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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

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.

Get Good Help!

Over List, May

The number of  May sales dropped month-over-month, even when we tack on another 10-25 late-reporters to the current tally:

NSDCC April sales: 357

NSDCC May Sales: 294

The April, 2021 sales were 35% higher than in April, 2019, but this year’s May sales were about the same as in 2019 (297). Was it due to less inventory? Not really:

NSDCC April Listings: 378

NSDCC May Listings: 371

But about the same percentage of buyers paid over list price:

NSDCC Detached-Home Sales, % Closed Over List Price

January: 38%

February: 43%

March: 53%

April: 55%

May: 54%

Most sellers and agents are happy just to get 1% to 5% over list.

The big winners who got 20% or more over list:

Most % Over List Price

List Price
Sales Price
Percentage Over List Price
$985,000
$1,251,000
27%
$1,495,000
$1,900,000
27%
$1,349,000
$1,657,500
23%
$1,375,000
$1,688,000
23%
$1,500,000
$1,850,000
23%

Is anyone surprised that sales are slowing down?

Not when you consider how fast the pricing went up just between April and May. The average list price jumped $200,000, and median list price increased $100,000 in just one month:

NSDCC Pricing of Monthly Listings

Average List Price, April: $2,396,667

Average List Price, May: $2,596,992 (+8%)

Median List Price, April: $1,799,900

Median List Price, May: $1,900,000 (+6%)

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But how we measure the sales prices went up more. The average sales price went up $177,753, and the median sales price went up $166,500 – which is a 9% INCREASE IN ONE MONTH!

NSDCC Pricing of Monthly Sales

Average Sales Price, April: $2,403,962

Average Sales Price, May: $2,581,715 (+7%)

Median Sales Price, April: $1,828,000

Median Sales Price, May: $1,994,500 (+9%)

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Percentage Who Paid Over List By Price Range:

Under $1.0M: 89% of all sales

$1.0M – $1.5M: 84%

$1.5M – $2.0M: 72%

$2.0M – $3.0M: 34%

Over $3.0M: 22%

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It is natural to have sales decline with rapid price increases. The buyers at the margins can get priced out in a week or two, and then we have others who give up and aren’t going to play this game any more – or not until it becomes more rational.

We could be in for a Frenzy Soft Landing, where fewer sellers get lucky as we coast into the pricing plateau that should be coming later this year.

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Inventory Watch

There is plenty of interest in home-buying but the number of showings has been dropping in the state.  It may be due just to pricing – today there are only TWO homes for sale between Carlsbad and La Jolla that are priced under $1,000,000.  One is a short-sale, and the other should be marked pending any day.

Homeownership is for the affluent!

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New Covid Form for Open Houses

FreedomCM asked if people who attend the open house have to self-certify that they have been vaccinated.  This is the new form (above), which – like the previous form – just wants you to state that you don’t think you have the bug.

It is a thinly-disguised way for the agent to get your phone/email, and then contact you until you buy or die.  It doesn’t state that you have to divulge your phone/email, and if the agent insists and you don’t want them to bug you, then give them this number: 704-482-0022.

One of the crazy things that have happened since running this blog occured last year when I posted a copy of the original covid form for all to see. A lady in Northern California (who wasn’t an agent) came across it and began using it to schedule appointments to see houses for sale!  My name was at the bottom, and a listing agent called to see if this person worked for me. I’ll delete this in a couple of days!

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NSDCC Frenzy Monitor

To help get a sense of the frenzy conditions, let’s monitor the number of active & pending listings per area.

If the active (unsold) listings start to rise, we will know that pricing is becoming an issue.

But so far, the demand for detached homes between Carlsbad and La Jolla is solid, and buyers are enduring prices that are 20% to 30% higher than last year:

NSDCC Actives and Pendings

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

The 92009, 92011 and 92130 (SE Carlsbad, SW Carlsbad, and Carmel Valley) are scorching hot, with 4x, 4x and 3x as many pendings as actives!  But Rancho Santa Fe is the most impressive of all. There have been times when there were 10x as many actives as pendings in 92067 – today it’s 1.4x!

With the 30-day closings, there shouldn’t be any drastic changes here – let’s examine the trends over time.

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

I’ll run this every couple of weeks.

Prime Mid-Range

For us data geeks, here are some raw numbers to ponder.

Between La Jolla and Carlsbad, there are three prime zip codes – 92009 (SE Carlsbad), 92024 (Encinitas), and 92130 (Carmel Valley) – that are the dominant target zones for buyers of the mid-range home (which today is $1.2M to $2.0M).

According to the Census, there are a total of 35,146 one-unit single-family residences in these three zips, so let’s use this mid-range group to consider the trends:

Number of Listings & Sales, May 1 to Apr 30

Year
# Listings
# Sales
L/S
Median SP
2009-10
710
366
1.9
$770,000
2010-11
748
448
1.7
$739,500
2011-12
771
427
1.7
$775,000
2012-13
1,272
769
1.7
$820,000
2013-14
2,216
1,488
1.5
$895,250
2014-15
2,157
1,467
1.5
$949,000
2015-16
2,366
1,506
1.6
$989,550
2016-17
2,252
1,564
1.4
$1,072,500
2017-18
1,833
1,400
1.3
$1,160,000
2018-19
2,092
1,340
1.6
$1,241,250
2019-20
1,835
1,334
1.4
$1,260,000
2020-21
1,906
1,606
1.2
$1,440,000
All
20,163
13,715
1.5
$1,075,000

My thoughts:

The most-recent inventory count is in line with previous years – it is the number of sales that are so astonishing. The big winners are those inferior homes that are getting scooped up in the frenzy, for which buyers are overpaying just to win something.

In an area of 35,146 houses, there are 86 for sale today (0.2%), with a median list price of $2,124,500. No wonder the inferior homes are getting scooped up.

Buyers on the lower-end have to feel like they are getting closer to being priced out every day.

Of the 13,715 recent sales, 10,000 of them were probably forever homes – or forever rentals – and unlikely to come back onto the market for 10-20 years (at best). The lean inventory will continue just because we won’t have the turnover we’ve had in past decades when it was easier to move around.

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