radical discounts below recent comps.

Those are the two most obvious signs of seller panic.  Comparing the YoY percentage of active listings is interesting, but doesn’t tell us enough.

Here is the graph of the NSDCC new listings for September-October, and how they compare to previous years.  There are no real signs of panic here, and, if anything, it shows us that comparing to last year is measuring against one of the lowest amounts ever:

What aren’t signs of panic:

  1. A growing inventory of unsold homes.
  2. More price reductions.

We are going to get comfortable with a larger inventory of homes for sale.  The more unsold homes lying around means that sellers aren’t very motivated, because they didn’t price aggressively in the beginning and they still think their price must be right.

On #2, more price reductions don’t tell you much.  Wolf touts a recent surge, but most price reductions aren’t lopping off big chunks – they are usually 1% or 2% off, which are too small to change anything and they will have to keep doing more.  By the time they knock off 5% to 10% from their original and overly-optimistic list price, they will feel like they are giving it away and change course (rent it, reverse-mortgage it, or wait until next year).

Could there be sellers motivated enough to dump on price? Very unlikely.

Let’s consider the sellers who might be motivated – the Big Three:

Death – for those who inherit, this is their lottery.  Not only will they hold out for crazy money, but one of them could probably use a residence so there are other alternatives to giving it away.

Divorce – what was once 100% equity is now 50%, and each spouse will want/need every dollar to split between them.  If they can’t sell for enough to make everyone happy, well then everyone has to live somewhere. One of the spouses could occupy until the market ‘improves’.

Job Transfer – renting instead of selling is always an option, especially for those who think they might want to return some day.

Sellers who aren’t in the Big Three categories are definitely not going to give it away, so the worst that will happen is a slight downward trend in pricing.

Reasons given why the market will tank, and how sellers feel about them:

  1. Affordability – sellers don’t care.
  2. Higher rates – ‘not my problem’.
  3. More inventory – ‘I only have one to sell’.

Sellers get a vote!

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