Let’s review the pricing expectations for 2013, and how this thing works.
Every seller wants more than the last guy, and buyers are willing to pay the same as the last guy.
The Compromise
Buyers and sellers agree to a price that’s a little higher than the last guy.
It’s a win-win for all. Sellers get more than anyone else in the neighborhood has gotten for years, and buyers accept that the extra mustard is the premium paid for getting it done.
What is the acceptable bump? 1%-2%?
But wait, with tight inventory and smoking hot mortgage deals, it feels like 2003 again, when prices went up 20% in one year. Won’t that happen again?
Let’s review the reasons that wild 2003-type appreciation is unlikely:
- Today’s buyers are more aware of the values, thanks to extensive internet tools.
- Today’s buyers are planning to stay forever, or at least the foreseeable future.
- Today’s buyers know that real estate values can go down.
- Today’s lenders insist on proper qualifying.
- Today’s appraisals are closer to being legit.
In 2003, NONE of these conditions were in effect. It will take another 5-10 years before buyers forget about recent history, and by then the baby-boomer tsunami will be underway, rates will be higher, and Prop 13 will be dismantled so the tight inventory will loosen up considerably.
Best advice for sellers and buyers?
Keep within 5% of comps, and only expect it if the property has superior qualities.
The biggest concern is that the competing buyers are likely to be less-informed, and poorly-advised. If you are selling, still keep your price within 5% of comps to incite maximum urgency, and have your great listing agent conduct a proper bidding war. If there are less-informed and poorly-advised buyers who are crazy about the home, then they will prevail and pay the crazy money. But they will more likely to do so in a bidding war on an attractively-priced property, then an OPT.
If you are a buyer, you gotta let them go – or suck it up and pay the vig. I am fine with continuing the search, there will always be others. They might be at a higher price, because today’s sales are tomorrow’s comps, but that is a risk worth taking when you review items 1-5 above.
The lower-end segments of each market are really struggling with this topic, because the competition is fierce. Take this listing, for example:
http://www.sdlookup.com/MLS-130000192-13011_Caminito_Bautizo_San_Diego_CA_92130
It is 1,699sf, and listed for $669,000.
The last three sales in the development were the same model or bigger, and closed for $570,000, $596,500, and $591,500. Yet there are multiple offers on the $669,000 listing! If they ask for your highest-and-best offer, how much are you comfortable paying? And will somebody else just pay close or all the money to get it over with?
There will have to be a bunch of these to occur before calling it a trend, which is in the buyers’ favor. For pricing to gain momentum, sales would have to increase further – but there aren’t enough homes for sale. If we did see a handful or more new listings in this complex, they would soak up the waiting demand, which would minimize the upward pricing velocity.
If each of this year’s sales prices were around 1% to 2% higher than the last guy, then we’ll have a reasonable shot at a sustainable 5% to 10% per year for as long as rates are ultra-low (2-3 years?)
Though the media is always pumping hysteria:
Get good help!
Do you really believe 13 might go away? If so, why and how?
Appraisals closer to legit? Not here, not yet.AMC’s seem to choose whoever is cheapest within a couple of counties.
How is 5% to 10% is sustainable if wages and inflation are not growing at the same rate ?
Prop 13 will be dismantled in pieces, and face little resistance as boomers die off.
The Prop 13 protection to corporate owners is as good as gone already with crews going door-to-door saying that they are going to save the schools by eliminating this big break to corporations.
But the other part that will likely not survive is passing down the same tax basis from parents to kids. If the kids can’t afford re-assessment, then sell the house. The parents can have the cheap tax for their lifetime, but why should everyone else down the family tree get it too, and make neighbors pay a very un-proportionate share of taxes.
We could let it ride if BigGov could make spending cuts instead, but that isn’t going to happen unless we have the Big Revolution.
Who are the Republicans going to send up to stop it? Jerry Brown might as well just toss the keys to Kamala Harris, unless Obama puts her on the US Supreme Court, or Gavin Newsome. The CA state assembly is 55:25 Dem to Rep, and the state senate is 27:10. They will keep spending until somebody stops them, and it won’t be the voters.
How is 5% to 10% is sustainable?
I don’t need everyone’s wages to go up, just those of the potential homebuyers, which are what, 1% to 2% of the county’s population? Currently, there are 5-10 buyers for every house under $1,000,000. It will take 2-3 years to get them all into something, unless rates go up sooner and squash some dreams.