After my blog post yesterday publicizing the confidence Zillow has in our local markets, guess what arrived today. Yep, their first installment of their next round (it usually takes 2-3 weeks to receive the full set):
At the end of July, their prediction for Carmel Valley was for a 12.9% increase in values over the next year. Today, their forecast is for +1.7% appreciation over the next year for one of the strongest markets in the county. It means that many other areas are going to have a negative number.
I think we can say that summer is over, and the off-season is here.
How will the rest of 2022 play out, and what will be the effect on the 2023 Selling Season?
We know that the local NSDCC sales counts will be low for the rest of 2022. Last year we had 136 closings between August 1-15, and this year we’ve had 65. If we keep having about half of the 2021 sales, then our total sales between August and December will be 594, or an average of 119 per month!
It could look something like this green line:
We will probably have fewer listings than ever in 2H22, but those sellers should be motivated to sell. If they didn’t need to sell, wouldn’t they be tempted to just wait until spring to go on the open market?
We know that every seller has a load of equity, so if they have to lower their price to sell, they could. But will they? We can speculate that if they only had to lower their price by 5%, then they would make the deal. But going lower than 5% off is where the trouble starts – and the seller’s ego gets a vote.
If sellers continue to hold out on price, and sales follow the green line, it will look like a hard landing – and the 2023 selling season could end up being a dud. It would definitely get off to a slower start, and could sputter through the selling season if the inventory is lackluster and priced at retail, or retail-plus.
How likely is that? Very!
The second-half sellers of 2022 are going to determine our fate for the 2023 Selling Season. Expect next year’s market to be somewhere in the Sputter-to-Frenzy range, guaranteed!
But if you are a buyer, what are you going to do? Wait until 2024?
Let’s re-visit this in January. If sales beat the Green Line, then a more active market in spring is likely!
The latest Zillow 1-Year Forecasted Values are still expecting a fairly strong appreciation rate over the next year – these estimates are the same or higher than last month! I can see a path to how this could happen.
The Spring Selling Season gets frenzied up for 3-4 months where buyers and sellers all jump in at the same time, and then the market goes flat for the rest of the year…..kinda like this year!
NW Carlsbad, 92008:
SE Carlsbad, 92009:
NE Carlsbad, 92010:
SW Carlsbad, 92011:
Carmel Valley, 92130:
Del Mar, 92014:
Encinitas, 92024:
La Jolla:
Rancho Santa Fe, 92067:
They do have website-viewer data that nobody else has, and hopefully they are using it to track the activity and make predictions.
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. We’ve considered a 2:1 ratio of actives-to-pendings to be a healthy market.
Most areas today have the same or better stats as they did last month. The number of active listings hit their peak in August last year, as usual, and it’s likely that the count of unsold listings will drop slowly over the rest of 2022 (and the pendings follow). Prepare for 2-3 months of NSDCC sales being under 100!
NSDCC Actives and Pendings
Taking out the high-enders La Jolla and Rancho Santa Fe, the actives-to-pendings is 2.4-to-1 (291:121), which isn’t bad, all considered.
Mid-February, and the 2023 Selling Season, is only six months away!
Yesterday was the Compass 2Q earnings call (transcript here) and as usual, the headlines focused on the net loss of $101.2 million – more than half of which was stock-based compensation for agents.
Compass has been very generous in their support of agents nationwide, and management is finding ways to effectively scale it back a bit. For example, they won’t be offering stocks as a recruiting tool any more. But we, the existing agents, aren’t affected by recruitment, and we’d be fine if they didn’t hire another agent! So while the stock may get battered, the agents are doing well.
I’ve mentioned that our annual contract is up in July. There was a time when we discussed Kayla joining Compass in NYC, and during that discussion our CEO offered us a 2-year contract. I brought it up again last month, and he agreed to it. We signed a two-year extension a couple of weeks ago – we are happy here!
Here are the Compass internal comments about the earnings call:
It’s probably true that seniors are leading healthier, longer lives and will prefer to age-in-place – which will keep a limit on the number of homes for sale and temper any downdraft in pricing. What is worse is that the resulting back-up will cause others to stay in their current home forever too!
It was asked on Twitter, ‘how could homes prices get cut in half?’ I said, “Boomers die 10x faster”, which got my Twitter account suspended temporarily. Let’s see if they do it again!
Reader ‘just some guy’ sent in this UT article – an excerpt:
On Thursday, county officials announced that San Diego County has become the first county in the nation to have all 18 of its eligible hospitals receive the Geriatric Emergency Department (GED) Accreditation.
San Diego County is home to a large population of people age 60 and older, and that demographic is projected to continue growing over the next decade. Today, there are approximately 670,000 county residents in this age group, and by 2030, they are expected to surpass 900,000, said Nick Macchione, director of the county’s Health & Human Services Agency.
Seniors are more likely than almost any other age group to visit the emergency room. The county reports that each year, about 275,000 county seniors make ER visits, which leads to about one-third of all hospital admissions. “That is why it’s critically important to have all our hospitals that are eligible be geriatric certified,” Macchione said.
There was a nice bump of 17 additional pendings in the past week, from 151 to 168. The biggest increase was in the $4,000,000+ category, which grew from 24 to 32 pendings!
There are two pendings priced at $10,000,000+, and 51 active listings!
It doesn’t look like there will be much more change in the quartiles this year:
I’ll find someone to buy my $2,295,000 listing in La Costa Oaks, and it could be the last LCO listing of the year. It will mean that LCO sellers will be expecting at least $2-something in the 2023 selling season, which won’t feel like prices dropped much while buyers were on vacation.
Here is a wider look at the fire map for Encinitas/Carlsbad.
The blue dot is the location of my listing in La Costa Oaks; a neighborhood of 820 homes built in 2005-2013 (long after the Harmony Fire of 1996). The newer homes were built on the outskirts of town, so if you prefer a recently-built home, it’s very likely that it’s going to be in the fire zone.
For those who can’t find a traditional insurance carrier to provide fire insurance, there is the California Fair Plan. Here’s a quote from a Liberty Mutual agent:
Regular homeowners policy (liability, theft, etc.): $1,700 per year.
CA Fair Plan (fire): $3,500-$5,000 per year, depending on the deductible amount.
My sellers’ policy (with fire coverage) with Mercury Insurance is $3,500 per year, so the additional amount with the CA Fair Plan is approximately $3,200 per year if you like a lower deductible.
Homeownership is expensive. If you want a newer house, it’s likely to be located in the fire zone and be more expensive to insure. If you buy an older home, you’ll probably spend the same or similar amount having to update/improve it every year to bring it up to today’s standard. It’s your choice!
For home buyers, it’s hard to tell if you are on red alert hunting for houses, or sitting on the sidelines because it feels the same. Either way, there aren’t many homes to consider – you can go weeks without seeing anything worth a look – so it’s hard to keep your chops up.
Then add in the end-of-summer malaise as families focus on back-to-school events and we have an environment that you would think was flat. But the first ten days of August are off to a better start than July, and about the same as June.
What is different this summer:
Higher mortgage rates.
No urgency due to stalled pricing.
Having to wait now extends to sellers too.
What is the same:
Ultra-low inventory of quality homes at decent prices.
Sellers have lots of reasons not to sell or lower their price.
Buyers who really want to buy have to cope with the desperation.
The biggest problem is that price reductions don’t change any of the above – unless you really dump. The two listings we’ve seen that chopped $500k have found their way into escrow, so we can say that the half-million reductions work.
But the usual 2% to 5% reductions aren’t going to impress buyers, especially after 30+ days on the market. By the time any of today’s active sellers lower their price enough (at least 2x), it’s going to be October and a little too close to the 2023 selling season. They will wait until then instead.
What’s the Best Thing Buyers Can Do? Expand the zone – look farther out and/or consider the fixers.
What’s the Best Thing Sellers Can Do? Complete more improvements – make it look like a model.
September should be more productive than we expect – we’re overdue for some real action, and buyers who have been patient might throw some offers around. Hang in there – Halloween is 80 days away!
