Frenzy Cruise 7
There may not be many more of these!
At the end of the video, I promised some pricing data and of course the MLS is down tonight so if you came to see list prices vs. sales prices, check back tomorrow.
Santana & Wife
If this was just a video of Carlos and his drummer wife Cindy it would be incredible. The supporting cast really clinches it.
P.S. If you are in a Mexican restaurant and the Mariachi band wants to play a song, request Oye Como Va – it’s a guaranteed hit because everyone knows it:
Early 2022 Was The Culprit
Yesterday’s Case-Shiller Index for San Diego was 425.26, which is 11% higher than it was in January.
But check how the trend increased between January and now.
Prices rose as fast as ever in early 2021 (yellow above). If they would have mellowed out along my red line, then we would have experienced slightly-increasing prices for the last year. But noooo! Instead, the early-2022 buyers – egged on by their realtors – insisted upon paying ridiculous amounts over the list price to win a house. Hopefully that practice is done.
The only reason the June reading was 11% higher than January was because it came down a bit. The San Diego Case-Shiller Index rose 11.2% between January and April, 2022, which was an annual clip of 33.6% – which nobody would have believed was sustainable after rising 43% since the pandemic started.
If the SD Case-Shiller just goes back to where it started in January, it will be a 10% drop from today, which will sound like a disaster. But the annual appreciation will be zero, which is not only reasonable, but sustainable for a while.
Is anyone going to mind if we start 2023 where we started 2022, price-wise? If mortgage rates can stay in the 5s, and hopefully the low-5s, we should be fine!
San Diego Case-Shiller Index, June
Everyone is throwing around the ‘deceleration’ word like it means something. But the only number that matters is the month-over-month change, which went DOWN for the first time since October 2019 – but it only went down that one month. The local index dropped 2.8% between July, 2018 and January, 2019, and we’ll probably see more than that this year.
Homes still won’t be affordable for most, and there won’t be many for sale as the Big Standoff of 2023 sets up.
San Diego Non-Seasonally-Adjusted CSI changes
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“It’s important to bear in mind that deceleration and decline are two entirely different things, and that prices are still rising at a robust clip,” wrote Craig Lazzara, managing director at S&P Dow Jones Indices in a release. “June’s growth rates for all three composites are at or above the 95th percentile of historical experience. For the first six months of 2022, in fact, the National Composite is up 10.6%.”
In the last 35 years, only four complete years have witnessed increases that large, he added.
Another report last week showed home prices declined 0.77% from June to July. It was the first monthly fall in nearly three years, according to Black Knight, a mortgage software, data and analytics firm.
While the drop may seem small, it is the largest single-month decline in prices since January 2011. It is also the second-worst July performance dating back to 1991, behind the 0.9% decline in July 2010, during the Great Recession.
Home prices are softening due to rising mortgage rates, making an already expensive housing market even more so. Sales of both new and existing homes have been dropping for several months, leading some economists to call a housing recession.
“We’ve noted previously that mortgage financing has become more expensive as the Federal Reserve ratchets up interest rates, a process that continued as our June data were gathered. As the macroeconomic environment continues to be challenging, home prices may well continue to decelerate,” said Lazzara.
Cheaper Beach Towns
They may not be as nice as San Diego but you don’t have to spend a million either:
Inventory Watch
On August 8th, the number of pending listings was down to 151 (which was the lowest since early January), and it appeared that the market might shut down early this year.
But today we’re back up to 175 pendings, and still have 449 active listings for buyers to consider.
The number of actives should shrink a bit in September, but pricing should stay range-bound because sellers aren’t going to give up – they will cancel instead.
Here are the remarkably-steady weekly averages of this year’s list-price-per-square-foot, by price range:
Buyers were happy to pay these prices earlier this year when rates were in the 3s!
Is a lower mortgage rate the only thing missing? The sellers can help with that.
It looks like we will muddle through the rest of 2022, and begin next year with prices that look pretty similar to what we have today.
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Carlsbad, California
A good introduction to what it’s like living in Carlsbad:
SB 1079 Exploited
An excerpt from this article:
Riggins, 67, retired early from his career in construction and maintenance for the city of Richmond after a knee injury put him on disability in 2008. But, the income from his tenants helped keep him afloat.
“The building was in good shape, and I had good tenants,” Riggins said. “Everything was just happy. Until. Yeah, until.”
Riggins went through a divorce and sought a modification on his mortgage in 2019. While that was being considered, his lender foreclosed. Everything his parents had worked for seemed to slip through his fingers.
“That sent me through a great depression for a year,” he said. “When you do everything you can do, and it seems like it’s not enough, it’s like everything is against you.”
The ultimate buyer was Southside Neighborhood Stabilization, a limited partnership registered to an Encinitas, Calif., address. The general partner was a Virginia nonprofit, Southside Community Development and Housing Corporation.
It was this partnership with a nonprofit that allowed the organization to buy the house under a 2020 California law, SB 1079. It allows tenants of foreclosed homes, owner-occupants, governments and nonprofits an exclusive 45-day window to match the winning bid at a foreclosure auction. It was one of 15 housing bills signed into law that year aimed at creating more affordable opportunities for renters and homeowners.
Southside’s website states its mission is “advocating for the needs of communities and families” to “stabilize communities throughout the United States.” And while that should have been a relief to Riggins, it wasn’t. He couldn’t understand why a nonprofit, nearly 3,000 miles away, had purchased his property.
“Why would they want to buy something in California?” Riggins wondered. “And I think that’s the part that just really has me just furious. Why would you want to invest in something that you have never seen?”
The two-story triplex, with its salmon-colored stucco and white trim, was one of at least 74 properties Southside Neighborhood Stabilization scooped up since it formed in early 2021.
The organization is one of at least three such entities created in California after SB 1079’s passage to purchase homes in partnership with nonprofits that have the stated goals of providing affordable housing to communities in need. But in a review of nearly 200 property records, and interviews with over a dozen homeowners and investors who’ve purchased properties from them, there’s little evidence these homes are actually being used as affordable housing.
“They’re all just being flipped,” said Jeff Cagle, a Central California house flipper who’s lost dozens of foreclosure auction bids to purchasers who invoked SB 1079. “The whole idea was that if nonprofits bought this, this was supposed to benefit affordable housing, but none of them were being retained as affordable housing.”
Read full article here:
“San Diego Prices Drop 5.6%”
From cnbc – an excerpt:
Some local markets are seeing even steeper declines over the last few months. San Jose, California, saw the largest, with home prices now down 10% in recent months, followed by Seattle (-7.7%), San Francisco (-7.4%), San Diego (-5.6%), Los Angeles (-4.3%) and Denver (-4.2%).
Home prices were still 14.3% higher in July compared with July 2021, which is more than three times the historical annual price growth, but the majority of that growth took place over the first five months of 2022, before the big spike in mortgage interest rates.
The average rate on the popular 30-year fixed mortgage began this year right around 3%, according to Mortgage News Daily. It climbed slowly month to month, pulling back slightly in May but then shot more dramatically to just over 6% in June. It is now hovering around 5.75%.
“We’ve been advising for quite some time that the dynamic between interest rates, housing inventory and home prices was untenable from an affordability perspective, and at some point, something would have to give,” said Andy Walden, vice president of enterprise research and strategy at Black Knight.
“We’re now seeing exactly that, with July’s data providing clear evidence of a significant inflection point in the market,” he added. “Further price corrections are likely on the horizon as we move into what are typically more neutral seasonal months for the housing market.”
Did you see it? Probably not, because homes selling for 5.6% below comps would be about 10% under list.
Did you feel it? I’d say yes, it’s in the air. But sellers are very reluctant to go along, and the number of sales are the proof (half of last year). Having more actives listings sitting around not selling are suspicious, but if they don’t sell then we really don’t know for sure. Sellers will be much more likely to cancel their listing at this point, than reduce their price.
Are we going to hear more like this? You better believe it! Wait until Tuesday’s Case-Shiller!
What are you going to do about it? The only question that matters!
Obviously, the majority of buyers will be happy to wait longer, hoping this be the first of many drops. But for those who sense an opportunity, there will be an occasional deal – but you will have to earn it. Home sellers aren’t going to list their home for 5% to 10% below comps – they never have, and never will.
Those who stay in the game and make offers on several properties might be able to score a deal.
Compromise Is A Good Thing
When I made the comment that people are soft, it was because I was thinking about the guy who came to the open house and said he would have bought it…..except for the power lines.
If he had issues with the house, yard, etc. and the power lines were just one of the objections, then fine.
But are you going to pass on an otherwise perfect house because of power lines that are a 1/2 mile away? They don’t have flashing lights on them, and they are far enough away that you won’t hear any buzzing. With the hill behind them, they blend into the landscape – and once you move in and life takes over, you probably won’t notice them much at all.
Why should you compromise?
Because other people are compromising in order to actually buy something – it’s what happens once you realize that you’re probably not going to find a perfect house.
What if prices came down 10% to 20%? Wouldn’t that mean the chances would improve?
I guess yes, technically, the odds would be better. But if you did find a perfect house, you’d have to beat out the other buyers to win it, which will probably take over-bidding by 10% or more.
Look at the featured La Costa house of the week. It didn’t have a full bathroom downstairs to go with the 4th bedroom, but that didn’t stop ten people from making an offer. Or think of the buyers of my $7.75M listing in La Jolla. They had to live with three staircases and a one-car garage and they still paid $800,000 over the list price.
Why compromise? Because it shortens your timeline, and makes the process more manageable.
If you are looking for any reason NOT to buy a house, then you are one of the non-compromisers – which is fine. But have you noticed that every house seems to have an issue, and there is no telling when you will find the perfect home….if ever? You may never buy a house!
Instead of looking for one reason NOT to buy, be intent on finding reasons TO buy the house.
Know that every house is probably going to need at least $25,000 to $50,000 in upgrades, so look for those first, and get them out of the way. Then if you can find a house that just has more positives than negatives, you’re doing good. If positives outweigh the negatives by 3-to-1 or more, you got a winner!
Jim Klinge
Klinge Realty Group
Broker-Associate, Compass
Are you looking for an experienced agent to help you buy or sell a home?
Contact Jim the Realtor!
- 682 S. Coast Hwy 101, Suite #110
Encinitas, CA 92024 - (858) 997-3801 call or text
- klingerealty@gmail.com
CA DRE #01527365, CA DRE #00873197
