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Inflation-Adjusted Home Prices

On one hand, it looks like the national Case-Shiller Index is up about 40% since the previous peak (above). 

But after adjusting for inflation, Bill shows how home prices are about the same as before:

https://calculatedrisk.substack.com/p/real-house-prices-price-to-rent-ratio

 

You could say that home prices have only been tracking inflation over the last 10-12 years.

Has the frenzy over the last 12 months just added the annual 2% to 3% increase to home pricing that we’ve always assumed over the last decade, but didn’t realize due to inflation? Could be!

NSDCC Year-to-Date

This year, we are ahead of both of the previous years in total sales, in spite of having 14% fewer listings – and prices being 30% to 40% higher!

NSDCC Listings & Sales, Jan 1 to Aug 31

Year
# of Listings Between Jan 1 – Aug 31
# of Sales
S/L %
Median SP
2019
3,585
1,922
54%
$1,310,000
2020
3,245
1,846
57%
$1,409,677
2021
2,805
2,245
80%
$1,875,000

Prices probably need to go a bit higher to slow this thing down!

The NSDCC Weekly Pendings are tracking similar to 2019, so there should still be some gas in the tank:

Priced Out?

Our local home prices have been rapidly escalating over the last year.  First, we ran out of NSDCC houses for sale under $1,000,000, and today there are only 6 for sale priced under $1,100,000!

What are the alternatives for those buyers who want to spend less?

  1.  Buy a house further out.
  2.  Buy a condo/townhouse.
  3.  Get bigger gift from parents or grandparents.
  4.  Keep playing the lottery!

Here’s an example of going just a tad further out. This house is located on the border of Carlsbad, and while it did have ten offers and got bid up $80,000 over list, it closed for $830,000:

Easier to Go Up Than Down On Price

This is a repeat of the 2br house featured on my tour a few weeks ago, with the resulting sales price.

The agent admitted they priced this 2br house low on purpose to attract a crowd, and it worked. The list price was $699,000, and it sold for $1,100,000 cash. Meanwhile, the two other listings around the corner priced at $1,149,000 and $1,200,000 are still unsold.

Sellers are resistant to price attractively, but look how well it works when you Get Good Help!

Sold for 57% above list!

https://www.compass.com/listing/2725-glasgow-drive-carlsbad-ca-92010/842339809239950025/

Way Over List

San Francisco leads the 50 largest U.S. metros in the share of homes sold for 30% over their list price or higher at 7.4%. It’s followed by the hot market of Buffalo, NY, where 6.2% of homes sold for more than 30% over list, and Austin (5.3%). All shares in these markets are up substantially over the first quarter.

The markets with the most homes sold for half a million or more over asking in the second quarter are San Francisco (657), San Jose (283), Los Angeles (99), Seattle (88) and Miami (74).

https://www.zillow.com/research/share-of-homes-sold-way-over-list-doubles-29974/

Can we find the six that sold for $1,000,000 over list?  I went looking for that needle in a haystack, but couldn’t find any.  If you know of the properties that for more than a million dollars over list this year, let us know!  The 2021 numbers are staggering, given the pricing:

San Diego County First-Half Sales, All Property Types

Year
Total Sales
Median SP
Median DOM
Sales Over $3,000,000
2017
19,236
$521,000
22
150
2018
17,922
$554,000
14
156
2019
16,981
$569,000
20
159
2020
15,037
$593,000
14
155
2021
20,263
$702,000
9
485

Record pricing, and record sales at the same time – what a frenzy!

Frenzy Connected to Inventory

It’s one thing to note that showings are well under the peak frenzy era of August-November.  But today’s showings are also well below what they were in July 2019, which was a fairly flat market then.

Is the demand falling apart?

Or is it due to lower inventory?

Let’s compare the inventory counts for middle of August.

NSDCC Number of Homes For Sale

Price Range
August 19, 2019
August 17, 2020
August 16, 2021
$0-$1.0M
103
28
2
$1.0M-$1.5M
179
113
48
$1.5M-$2.0M
199
123
56
$2.0M-$3.0M
543*
137
69
$3.0M+
294
200
Totals
1,024
695
375

*In 2019 the highest category was Over-$2,000,000 – the categories were split the next year.

The total counts are distinctly different.

In 2019, the market was sluggish, and the local Case-Shiller went flat for the last six months. There were too many homes for sale.

Last year, the increased demand was met with a much tighter supply than in 2019, but looking back we can say it was the optimal amount of homes for sale in order to create the red-hot frenzy!

Now, there aren’t enough homes for sale to keep the momentum going, and the frenzy is being starved out.

Over List in July

The percentage of buyers who were willing to pay over list reached another all-time high in July:

NSDCC Detached-Home Sales, % Closed Over List Price

January: 38%

February: 43%

March: 53%

April: 55%

May: 54%

June: 59%

July: 64%

There were 33% of the total sales that closed for $100,000+ over list price!

One out of three!

In July, it was the $1,500,000-$2,000,000 range that was red hot, with an incredible 82% paying over list:

Percentage Who Paid Over List Price by Price Range

Price Range
March
April
May
June
July
$0 – $1.0M
76%
79%
89%
88%
89%
$1.0M – $1.5M
68%
78%
84%
75%
74%
$1.5M – $2.0M
66%
66%
72%
66%
82%
$2.0M – $3.0M
54%
32%
34%
66%
56%
$3M+
16%
22%
22%
17%
26%

The average and median prices were slightly lower MoM, but the product mix is different every month.  Just having the average and median sales prices being higher than the list prices is remarkable enough:

NSDCC Average and Median Prices

Month
# of Sales
Avg. LP
Avg. SP
Median LP
Median SP
Feb
224
$2,298,797
$2,257,334
$1,719,500
$1,758,000
March
252
$2,295,629
$2,260,524
$1,800,000
$1,825,000
April
357
$2,396,667
$2,403,962
$1,799,900
$1,828,000
May
300
$2,596,992
$2,581,715
$1,900,000
$1,994,500
June
348
$2,509,175
$2,537,953
$1,900,000
$1,967,500
July
311
$2,421,326
$2,442,738
$1,795,000
$1,855,000
July, 2020
351
$1,937,896
$1,863,623
$1,450,000
$1,423,350

Compared to last July, the average sales price was +31%, and the median sales price was +30%!

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

State of the Frenzy

Buyer fatigue has hit San Diego’s real estate market as some people are taking a break after making offers on several homes to no avail, according to several real estate agents.

“In my opinion, I feel the buyers are feeling beat up and a little tired,” said Dawn Suprenant, with Windermere Homes & Estates. “It’s still crazy. It’s not as crazy as the spring. I think they feel like, ‘I’ve tried everything. I’m going to take a break,’” Suprenant said. “There’s only so many times you can make an offer and be rejected and want to come back.”

Julia Maxwell of Berkshire Hathaway HomeServices California Properties said that for most buyers, “it’s a very frustrating and emotionally draining market.”

“Currently we’re seeing a very subtle, I can’t emphasize how subtle, softening in the upper range prices where we were seeing market times of two days, three days or less, we’re seeing slightly longer market times,” Maxwell said.

Even so, the market remains hot, with multiple offers still commonplace as prices continue to rise, interest rates remain near record lows and buyers far outnumber sellers with no letup seen anytime soon. Suprenant said she recently sold a Rancho Penasquitos home for $101,000 over the asking price. She said it’s become more common for buyers to pay more than list price.

Carlos Gutierrez of eXp Realty of California said the market is shifting ever-so-slightly, but that it remains very much a seller’s market. “We’re starting to see inventory creep up, longer days on market,” Gutierrez said, adding that there are fewer “hyper bidding wars happening.”

“We still have bidding wars but I don’t see them happening as much,” Gutierrez said.

Nancy Layne, president of North San Diego County Realtors, said she’s noticed a letup in the market, like Suprenant, attributing it to buyer fatigue. “We’re finally seeing more stuff come on the market. It’s getting a little more competitive, Layne said. “I think it’s flattening out.”

Dina Brannan, vice president of operations for Century21 Award, said the market “has kind of lost its panic mode.” “Things are not flying off like hotcakes. They’re still going fast, but they’re not this crazy where things are selling before they even hit the market,” Brannan said.

Melissa Goldstein Tucci of Coldwell Banker West said that the overall market is “the strongest it’s ever been,” although she said the number of offers being made on a particular house has dropped a little since mid-June. “The values are still skyrocketing and it’s still a great time to buy because I don’t personally see anything changing anytime soon,” Tucci said. “I see the market remaining strong.”

Wendy Purvey, chief operating officer of Pacific Sotheby’s International Realty, said it would be wrong to say the market was softening. “The frenzy has tailed off. I would not say it has died down. We still have frustrated buyers that can’t get what they want,” Purvey said. “There’s no way that there’s a softening in the market. What’s happening is a tiny correction and that correction is way, way needed in a healthy market. The price and values can’t keep going up at this rate.”

Sean Caddell of Pacific Sotheby’s International Realty, said he’s seen more people paying cash instead of having a mortgage, and they’re willing to pay more than the seller’s asking and they’re eliminating contingencies, “buyer investigations, everything.”

“We’ve had almost every property we sold recently, the buyers have removed their appraisal contingency, whether it’s financed or cash,” Caddell said. “I have not seen it like this before where people are so anxious and excited to get a property.”

According to Reports on Housing, an agency that tracks housing in San Diego and Orange counties, the inventory of homes on the San Diego County market was up by 11% in mid-July, to 3,059 listings but that still was a near record low and compared to 4,577 homes on the market at the same time last year.

The inventory in 2006 – a year before the Great Recession – was 18,000 homes on the market, reaching 20,000 in 2008. Meanwhile, housing prices appreciated at a rate of 14.6%, the highest rate of appreciation since 1988, according to Reports on Housing.

Read full article with more realtor quotes here:

https://www.sdbj.com/news/2021/jul/27/san-diego-seeing-tightest-housing-market-years/

Seller To Find Replacement Property

Do sellers buy first, or sell first?

Most want to use the equity in their current home to buy the next one.

But if you sell first and can’t find a replacement, you could end up homeless, and/or having to move twice – once into a (very expensive) rental, and then move again once you finally find the replacement home.

The C.A.R. has revised the form above and it’s a reasonable solution for sellers.

It enables them to put their home on the open market, find a buyer, and come to an agreement to sell the home – with adequate protection that if the sellers can’t find a replacement, they aren’t obligated to sell.

Let’s offer this idea to potential sellers in order to get more listings and increase the inventory.  Buyers have had to endure much worse, so if they can tie up a home and just need to be patient while the sellers find a new home, then they should be happy.

We need to expand the possibilities because there will come a day when bidding wars don’t break out on every listing.  Without creative solutions, the market could hit a post-frenzy flat spot!

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