Doesn’t it feel like we’re in another bubble?

Home prices have been on a tear for ten years straight, and are at their highest levels ever.

Is this bubble going to pop too?

Let’s look at the statistics first. I took the most recent 45 days to get the latest scoop, plus the MLS prefers to calculate the smaller sample sizes.

NSDCC Detached-Home Listings and Sales, April 1 – May 15 (La Jolla to Carlsbad)

Year
# of Listings
# of Sales
Avg $$/sf
Median SP
Median DOM
2012
640
415
$377/sf
$805,000
41
2013
788
464
$419/sf
$968,750
17
2014
791
376
$474/sf
$1,017,000
24
2015
785
448
$479/sf
$1,065,000
22
2016
774
439
$513/sf
$1,170,000
19
2017
726
445
$529/sf
$1,250,000
17
2018
749
394
$567/sf
$1,298,000
17
2019
712
379
$579/sf
$1,360,000
23
YoY Chg
-5%
-4%
+2%
+5%
+29%

It is remarkable that all-time-high prices aren’t causing more people to sell!

In previous markets, once prices started reaching new highs, homeowners would jump at the chance to move.  The inventory would grow and cool things off, and/or we’d hit an economic downturn and foreclosure sales would direct the market. But not today!

Other Factors:

We are a mid-level luxury market. The more-expensive areas like Los Angeles, Orange County, and the Bay Area feed us downsizers who think we are giving it away.

Homebuying has de-coupled from jobs. We do have substantial employers like Qualcomm, bio-tech, etc. but not near enough to justify these lofty prices. How do we keep afloat? It’s the big down payments; either from previous home sales, successful business ventures, or the Bank of Mom & Dad.

They changed the rules. Banks have to give defaulters a chance to qualify for a loan modification before they can foreclose. With everyone enjoying their equity position, they will find a way to hang onto their house or sell it for a profit, instead of lose it.

Mortgage rates around 4% are ideal.  Not likely to go up much either.

Reverse mortgages are an alternative for those who need money. They might crank down the amount of money you can tap, but as long as homeowners are flush with equity, they will be able to get their hands on some of it via reverse mortgages or the typical equity line.

Buyers have been full of money, and willing to blow it. I’ve seen sales close for 10% to 25% above the comps this year, so it doesn’t seem like people are worried about a bubble. Those sales could be creating unsustainable comps, and be short-lived values, but will the next buyer question them enough?

Coming Soon vs. ibuyer. We need a gimmick to transition us to the ibuyer era, and the ‘Coming Soon’ off-market sales will be the sexy distraction.  The price of an off-market sale isn’t necessarily lower than retail, and in some cases they can be higher when the buyers get jacked up about the opportunity.

The ibuyer era could be the last hurrah for open-market real estate.  If the big-money corporate buyers can build enough credibility and begin to dominate the space, they will be able to dictate the prices paid for their flips, and control the marketplace.  If so, they will make sure we won’t have another down market!

In the meantime, we might see prices start to bounce around, instead of the constant trend higher.  But if it gets harder to sell, then many will just sit tight instead.

If you think a bubble pop will happen, ponder this question.  Who is going to give away their home now?

author avatar
Jim the Realtor

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