Fed policy is critically important to interest rates and January has marked a shift in the Fed policy outlook. In not so many words, the Fed sees itself hiking rates and decreasing its bond purchased more quickly than previously expected. It has conveyed this in various ways since the beginning of the month. Today’s policy announcement and press conference were just the latest iterations. They were also arguably the least equivocal.
Despite the relatively clear communication from the Fed in recent weeks, financial markets were increasingly laboring under the misapprehension that the Fed would take a softer tone in light of recent market drama. In other words, stocks have dropped significantly and rates spiked to 2 year highs as the Fed began its communication push this month, so perhaps they would “communicate” in a more market-friendly way today.
While it’s not uncommon for some market participants to hope for such things, it was never very likely in this case (one of the reasons I reiterated that the Fed is not tasked with babysitting the market in yesterday’s commentary). True to form, the Fed paid zero attention to recent market movement. In their view, rates are still low, and asset prices are elevated. If anything, they feel they need to hustle when it comes to hiking rates and decreasing bond purchases.
Bottom line, the market was a bit flat-footed heading into today’s Fed events. When the Fed stuck to the tightening script rather religiously, rates were forced to snap back to the reality they’d previously done a good job of understanding. Case in point, Treasury yields and mortgage rates are both very close to levels seen last Monday. Mortgage rates just happen to have edged slightly higher, thus earning the dubious distinction of “highest in 2 years.”
What will happen to our local real estate market now?
Speaking of misapprehension, the potential buyers who think home prices will come down will be disappointed. Not only will sellers ignore such frivolity, there will be enough motivated buyers who don’t care either. If they don’t mind paying $300,000 over list price, then they’re not going to care about a silly rate hike.
The coming Fed rate hike in March appears to be already priced in. Mortgage rates have gone up 1/2% this month, and the Fed will probably only raise their rate by 1/4% next month. We could see slightly better mortgage rates 60 days from now.
In the past, homebuyers have rushed to purchase before rates went up, and I think that will be the case this time too…..if there is only something to buy! We have had 150 NSDCC listings this month so far, which is dreadful. Last January we had 288 listings! Link to contest.
The median sales price went up 28% YoY, and the number of $2,000,000+ sales went up 66%!
The number of listings is deceiving because listing agents don’t have to refresh their listings any more. There were 580 expired/cancelled/withdrawn listings in 2021, and the number was 1,888 in 2019 – so the number of properties offered for sale each year were probably more similar than we thought.
Rob Hahn and I had a conversation about the state of buyer agency – which might only interest realtors, if anybody – but we also got into the idea of home auctions too:
We can see how MoM pricing started to slow at end of summer, only to have it pick up again in 4Q21:
San Diego Non-Seasonally-Adjusted CSI changes
Observation Month
SD CSI
M-o-M chg
Y-o-Y chg
Jan ’20
264.04
+0.2%
+5.1%
Feb
265.34
+0.5%
+4.6%
Mar
269.63
+1.6%
+5.2%
Apr
272.48
+1.1%
+5.8%
May
273.51
+0.4%
+5.2%
Jun
274.91
+0.5%
+5.0%
Jul
278.00
+1.1%
+5.4%
Aug
283.06
+1.8%
+7.6%
Sep
288.11
+1.8%
+9.4%
Oct
292.85
+1.6%
+11.5%
Nov
295.64
+1.0%
+12.3%
Dec
297.52
+0.6%
+13.0%
Jan ’21
301.72
+1.4%
+14.3%
Feb
310.62
+2.9%
+17.1%
Mar
320.81
+3.3%
+19.1%
Apr
331.47
+3.3%
+21.6%
May
341.05
+2.9%
+24.7%
Jun
349.78
+2.6%
+27.2%
Jul
355.33
+1.6%
+27.8%
Aug
357.11
+0.5%
+26.2%
Sep
359.88
+0.8%
+24.9%
Oct
363.80
+1.1%
+24.2%
Nov
367.62
+1.1%
+24.3%
Mortgage rates didn’t move much in October and November, holding between 3% and 3.25% for the average on the popular 30-year fixed. While that was slightly higher than the early summer levels, it was still historically low and considerably lower than where rates are now. Rates are now about 75 basis points above year-ago levels. Low rates over the last two years have given buyers more purchasing power and consequently fueled today’s sky-high prices.
“We should soon begin to see the impact of increasing mortgage rates on home prices,” added Lazzara.
A recent report from Realtor.com found that 14 out of the top 50 largest U.S. cities experienced listing price declines over the prior year in December.
We had 1,782 new listings of houses and condos last month, in a county of 3.3 million people? And only 1,332 active listings (I believe that is the count at the end of the month). Look at Phoenix and Las Vegas for comparison, where they have 2x and 3x as many listings.
If we get a surge of inventory, it would just make the frenzy conditions even hotter!
The NSDCC 2022 inventory is 30% behind the count from last year at this time, and that number was 20% below the previous year. Potential sellers – name your price!
The UT has published two articles about the these goofy-looking condos in North Carlsbad that supporters are saying that they need to be saved, in spite of the new owners purchasing each individual condo separately and abiding by city zoning and planning:
Excerpt from the first UT article:
Modern architecture fans hope to save a small, but distinctive condominium building known for its whimsical appearance near Carlsbad’s Magee Park.
The 40-year-old building, sometimes called the Victor Condo, on Garfield Street is one of the first examples of a postmodern style often called “Blendo” created by San Diego architects Ted Smith and Kathleen McCormick.
“Victor Condo is clearly of cultural significance and a fine example of a pivotal historic time in Carlsbad’s build-environment growth from a small coastal community to a vibrant city worthy of vibrant architecture,” said Peter Jensen, a writer and editor at Sunset Magazine and San Diego Home/Garden magazine for 40 years.
As “affordable yet stylishly significant (not to mention excitingly livable) dwellings” the buildings are an example of late 20th century innovation in an area that too often relies on cookie-cutter architecture,” Jensen said in comments on a petition to save the structure.
“We believe the building qualifies as a design on the vanguard of an important architectural movement,” states the petition posted by San Diego architect Patrick Cordelle, who works with Smith and McCormick.
One more thought about the extinction of buyer-agents.
There are many variables that point to the demise of the two-agent system that has prevailed for 100+ years. The coming changes should roll out over the next 12 months too – how exciting!
What’s already happened:
Buyer-agents can no longer tell buyers that they work for free, when paid by the seller.
Buyer-agent commissions are advertised on the search portals.
What’s coming:
The DOJ/FTC directs realtors to ‘de-couple’ commissions, and buyers pay their agents, instead of sellers.
Buyers will think they won’t have to pay a commission by going direct to the listing agents.
CoStar develops and advertises the Broker Public Portal, whose stated goal is to advertise listings and send all buyer inquiries back to the listing agent, instead of a third-party.
Realtors will sell their listings directly to those inquiring buyers.
The traditional buyer-agents get cut out of the loop, which then also means the MLS isn’t needed either. Then today’s search portals break down because they aren’t getting the listing feeds from the 600+ MLS companies around the country.
Because it is dual agency when buyers go direct to the listing agent, there will be a semblance of buyer representation, so commission rates won’t change much – even though buyers will mostly be on their own. Whether the consumers recognize the benefits of having their own representation won’t matter. They just want to buy a house, so the companies that spend the most money on advertising with win their business.
Any disrupter could win the game if they spend enough money. Zillow was spending more than $100 million per year in advertising to become #1, and it worked.
In the link below, Joe says that CoStar is going to spend a couple of hundred million dollars on consumer advertising to compete with Zillow. You can imagine their advertising:
Want to know about a property? Click here to contact the listing agent directly!
Joe lays it all out here, starting at the 17-minute mark:
I screwed up the national rankings the other day. Donna sent me that clip but it was the 2020 list, not from last year. Anyway, who cares about the national – real estate is local!
In just 3+ years, Compass has become the dominant real estate brokerage in San Diego County, and it’s not close. Even if you add the two CBs together, our volume last year was almost double any other brokerage.
How will this affect consumers in the future?
As buyer-agents are phased out over the next 1-2 years (and it could happen sooner), there won’t be a need for the MLS. Inputting our listings onto Zillow will become voluntary, and only used if the homes can’t be sold in-house.
It will be just like the commercial side of real estate, where all the good deals are kept in-house, and only when they don’t sell, are the listings inputted onto LoopNet.
