More ivory-tower musings here, and it’s hard to believe that they could be so blind.
How can analysts read these statistics and decide that the frenzy will come to a complete halt, which is what a 2.5% YoY gain will feel like if it were to happen? Because of a break for the holidays?
That’s the best you got?
Predicting that there will be additional inventory for-sale when it’s been plummeting everywhere is naïve too.
At least their headline writer got it right:
‘Lower Appreciation Not Yet Reflected in Gains’
While it is clear that the growth of home prices has started to slow, reports on the results of the deceleration are diverging. Earlier this week Black Knight reported its Home Price Index (HPI) was up 0.6 percent in October, today CoreLogic puts the gain at 1.3 percent.
The CoreLogic report says its reported October appreciation is a full 1 percentage point lower than the peak posted for April. The annual rate of increase in the HPI for the October was 18 percent, identical to the 12-month growth it reported for September, and the highest recorded in the 45-year history of the index. Incidentally, in April the annual increase was 13 percent, showing the rapid run-up of prices over the summer and early fall.
Detached properties(i.e., single-family residences) continue to appreciate at a much higher rate (19.5 percent, also a record high) than attached properties at 12.9 percent. This also differs substantially from the 11 percent gain for single family homes reported by Black Knight which also reported that condo prices are now rising faster than those for single-family houses.
Price gains remain strongest in the Mountain West, with Arizona and Idaho again topping the charts with growth of 28.8 percent and 28.7 percent, respectively. Utah was third at 24.5 percent. Twin Falls, Idaho had the fastest growth among metros at 35.8 percent, but the South did weigh in. Naples, Florida was second at 33.5 percent.
Despite affordability challenges, a recent CoreLogic consumer survey shows that over half of respondents across every age cohort said that owning a home has always been a goal of theirs – further supporting the outlook that consumer desire for homeownership remains.
“New household formation, investor purchases and pandemic-related factors driving demand for the limited supply of available for-sale homes continues to propel the upward spiral of U.S. home prices,” said Frank Martell, president and CEO of CoreLogic. “However, we expect home price growth to moderate over the near term as many buyers take a break for the holidays.”
CoreLogic’s forward looking HPI projects that slowdown to result in a year-over-year increase of only 2.5 percent by next October “as affordability and economic concerns deter some potential buyers and additional for-sale inventory becomes available.”
The reason for breaking down the active and pending listings by zip code is to give the readers a closer look at their neighborhood stats.
Our Big Three zip codes – where you can still buy a decent house for $2,000,000 – are still having more pendings than actives (highlighted below), but let’s note how strong the pending counts are in La Jolla and Rancho Santa Fe too:
The median list price in La Jolla today is $5,422,500, and in RSF it is $7,700,000!
We can also track the average market times too. Upward trends here would indicate market slowing:
All four categories have improved recently, and the high-end $3,000,000+ average market times have been in the tightest range over the last few months!
Some may call this the off-season, but the only reason that the numbers aren’t any better is because the number of new listings is so low. Brace for impact in 2022!
We did get to spend the Thanksgiving weekend in Manhattan with Kayla. She cooked a good old-fashioned turkey dinner at home on Thursday, and the next day we visited the new tourist attraction on 42nd Street adjacent to Grand Central Station. They run you up to the 92nd floor where most of the younger folks are posing like a Kardashian – with some bringing their own pro photographers!
The view looking towards downtown (and Brooklyn to the left):
Looking west across the Hudson River towards New Jersey:
42nd Street below, and New Jersey in the distance:
Pivoting to the right, this is looking up Madison Avenue towards Central Park, Harlem, and the Bronx:
Looking east towards the Chrysler Building and the United Nations, with Queens in the distance:
Virtually all of the ivory-tower crowd thinks that pricing will settle down in 2022.
They should take a good look at how 2021 is wrapping up.
Admittedly, the San Diego market is at the extreme end, with our inventory enduring the biggest YoY dropoff anywhere in the country. It’s been that way around here for months, and the NSDCC stats for November show how explosive the pricing can be when buyers are starved for quality homes for sale:
Year
NSDCC November Sales
Median LP/sf
Median SP/sf
LP:SP
2019
212
$1,391,500
$1,347,500
97%
2020
306
$1,597,000
$1,589,950
100%
2021
195
$2,000,000
$2,100,000
105%
The median sales price is 32% higher than it was 12 months ago, and 56% higher than it was two years ago!
We thought that the last half of 2020 was the frenzy of all-time, mostly because there was ample inventory that enabled home buyers to set monthly sales records.
But the second half of 2021 has been experiencing a radical pricing frenzy, with the November LP:SP ratio at a whopping 105%! The median sales price is $100,000 higher than the median list price? Wow!
Buyers need to be sold twice – online and in-person. Staging helps with both!
La Jolla Realtor Michelle Silverman can easily tick off the various homes she’s sold for which she got more and higher offers because of effective staging.
“There was one home that hadn’t been staged and was listed at $1.149 million. It was old. It was tired looking,” she said. “I took the listing and had it staged. We got 12 offers on it and ended up selling it for just a little over $1.15 million. So, maybe it was just a little higher, but the buyer said they were only going to get $900,000 for the house.”
According to a 2020 survey of 13,000 staged homes by the Real Estate Staging Association noted that staged homes sell faster, averaging just 23 days on the market. By comparison, the typical U.S. home spent 43 days on the market last month, according to a report from Realtor.com.
The staging association survey also showed that with an average investment of 1 percent, approximately 75 percent of sellers saw a return on investment of 5% to 15% over asking price.
And this was before the market got as heated as it is now.
So, you might ask, if we’re in a seller’s market, why bother staging a home? Why not save the expense?
Silverman’s response was quick.
“Because even in a seller’s market, buyers are not visionary.”
Because ADUs are expensive to build, there’s not much hope that they will solve the housing crisis.
Key Findings
There are an estimated 1.5 million Accessory Dwelling Units (ADUs) in the United States, making up roughly 2% of all homes in the country
ADUs are growing at a rate of 9%, or 100,000 per year
An average cost of an ADU is $180,000, or $260 per square foot
In America’s biggest cities, a home with an ADU is priced 35% higher on average than a home without one
The top states for ADUs are California (30%), Florida (12%), Texas (10%) and Georgia (5%)
The cities with the most ADUs are Los Angeles (12%), Portland (4%) and Houston (3%)
ADU sale listings are growing fastest in Portland (+23%), Dallas (+19%), and Seattle (+18%)
Whether you call them granny flats, in-law suites, or garage apartments – accessory dwelling units (“ADUs”) are on the rise. There are an estimated 1.4 million of them in the United States, with around 110,000 constructed in the last year alone.
In 2020, ADUs were often heralded as one answer to the growing housing affordability crisis. Their proponents argue that ADUs offer an opportunity for homeowners to make extra income, for young people to rent affordably, and for communities to grow slowly and sustainably.
But then the pandemic came and changed everything, and hardly for the better. So where did that leave ADUs in 2021?
Susie asked for a Zillow Offers update, and yesterday they announced that the unwinding is going just fine. While the debacle did tank their stock price, they figured it would be a good time to buy more for themselves:
SEATTLE, Dec. 2, 2021 – Zillow Group, Inc. today announced it has made significant progress in winding down Zillow Offers inventory and has sold, is under contract to sell or has reached agreement on disposition terms for more than 50% of the homes it expected to resell during the entire wind-down process. Zillow Group’s Board of Directors has also authorized the repurchase of up to $750 million of its Class A common stock, Class C capital stock or a combination of both.
“We are pleased with the progress of our wind-down efforts and recognize that no longer operating Zillow Offers will allow us to have a more capital-efficient balance sheet and business moving forward,” said Zillow Group co-founder and CEO Rich Barton. “With that, we see today as an opportune time to announce a share repurchase program and reduce the cash balance we built up to support Zillow Offers.”
We can expect them to gloss over their little boo-boo and carry on.
The less equity you have, the more likely you will move.
Q: I guess it may be too late, but figured I’d ask. We did a reverse mortgage. We got almost no cash out of it, but it is eating up whatever equity remains with our loan that has an effective interest rate of almost 5 percent. Is there anything we can do? Thank you.
A: Reverse mortgages have been around for more than 20 years. The concept is enticing: If you’re over age 62 and you have equity in your home, there are a number of lenders who will give you a loan for a certain percentage of available equity (often up to 85 percent, but sometimes quite a bit less). The loan provides you with cash and no requirement to repay the loan until the home is sold or the owners pass away.
If you’re house rich and cash poor, and want to stay in your home but perhaps need funds to make repairs, pay off the mortgage to lower your cash burn or even augment your retirement income, a reverse mortgage can help. But it comes at a fairly steep price: a higher interest rate plus higher fees.
The higher fees eat away at the amount of cash you’ll get. The higher interest rate eats away at your remaining equity. And you still have the requirement to pay your real estate property taxes and homeowners insurance premiums.
It sounds like you needed cash, maybe didn’t qualify for a home equity line of credit and turned to a reverse mortgage as a way to secure the funds you required. The problem is the one you now face: You had a home without much in the way of equity, took what you could, and now have run through the cash and are out of options to get more.
It’s an unfortunate position to be in if returning to work is no longer an option or a possibility. When we get asked about reverse mortgages, we’ll often recommend that homeowners sell the property, take whatever equity they can and rent something that’s affordable. Or, better yet, move in with family or into some sort of shared living arrangement to cut costs.
