Today’s Mortgage Rates

The traditional spread between the 10-year Treasury Yield and the 30-yr fixed mortgage rate has been 1.75%. Today it is 2.7%, which sure makes it look like the next Fed increase is already priced in.  This week, we will see if mortgage rates will moderate and stay in the fives after the Fed bumps again!

When 10yr Treasury yields are dropping, mortgage rates are typically following, even if the proportion can vary.  Mortgages definitely don’t benefit as much when it comes to overseas developments, but the sense of a big picture reversal is the same in either case.  By Friday afternoon, the average mortgage rate was just a hair lower than those seen in early July.  You’d have to go back another month to see anything lower.

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Any conversation about big drops in rates requires an asterisk right now.  Rate quotes can vary greatly depending on the scenario and the lender, but they’re not necessarily as different as they may seem.  The reason is the role of “upfront costs” in the current market.  Historically, it tends to make more financial sense to avoid paying additional upfront costs (aka “points”) in exchange for a lower rate.  Many borrowers may still agree.

Nonetheless, points are packing a bigger punch than normal due to trading levels in the bond market, and that is having an impact on many loan quotes.   For example, there are some scenarios where a single discount point can drop the rate by more than half a percent.  Historically, that point would only be worth 0.25%.

There’s no universal recommendation here. If you find yourself comparing one quote to another, just make sure you’re taking the upfront costs into consideration.

The Barrier to Home Prices Dropping

No No No Not Today GIF - No No No Not Today Nah GIFs

The biggest barrier to prices going down is that sales are needed to prove it.

Back in the old days when we had foreclosures, the banking rules forced lenders to keep selling their REOs, regardless of price.

But who or what is going to force regular homeowners to sell for whatever the market will bear?  Anyone who needs money can borrow against their sizable equity, and virtually everyone who can’t get their price today will blame it on everything but their price (“I have comps!”) and wait for a sunnier day.

How bad will sales get?

Here are the NSDCC sales counts from recent months of July:

2017: 260

2018: 271

2019: 281

2020: 351

2021: 312

We’ve only had 103 NSDCC sales this month, with a week to go plus late-reporters.

Sellers get a vote in this process, and they can choose to not sell – and create the Big Standoff.

SB 1105

SB 1105 has already passed in the state senate, and is being debated in the assembly. According to C.A.R., it will ‘grant vast, unchecked, taxing and bonding authority to an unelected Housing Agency Board in San Diego which would consist of 6 appointed representatives’. Huh? Anything that resembles a property tax is supposed to be approved by the voters!

This bill, the San Diego Regional Equitable and Environmentally Friendly Housing Act, would establish the San Diego Regional Equitable and Environmentally Friendly Affordable Housing Agency and would state that the agency’s purpose is to increase the supply of equitable and environmentally friendly housing in the County of San Diego by providing for significantly enhanced funding and technical assistance across the regional level for equitable and environmentally friendly housing projects and programs, equitable housing preservation, and rental protection programs, as specified. The bill would require a board composed of 6 voting members who are primary or alternate members of the San Diego Association of Governments, as specified, to govern the agency.

This bill would authorize the agency to, among other things, incur and issue indebtedness, place various measures on the ballot in the County of San Diego and its incorporated cities to raise and allocate funds, in accordance with applicable constitutional requirements, and to issue general obligation bonds secured by the levy of ad valorem property taxes, for purposes of producing and preserving equitable and environmentally friendly housing and supporting rental protection activities, as specified. Among the funding measures, the bill would authorize the agency to impose a parcel tax, a gross receipts business license tax, a special business tax, specified special taxes on real property, and a commercial linkage fee, as defined. The bill would also authorize local jurisdictions within San Diego County to impose a special documentary transfer tax, as specified, and authorize those local jurisdictions to remit proceeds of the tax to the agency to support the purposes of the agency. The bill would require that revenue generated by the agency pursuant to these provisions be used for specified housing purposes and require the agency to distribute those funds in accordance with specified requirements and subject to a specified priority. The bill would require the board to provide for regular financial audits of the agency’s accounts and records and to provide for financial reports.

The bill would require a development proponent for a development funded by the agency pursuant to these provisions to require, in contracts with construction contractors, that certain wage and labor standards will be met, including a requirement that all construction workers be paid at least the general prevailing rate of wages, as specified. The bill would require a development proponent to certify to the agency that those standards will be met in project construction. By expanding the crime of perjury, the bill would impose a state-mandated local program. The bill would also prohibit the agency from placing a measure on the ballot to raise revenue for the agency unless the agency has entered into a countywide project labor agreement with the San Diego County Building and Construction Trades Council, as specified.

The bill would include findings that changes proposed by this bill address a matter of statewide concern rather than a municipal affair and, therefore, apply to all cities in the County of San Diego, including charter cities.

Frenzy Monitor By Area

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.

In the recent years prior to the pandemic, the actives/pendings in Rancho Santa Fe ran at a 10:1 pace.  Nobody is in a hurry there, they don’t have to sell, and they’re not going to give it away.  Those days appear to be coming back.

The median list price of those RSF actives is $5,995,000 – is anyone going to feel sorry for them? Probably not. Does it reflect what is going on in the rest of the area? Not really – the other areas are mostly around a 2:1 ratio (except La Jolla) which has been our standard for a healthy market and pretty good, all considered.

In 2020, we had 400+ pendings from June 22nd to November 30th – with a peak of 491 pendings on September 7, 2020.

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Post-Frenzy Definitions

The doomers are hoping to drive the real estate market into hysterics, just for fun.  It’s easy for buyers and sellers to get caught up in it too, and think the sky is falling.

Let’s identify the terms, what doomers want you to believe, and the truth:

Inventory Surge

Doomers: Sellers are hitting the panic button.

Truth: If we are taking about a surge in active listings, it is because the list of aspirational sellers (those who will only move if they get their price) is growing longer. They aren’t the market makers; they are only helping those that are.

Price Reductions

Doomers – Home prices are falling.

Truth: Sellers mis-priced their home from the beginning, and now they are hoping that if they knock off a couple of bucks, it will make a difference.

Affordability/Revert to Mean

Doomers – Home prices must come down so regular people can afford to buy.

Truth – Around here, homes haven’t been affordable for the common man in years, yet home prices have accelerated.  The NSDCC market is only for the affluent now.

Higher Rates Will Crush the Market

Doomers – Home prices and rates go hand in hand. When rates go up, prices must come down.

Truth – The bumps in rates are only giving the affluent a reason to pause, in hopes of a price correction.

More Open Houses

Doomers – Realtors are panicking.

Truth – More realtor trainees are trying their luck.

Home Sales Dropping

Doomers – Market is being crushed.

Truth – More sellers are holding out for their price.

Sales Crushed

Doomers – Zero

Truth – If the NSDCC monthly sales stay in the 100-200 range, we will be fine. Those are January counts, and the usual market seasons have been topsy-turvy since March 2020 so it will give the demand more time to get pent-up.

Prices Crushed

Doomers – 50% off

Truth – Sellers determine what they can live with, and their ego plays a bigger role than you might imagine.  Nobody has to sell any more, so expect resistance to selling for lower than the last sale.  Only the extremely-motivated sellers will sell for a big discount today – it will take years for that to become commonplace.

I’ll add a few more later!

Who’s Moving to San Diego

Angelenos are migrating to San Diego and San Antonio at higher rates than a year earlier as folks living in the large metro are seeking to stretch their dollar farther elsewhere, according to data from Redfin.

Out-of-state migrators heading to San Diego are most commonly from Seattle.

San Diego made RedFin’s top 10 popular migration destinations during 2022’s second quarter, Redfin reported. For both the first and second quarter, Miami has taken the top spot for the most popular migration destination, followed by another Florida city, Tampa; then Phoenix; Sacramento; Las Vegas; Cape Coral, FL; San Diego; North Port, FL; San Antonio; and Dallas coming in last.

Top 10 Popular Migration Destinations in 2022:

  1. Miami, FL
  2. Tampa, FL
  3. Phoenix, AZ
  4. Sacramento, CA
  5. Las Vegas, NV
  6. Cape Coral, FL
  7. San Diego, CA
  8. North Port, FL
  9. San Antonio, TX
  10. Dallas, TX

Redfin measures migration popularity based off something they call net inflow, which is the increase of users looking to move into an area versus leaving it.

Compared to one year ago, even more homebuyers are moving away from expensive metropolitan cities as permanent remote work becomes more common. San Diego is first choice for those moving out of Los Angeles and wishing to stay in California. Phoenix is the top spot for Angelenos looking to relocate out-of-state.

Fewer Listings = Fewer Sales

The latimes continued their assault on the truth today.  The number of homes for sale has a major impact on the number of sales.  What we’ve had is an inventory problem, yet they make no mention of it here:

Southern California home prices and sales edged lower in June from the month before, adding to the pile of evidence that the housing slowdown is starting to pull home values lower.

The data, released Tuesday by DQNews, marks the first month since January that Southern California’s ultra-competitive housing market saw a decline in the median home price. The median is the price at which half the homes sold for more and half for less.

The region’s six-county median sale price was $750,000, down from $760,000 in May. However, a broader view shows that prices are still soaring compared with last June, when the median price was $679,000.

Still, the drop comes as a slight surprise. Although median prices tend to peak in the summer, the average increase from May to June was 1.78% over the last decade, DQNews data show. The last time prices fell from May to June was in 2010.

Home sales, meanwhile, slipped on a month-over-month basis but plunged compared with a year earlier, DQNews said. A total of 20,289 homes were sold in June compared with 27,143 the previous June — a decline of 25.3%.

Compare the La Jolla-to-Carlsbad numbers from previous months of June:

NSDCC June Active Listings and Sales

# of Active Listings, First Week in June
# of June Sales

The 1.8 rate of sales-to-active-listings was about the same as it was in the last two years, which were considered the hottest on record!  The precipitous drop in the number of listings has to be considered when examining the current market conditions.

Money Supply Helped

Rob H. noted that home prices have simply followed the flood of money. The M2 definition:

US M2 Money Stock refers to the measure of money supply that includes financial assets held mainly by households such as savings deposits, time deposits, and balances in retail money market mutual funds, in addition to more readily-available liquid financial assets as defined by the M1 measure of money, such as currency, traveler’s checks, demand deposits, and other checkable deposits.

The US M2 Money Stock is critical in understanding and forecasting money supply, inflation, and interest rates in the US. Historically, when the money supply dramatically increased in global economies, there would be a following dramatic increase in prices of goods and services, which would then follow monetary policy with the aim to maintain inflation levels low.

So there you go!

It reminded me of the bank underwriter who was processing the PPP loans. She told me that her supervisor said to approve every one!

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