Leucadia Developments

More review of the latest developments in Leucadia as I cruise by the next Toll Brothers community and take a look at what the planning commission just approved:

The 3.79-acre project site, which is just south of the Alila Marea hotel on N. Coast Highway, is proposed to contain 94 apartments, of which 19 will be set aside for low-income people. There’s also a 34-unit hotel that will be connected via bridge to the existing resort. Some of the apartments will be built over a parking structure, others will be above commercial space. The commercial areas could contain everything from an ice cream shop to high-end restaurants.

Over List, June

Paying over the list price must have some addictive qualities!

Either that, or the superior homes are still attracting a lot of attention.  Well into the higher-rate environment, more than half of the June buyers paid over the list price!

Here is the breakdown by price range:

The average and median sales prices have been drifting downward, but both are still above the list prices:

The year-over-year sales are going to look terrible because 2021 was an incredible frenzy.  The NSDCC June sales in the three previous years were 274, 282, and 299, so the 188 is only 34% below that average.

My La Jolla sale was the fifth-highest sales price in June, and sold for $1,150,000 more than the oceanfront house on Calumet.  My $800,000 over list was #1 – it was the most over list of all the June sales!

Remote Work Caused 1/2 Of Price Surge

There are many who insist that real estate will follow its historical trend, and I like to say ‘it’s different now’ just to irritate them.

What are the things that are different?

Every buyer has had to qualify for their mortgage and use a sizable down payment, the vast majority have been buying their forever home (even if they didn’t know it at the time), and homeowners at the coast will likely be paying six figures in capital-gains taxes if they sell – which means that they need to leave San Diego to really make it worth moving.  As a result, the number of people who are willing to sell has plummeted, which has kept the pressure on pricing.

The demand is different too. Back in the old days, it used to be loosely tied to incomes, but that flew out the window decades ago around here. The influx of affluent people has helped, but there is also a big difference that these researchers have explored – working from home:

It’s no secret that Americans’ newfound remote work lifestyles drove demand for larger homes with more comfortable workspaces.

What’s new: That demand may be responsible for more than half of the surge in real estate prices during the pandemic, according to a working paper published by the National Bureau of Economic Research.

  • It’s one of the first papers that aims to quantify how remote work reshaped the housing market.

Why it matters: If the research holds up, it signals a fundamental shift in the housing market — that it wasn’t just low-interest rates and fiscal stimulus that drove up housing prices.

By the numbers: It found that remote work led to about 15 percentage points of the 24% average increase in house prices between December 2019 and November 2021.

Details: The paper’s authors are John A. Mondragon, an economist at the Federal Reserve Bank of San Francisco, and Johannes Wieland, of the University of California, San Diego’s economics department.

  • The researchers found that after controlling for COVID migration, regions with the highest rates of remote work experienced much higher home price growth during the period.
  • They also observed a similar effect on residential rents — along with declines in commercial rents — in these areas.

What they’re saying: This implies a shift in demand, as many pandemic homebuyers and renters sought to upgrade to larger, and more expensive homes to support their telework lifestyles, said Mondragon.

The bottom line: Policymakers like those at the Fed would be wise to pay close attention to the evolution of remote work because it will help determine the future of home prices — and of overall inflation, the economists wrote.

https://www.nber.org/papers/w30041

Inventory Watch – Happy 4th!

This should be about it.

If there hasn’t been a surge of inventory by now, it’s not coming – at least not this year.

There might be some nice action over the next couple of weeks as buyers try to land a deal before school starts, but there won’t be big discounts – they will have to pay the price.

It will probably be the same in 2023 too.

How do I know?

Ask any potential, or actual, home sellers around the coast:

“You already have to pay six figures in capital-gains taxes when selling your home (and if they are selling a home they have owned since the 1970s or 1980s, it could be $500,000 to $1,000,000 in taxes).

“How do you feel about lowering your price by $100,000 or $200,000 too?”

“How do you feel about losing that much money?”

Their answer will tell you everything about the future of our market – they’re not going to give it away!

It’s been the craziest six months of real estate ever! Expect it to get downright boring from here.

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Harry Gesner, RIP

Hat tip to Rob Dawg for sending in the news that one of the most engaging architects of our time has passed away at age 97.  Harry lacked formal architecture training, but that didn’t stop him from designing 100+ houses.  My favorite is the Sandcastle (above), the house he built himself from reclaimed woods and other parts found at the junkyard. He lived there for the second half of his life, and he used to sit up in the tower to do his designing!

A couple of links to view his work:

https://www.pinterest.com/domester/harry-gesner-architect/

https://www.instagram.com/explore/tags/harrygesner/

Here are quick interview questions plus a Vimeo film linked at the bottom with clips of the Sandcastle interior (at the 9:15-min mark) and his 1958 Mercedes Benz 190SL that he converted to electric power:

Modernism’s Maverick: A Conversation with Harry Gesner

Fewer Are Moving

These are excerpts from Scott G’s newsletter yesterday:

The most recent migration headlines concern Silicon Valley. The narrative: It sucks and everyone is leaving. Venture capitalists who built their fortunes in the Valley say they’re “over” it. The Bay Area is “crashing” and has become “unhinged” with wokeness. “San Francisco is Detroit and Miami is the future,” claimed a recent VC transplant. Elon Musk relocated Tesla from California to Texas, saying California state laws were “fascist.” Newspapers across the country report on a “tech exodus,” with quotes and anecdotes from aggrieved tech workers. California’s dead. (So is New York.) Tech’s moving to Texas and Florida, and the money will follow.

We’ve been to this movie before — it’s called bullshit. In 2005, Silicon Valley was losing its edge and hemorrhaging jobs. In 2009 it was shrinking, on the brink of death. In 2010 it was on the brink of death again. In 2012 the Golden Age of the Valley was over. In 2014, San Francisco was declared the next Detroit. However, the next Detroit has HQs within a 15 mile radius whose combined market caps rival the GDP of Germany and Japan combined. I know, apples/oranges … both are fruit. You get the idea.

Ninety-seven percent of startups stayed in the Bay Area in 2020. Of the 1.2% that moved, a fifth went somewhere else in California, and another fifth went to New York. The Valley still dominates the startup scene. Last year firms domiciled in the Bay Area received over a third of total U.S. venture capital funding. Austin and Miami received 1.5% and 1.4%, respectively — less than Seattle, Philadelphia, or D.C. I don’t believe a city can sustain a robust technology sector unless it has a world-class engineering school (e.g., Berkeley, Stanford, etc.). Also, declining quality of life and overwhelmed infrastructure is an apt descriptor of … Miami. And Miami’s population actually declined in 2021.

The tech exodus narrative is a distraction. The real domestic migration trend is…..less migration. Specifically, people aren’t moving. In 1948 roughly a fifth of Americans changed residences. That number has been steadily declining since. During the pandemic, we read opinion pieces about everyone quitting their job and moving to Maine. There was a feeling that migration habits were changing; in reality the song remains (increasingly) the same. In 2021, only 8.4% of Americans moved — an all-time low.

It’s been happening for several decades, though nobody can figure out why. An aging population and a younger cohort described as the “complacent generation” are factors, but there must be more. Lack of portable health care and a decline in the lifestyle once sought in the West could also be explainers. My theory is that, like everything else, mobility has become a luxury item costs can only be borne by college grads (who are themselves increasingly anchored by student loan debt).

The problem isn’t that a tech Karen is leaving the Bay Area, it’s that not enough people are leaving any area. “Remote Work” should be called “Work from Home” as it’s decreasingly remote, just at home. Six in 10 people who move stay within their county; eight in 10 stay in-state.

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