I think Boise might have topped out but I’m waiting for September. Summers are usually slow here. But the last one put on the market here, a couple streets over in my Movado subdivision was listed for $949,900 (about 2,500sf). We thought it was listed too high. The guy said he was moving to NC to be w/ his grandkids. Two offers: 1. $949,900 but willing to go to $965K. 2. Offer at last minute on a Sunday after an open house? Agent said the 2nd person “just had to have it. Couldn’t wait to “get out of Walnut Creek”. So I have to wait until it closes but can’t wait to talk to them. Walnut Creek is right near Orinda, where I grew up.
There is more inventory here than before, but it still seems like pendings are fast. I’d say the frenzy of multiple offers has cooled off. There may still be multiples but the craziness seems much less.
Then about three weeks ago, she sent in this modern one-story for sale:
This 2015 Trout Architects designed home on the Mesa is built w/ midcentury passion + modern amenities. The single-level home features sunset & city-lights from abundant windows. Tongue & groove ceilings + post & beam construction create open central living spaces w/ generous bedrooms on either side. The front patio is accessible through separate sliders. Private side yard lies outside your 2nd living room. Street setback affords quiet living & indoor/outdoor spaces let you experience the frequent wildlife.
The initial pricing of $500/sf may have been somewhat aggressive by Boise standards, but you’d think one of those Californians with buckets full of money would have gladly paid it for a six-year old turnkey-ready one-story with designer flair.
But no takers in the first two weeks on the market, so they lowered the price by $71,000 on August 4th.
It’s still unsold.
A few thoughts:
When you see newer one-story homes not selling, then the frenzy deserves to be questioned.
Now that the frenzy is moderating everywhere, it might take you 1-2 years to find the right home.
More buyers being patient means a slower, more deliberate market.
Future pricing will be determined by the seller’s motivation, not bidding wars.
The sellers’ motivation hasn’t mattered in the covid era. Even those lowly-motivated sellers who priced their home way too high still got swept up in the frenzy. But not any more, and it starts in the higher-end markets where the inventory is full and the action more balanced.
The ibuyers are borrowing money like crazy to build their inventory of homes to flip. Opendoor doesn’t have the brand-name awareness of Zillow, so they are advertising a lot and buying homes directly off the MLS. Zillow has everyone’s email address so they are able to reach their users directly. Both have been fairly well-compensated during the 12-month frenzy – will it continue? From this article:
Opendoor Technologies Inc., which buys homes from consumers and lists them for resale, is in talks with lenders for a new revolving credit facility of roughly $2 billion, according to people familiar with the effort.
The company, which is rapidly accelerating the number of homes it purchases, plans to use the proceeds to help increase acquisitions, said one of the people, who asked not to be named because the matter is private.
A representative for Opendoor declined to comment.
Opendoor, led by Chief Executive Officer Eric Wu, pioneered a data-driven spin on home-flipping known as iBuying. After the company buys a home, it makes light repairs and seeks to resell it, profiting by charging sellers a 5% fee for the convenience of an easy sale.
The company acquired 8,500 homes in the second quarter, more than double the number it bought in the first three months of the year, according to an statement Wednesday. It also had roughly 8,100 additional houses under contract at the end of June.
Opendoor uses debt to fund acquisitions, and had just under $4 billion in borrowing capacity under existing revolving credit facilities as of the end of June. The company had drawn $1.8 billion on those facilities, according to a filing.
Zillow Group Inc., Opendoor’s main competitor, has also moved to increase its firepower for home purchases. The company borrowed $450 million through a first-of-its-kind bond offering earlier this month.
Zillow’s recent activity has been more consistent than Opendoor’s, so let’s look at the Zillow numbers to see if the convenience they offer sellers is paying off. Zillow currently owns 138 homes in San Diego County, and of those, 72 are active listings and 38 are pending. They have sold 48 homes this year – here are the 13 they have closed since July 1st:
Zip Code
Purchase Price
List Price on the Flip
Sales Price
92021
$549,000
$586,100
$585,000
92025
$542,000
$565,100
$542,000
92027
$819,000
$860,100
$930,000
92054
$927,500
$949,700
$961,900
92057
$369,500
$402,900
$425,000
92057
$763,500
$821,000
$890,000
92058
$451,500
$486,900
$500,000
92069
$831,500
$861,700
$836,600
92102
$446,000
$466,900
$475,000
92111
$430,000
$442,000
$437,600
92129
$463,000
$498,500
$500,000
92130
$605,500
$641,000
$641,000
92130
$699,500
$732,900
$727,000
Totals
$7,897,500
$8,314,600
$8,451,100
They have a consistent 2-month turnover between the day of purchase, and the day of sale, so it’s a quick $553,600 profit, or an average of $42,585 per sale – though they had to pay out close to half of that in buyer-agent commissions (all fix-ups are included in their purchase prices). It’s a good thing that sellers aren’t in a hurry – Zillow is currently six weeks behind in responding to purchase requests.
Sellers are leaving some money on the table, but as long as Zillow is flipping every home, buyers will still have the same amount of inventory to consider – it’ll just be at a higher price.
Here’s a two-year moving plan for those long-timers who:
Have substantial equity in their home, but
Don’t want to pay any capital-gains tax, and
Want to move out of town – but not sure where, exactly.
This is an adventurous experience, and good for those who are retired and want/need to travel around looking for a new home while seeing more of the world.
Step 1: Rent your house for a year.
Step 2: Go visit/live in your favorite towns. Spend a month in 12 towns, or four months in three towns, etc. This will ensure that you get a good feel for these destinations before buying a home there.
Step 3: Sell your rental house here, and buy a home in your new favorite town via a 1031 exchange.
Your CPA will recommend renting the new home for a year too, so you’ll be a vagabond for 24 months or longer. But you’ve wanted to do more traveling – here’s your chance before setting down for the duration!
To really hit the jackpot, go to an area that is cheap enough that you can buy two – one for a rental too.
Interesting to note that the buyer here didn’t mind paying $351,000 over list awhile being represented by a noted discounter from Northern California – an agent who is a known critic of the realtor cartel but is happy to make a buck off the system 500 miles away from his home.
Another example of how the market is being set (and creating the comps for future sales) by the most euphoric buyers getting little or no local expertise. If you know too much, you’ll never buy a house!
This will likely be the most paid over the list price for a home in Carmel Valley for August, but there are two others that already closed for $300,000+ over!
The percentage of buyers who were willing to pay over list reached another all-time high in July:
NSDCC Detached-Home Sales, % Closed Over List Price
January: 38%
February: 43%
March: 53%
April: 55%
May: 54%
June: 59%
July: 64%
There were 33% of the total sales that closed for $100,000+ over list price!
One out of three!
In July, it was the $1,500,000-$2,000,000 range that was red hot, with an incredible 82% paying over list:
Percentage Who Paid Over List Price by Price Range
Price Range
March
April
May
June
July
$0 – $1.0M
76%
79%
89%
88%
89%
$1.0M – $1.5M
68%
78%
84%
75%
74%
$1.5M – $2.0M
66%
66%
72%
66%
82%
$2.0M – $3.0M
54%
32%
34%
66%
56%
$3M+
16%
22%
22%
17%
26%
The average and median prices were slightly lower MoM, but the product mix is different every month. Just having the average and median sales prices being higher than the list prices is remarkable enough:
NSDCC Average and Median Prices
Month
# of Sales
Avg. LP
Avg. SP
Median LP
Median SP
Feb
224
$2,298,797
$2,257,334
$1,719,500
$1,758,000
March
252
$2,295,629
$2,260,524
$1,800,000
$1,825,000
April
357
$2,396,667
$2,403,962
$1,799,900
$1,828,000
May
300
$2,596,992
$2,581,715
$1,900,000
$1,994,500
June
348
$2,509,175
$2,537,953
$1,900,000
$1,967,500
July
311
$2,421,326
$2,442,738
$1,795,000
$1,855,000
July, 2020
351
$1,937,896
$1,863,623
$1,450,000
$1,423,350
Compared to last July, the average sales price was +31%, and the median sales price was +30%!
After the TV show, Derrick and I were discussing the good old days when homes were cheap and everyone moved often. He is a mortgage originator, so I asked him how many adjustable loans he has done this year.
His answer? None.
Back in the day, adjustable-rate mortgages were the preferred product. Look at the difference:
$300,000 loan amount
Monthly payment at 11.875% = $3,057
Monthly payment at 9.0% = $2,414
Difference = $643 per month!
Nobody looked too hard at the terms of the ARM because a) $643 per month was a ton of money back then, and b) no one planned to stay forever. Home buyers could always refinance if they had to, but many solved their ARM concerns by moving again – heck, there were lots of homes for sale!
Then the 2-out-of-5-year tax exemption was passed in 1997 which really juiced the market. Homeowners were rewarded with tax-free money for moving!
It was rare that anyone had the full $500,000 in net profit, mostly due to the lower home prices and because of other recent moves. Yet many moved again just to say they got their tax-free money!
At the same time, the mortgage industry, led by Countrywide, flooded the market with an alternative – the interest-only mortgage with a rate that was fixed for the initial period, and you could choose 3, 5, 7 or 10 years. Once those saturated the market, Countrywide stole the neg-am ARM idea from the S&Ls and spiked them with high margins, and, well, we know how that ended.
As the private mortgage companies exited the market, the government lowered rates, and backed Fannie/Freddie to provide market liquidity. For the last ten years, the only program being offered is the 30-year fixed rate mortgage, and because rates are so much lower than before, buyers didn’t mind.
The end result? Today, you never hear anyone buying a home for the short-term.
The combination of ultra-low rates and difficulty of finding a better home has locked in everyone into their current home. Even if the current home becomes unsuitable, it beats moving again.
The low-inventory era is here to stay, and will likely get worse.
Regarding the Prince solo at the end of “While My Guitar…” at the posthumous induction of George Harrison at the Rock n Roll Hall of Fame, in a New York Times article from April 28, 2016, Craig Inciardi (Curator at the Rock and Roll Hall of Fame Museum) says “I’ve seen every induction performance from ’92 to the present, so that’s like 24 shows. On a purely musical level, a technical level as far as musicianship, that performance seems like the most impressive one.”
During the rehearsals the night before, Jeff Lynne’s guitar player, who was also playing the song, essentially takes the lead ahead of Prince at every opportunity, but places it straight, note for note, as George had done it. Prince says nothing and just plays rhythm, so no one really gets to hear what’s he’s going to do. He later comments to the producer not to worry, during the actual performance, he just says nonchalantly, I’ll step in at the end. So basically no rehearsal.
Tom Ferrone, drummer for Tom Petty, says just before the actual performance: “Tom sort of went over to him (Prince) and said, “Just cut loose and don’t feel sort of inhibited to copy anything that we have, just play your thing, just have a good time.”
It was a hell of a guitar solo, and a hell of a show he actually put on for the band. When he fell back into the audience, everybody in the band freaked out, like, “Oh my God, he’s falling off the stage!” And then that whole thing with the guitar going up in the air. I didn’t even see who caught it. I just saw it go up, and I was astonished that it didn’t come back down again. Everybody wonders where that guitar went, and I gotta tell you, I was on the stage, and I wonder where it went, too.”
