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Rising Home Prices Are Slowing

Mike thinks this year’s price explosion was unusual, and is working its way back to a more-normal pace.  I agree with Mike, and think the market will split, with those products that have been the hottest (one-story homes, family homes with yards and pools, etc.) will stay red hot, while those on the fringes (inferior locations, condition, age, etc.) will struggle to keep up and their appreciation rate will flatten faster.

Here is his Twitter thread, and webinar – thanks Mike!

https://twitter.com/mikesimonsen/status/1403085966424698884

Waiving the Appraisal Contingency

If you find a hot buy that is likely to have multiple offers, you will be confronting the uneasy choice of waiving the appraisal contingency in your offer.  It’s likely that the other buyers will do it too, so it’s become a part of the minimum package needed just to compete.

If the appraisal comes in below the sales price and you have a 20% down payment or less, you will be forced to make up the difference in cash (or pay mortgage insurance, if possible).

In an unfortunate frenzy effect, because the appraisal contingency has been waived, listing agents don’t show up to help substantiate the value to the appraiser.  It used to be one of the vital jobs of the seller’s agent to provide recent sales to the appraiser to ensure the appraisal came in at the sales price – so the sellers wouldn’t be faced with potentially having to lower the price to appease the buyers.

But these days, the listing agents couldn’t care less.

So now when we have the buyers, I meet the appraisers.  I want to make sure I do everything I can to persuade the appraiser to hit the sales price so my buyers don’t have to bring in more money.

I just had one where, two days before our appraisal appointment, a new listing of a model-match but inferior condo hit the open market priced at 10% UNDER our sales price in an obvious ploy to start a bidding war.  I already had a big challenge with the comps because there had not been a sale in the complex all year – and appraisers don’t like using sales from complexes that were 3-4 miles away.

But I convinced him, and the appraisal came in at our sales price!

Ivy Back on Market

Our listing in Fire Mountain is back on the market.

The buyers, who according to their agent were in love with the house and the price, decided to cancel because of what they found out about the city restrictions.  The City of Oceanside won’t allow short-term rentals because the driveway is only 20 feet wide, instead of 24 feet wide. Long-term rentals are fine.

Though the short-term rentals are controversial and we really can’t predict their future, it was enough for the buyers to say no – they didn’t want any unusual restrictions that could possibly affect their kids’ future once they take over the house. The buyers had planned to live there for the duration.

We are getting an assist from Zillow – their zestimate has gone up nicely since we hit the open market:

Here’s the zestimate from the day before the listing was inputted:

Because Zillow is buying homes in the area, it helps them to keep their zestimates artificially low.  If they were legit, and kept the zestimate at the lower amount even though the list price was substantially higher, then fine – that’s your opinion.  But when it fluctuates with the list prices, it’s a sham.

Because there is so little information available, the consumers rely on anything they can find, and the zestimates are the best-known valuations available – even though they can change by $400,000 in a day.

Frenzy Monitor

Here’s our two-week check on how the actives and pendings are faring.

The Big Three areas (Carmel Valley, Encinitas, and SE Carlsbad) remain blistering hot, and overall we are similar to how Ryan described the Sacramento market yesterday:

“We were driving 135 MPH, and now we’re down to 127 MPH”.

NSDCC Actives and Pendings

Town or Area
Zip Code
Actives/Pendings, Feb 2nd
May 12th
May 26th
June 9th
Cardiff
92007
11/16
9/12
10/11
8/14
Carlsbad NW
92008
17/19
19/30
19/23
20/24
Carlsbad SE
92009
9/38
19/60
13/57
19/49
Carlsbad NE
92010
1/12
5/13
6/13
8/14
Carlsbad SW
92011
2/17
8/16
4/17
4/19
Carmel Valley
92130
26/43
20/65
23/63
23/65
Del Mar
92014
43/13
34/26
34/26
32/20
Encinitas
92024
39/45
33/54
32/56
33/61
La Jolla
92037
101/46
82/40
87/47
88/48
RSF
92067
96/35
83/54
72/53
80/38
RSF
92091
3/7
1/6
3/6
Solana Beach
92075
11/10
6/9
7/8
12/6
NSDCC
All Above
356/294
321/386
308/380
330/364

We can also track the average market times too. Any upward trends here would indicate market slowing:

These remain steady too, and an indicator that buyers are still jumping at the hot buys…and more!

More Frenzy Measuring

Based on these closed sales, the local frenzy has been steady this year – though these are results of buying decisions made as far back as January and February.

For the most part, we have as many or more sales, and the same or higher LP:SP ratios over the last 60 days compared to the sales in the 60 days prior to April 23rd:

Detached-Home Sales By Zip Code

Town/Area
Zip Code
Sales 60 days Prior to April 23
LP:SP Ratio
Last 60 Days
LP:SP Ratio
Carlsbad NW
92008
40
103%
32
104%
Carlsbad SE
92009
95
105%
118
106%
Carlsbad NE
92010
15
105%
22
106%
Carlsbad SW
92011
29
103%
29
106%
Encinitas
92024
87
103%
92
104%
Carmel Valley
92130
72
101%
88
101%

This shows that the frenzy trends have been fairly consistent so far this year. Tomorrow we’ll take another look at the active and pending counts to see if there is any drop-off in the works.

Inventory Watch

It is extremely unusual to have more pending listings than actives – I can’t remember a time when it has ever happened before, and certainly not at these record prices.

You can tell your grandkids that you remember when!

This week, we did have the lowest number of new pendings since January, and if these two lines cross again and and we go back to 1:1 or even 1.5:1, it won’t be panic time!  A ratio of 2:1 is ‘normal’.

Today’s median list price for the active listings is $3,795,000, and for the pendings it’s $1,950,000.

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Frenzy Duration

This graph is charting the local Case-Shiller Index.  The latest reading is from March, so these trends are reflecting the first quarter of 2021 – which means these lines will be going straight up for at least another 2-3 readings before there is any chance of a change.

The editors expect a collapse in prices next year, though they are coming to the wrong conclusions:

https://journal.firsttuesday.us/california-tiered-home-pricing-2/1592/

Can we learn anything from history?

The 2003-2007 era was goosed by increasingly-easier financing each year, so using those years as a gauge wouldn’t be accurate (financing has never been so tough to get now).

But the 2013 frenzy lasted for about a year – as long as we’ve been on fire now.

Are we due for a cooling off? Today, there are listings on the fringes that aren’t selling as fast, or at all.

But the red-hot newer tract homes with decent yards and pools will continue to attract a crowd, as will the single-story homes – probably straight through the 2022 selling season.

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