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More on Inventory

We had 1,782 new listings of houses and condos last month, in a county of 3.3 million people?  And only 1,332 active listings (I believe that is the count at the end of the month).  Look at Phoenix and Las Vegas for comparison, where they have 2x and 3x as many listings.

If we get a surge of inventory, it would just make the frenzy conditions even hotter!

Thanks Bill!

https://calculatedrisk.substack.com/p/final-look-at-local-housing-markets-424

Boomers and Their Kids

One of the primary questions? How are the kids going to be able to buy a home?

If prices just stay at this level, it will be near impossible for local kids to save the down payment and afford the monthly nut when starter homes are selling for around $1,200,000.

Plus, there is the incentive now for seniors to hang onto the family homestead and then let one of the kids live there so they can keep the old property-tax basis.  For kids who never left, they will live in the same home their whole life!

But if you have more than one kid, then what? It used to mean selling the family homestead and dividing up the loot, but today’s heirs probably own their current home too. Tomorrow’s heirs? Not so sure, which means more homes will stay in the family when the parents die, and fewer homes will be coming to market.

The tight inventory could get worse.

Because the majority of homes being purchased today are ‘forever’ homes and will be owner-occupied for generations, it narrows down the list of probable sellers to those who have owned their home for longer than 12 years, AND are selling for one of the Big Three reasons (death, divorce, and job transfer).

And the baby boomers are going to decide the outcome.

Baby boomers are:

  • Still relatively young, and living longer than ever.
  • Aging-in-Place, rather than pay the imposing tax penalty for selling before you die.
  • Hoping a kid will inherit the house and live in it.

There may be a boomer-liquidation surge in the future, but it will be at least 5-10 years before it could happen on a larger scale. In the meantime, seniors will live comfortably in their old family homesteads, and probably be joined by as many kids as can fit.

The seniors who do move will be from these categories:

  1. Those buying a one-story house.
  2. Those buying a multi-gen house so kids can help with senior care.
  3. Those moving to assisted living.
  4. Those who will rent, at least for now.

Some may have to move out-of-town, but at least their pockets will be full of cash.

Once they take care of themselves, boomers are going to focus on their kids – many of whom are still hanging around the house!

It means the entry-level markets will be full of younger buyers backed by affluent parents and grandparents – and they are loaded.  There is also the multi-gen buyers who are looking for larger homes that will suit the whole family – or they will buy the one-story home for the folks, and then leave the old house for the kids.

There really should be an extra premium available for those home types when they sell, given the demand.  If you are going to sell one of those (entry-level, multi-gen, or one-story), then list your home with me, and I’ll make sure you get all you deserve!

Open Houses Are Complete

We have three more showings today and then almost 200 people will have seen the house since Friday! Next we will engage in open bidding by phone with all interested parties and let the MARKET decide the winner, not the listing agent (which is how everyone else does it).

Here’s a buyer-agent strategy that can be really effective, especially with weaker listing agents:

Heavy Demand, 2022

To demonstrate the imbalance between the supply and demand, look at the view counts of our new listing on the two search portals in the first 33 hours on the open market:

Views: 3,051

Saves/Favorites: 171

I received three phone calls from agents letting me know that they have interested buyers and will be attending the open house today – part of the rapport-building process that some have included in their repertoire of buyer-positioning tactics. One agent implored me to do a James Bond video, and even though Mitch has his Aston-Martin available, I had trouble getting into my black suit!

There were THREE other agents who requested an earlier showing time, so I’m getting started at 11:30am today to accommodate. On a Friday morning!

How pent-up is the demand coming into 2022?

Sacramento isn’t the same as us, but consider:

If there are multiple offers, what else can buyers do to compete, besides price?

  1. Butter up the listing agent. It doesn’t work with me, but most listing agents want to select somebody who they like to be the winner. They justify it with it being a ‘good match for the neighborhood’ or some other garbage, but it is pure discrimination – though completely unconscious.
  2. Bring the kids, for the same reason above. If you don’t have kids, grab an infant on your way over.
  3. Figure out if there is any predetermined process for selecting the winner. When I ask a listing agent this question, at least 90% of the time the answer is “I don’t know, I let the seller decide”.
  4. Big down payments, and big deposits. Though the chance of the buyers cancelling is the same, the naïve listing agents think those mean something.
  5. Ask for seller disclosures, and if there is anything unusual, then waive that contingency.
  6. Spend a lot of time at the house. It makes you look like you’re serious.
  7. Be one of the first visitors, and the first offer. It impresses most listing agents, and mentally they have designated you as the probable winner.
  8. At an open house last year, an agent brought me a sandwich. He still lost, but I’ll never forget it!

I heard an agent say, “If my buyers like the house, I tell them to offer $100,000 over list. If they love it, I tell them to offer $200,000 over list”.  A great example of how dumbed down the business is!

Besides, buyers are doing better than that:

 

Padres Contest on Inventory Surge

Are we going to get a surge of new listings in the coming months?

Our recent history doesn’t suggest it – the San Diego inventory has been the worst around (thanks Bill):

But let’s consider what used to be normal, and see if we can connect the dots.

NSDCC Number of Listings Between January 1st and June 30th:

Year
Total Number of NSDCC Listings, 1st Half
2017
2,703
2018
2,697
2019
2,708
2020
2,302
2021
2,164

The first-half inventory really hit a groove at 2,700 listings for three years straight. But then the impact from covid struck in 2020, and the listings count was 15% lower than the previous years.

But then 2021 was even worse!

If you remember last year, we did a contest for readers to guess the number of listings in January, and everyone came in much higher than the actual listing count. The final total was 288 (Derek did get tickets).

As it turned out, it was an omen for the inventory all year.

Let’s do it again!  To keep an eye on what will be the #1 predictor on how the spring season will roll out, let’s guess the number of NSDCC listings this month!

The recent history is below – leave your guess in the comment section.

NSDCC Total Number of Listings, Jan 1-31
Year
Total # of Listings
2017
393
2018
426
2019
418
2020
353
2021
288

If there is a baseball season, the winner will get four tickets to a Padres game!  They aren’t front row, but they are pretty good seats:

There may only be a dozen or so guesses, so take part – your chances of winning are good!

My general sense of what will happen, based on the number of January listings:

450 or more listings: Frenzy will be over within 30 days.

400-450 listings: Causes a wait-and-see with some buyers.

300-400 listings: Super-charges the environment to ultra-frenzy conditions!

Under 300 listings: Painfully slow opening to the selling season.

Give it a guess!

Over List, December

Impressive momentum to wrap up the year, with almost half of the buyers feeling the need to pay over list:

NSDCC Detached-Home Sales, % Closed Over List Price

January: 38%

February: 43%

March: 53%

April: 55%

May: 54%

June: 59%

July: 64%

August: 55%

September: 41%

October: 45%

November: 48%

December: 48%

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

Have the higher-end buyers figured it out that paying over list could be a ruse though?

Percentage Of Sales Over List Price by Price Range

Price Range
March
April
May
June
July
Aug
Sept
Oct
Nov
Dec
$0 – $1.0M
76%
79%
89%
88%
89%
88%
64%
78%
71%
88%
$1.0M – $1.5M
68%
78%
84%
75%
74%
74%
37%
64%
64%
76%
$1.5M – $2.0M
66%
66%
72%
66%
82%
73%
61%
58%
56%
50%
$2.0M – $3.0M
54%
32%
34%
66%
56%
56%
36%
38%
46%
20%
$3M+
16%
22%
22%
17%
26%
19%
24%
7%
22%
13%

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

The December sales were a little soft, historically, but the inventory has been decimated:

NSDCC December Sales

2017: 224

2018: 196

2019: 227

2020: 290

2021: 182

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

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
Aug
268
$2,415,075
$2,438,934
$1,897,000
$1,950,000
Sept
278
$2,479,440
$2,445,817
$1,899,000
$1,987,500
Oct
248
$2,754,470
$2,705,071
$1,899,000
$1,899,500
Nov
199
$2,713,693
$2,707,359
$1,999,000
$2,100,000
Dec
189
$2,686,126
$2,664,391
$1,985,000
$2,157,500

The median list price dropped and the median sales price went up!

The median sales price is 9% higher than the median list price!

The average LP and SP were almost identical for the second month in a row.

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

Frustration Fee

Why do buyers offer $100,000-$200,000 over the list price?

  • The sellers and listing agents aren’t demanding it.
  • The home isn’t priced $100,000-$200,000 under value.
  • Half the homes are selling for list price or under.
  • There will be others for sale.

There isn’t a threat of transparency either – every listing agent (besides me) does blind bidding, and then just takes the highest offer.  It would be understandable if there were rounds and rounds of open bidding and the buyers’ ego kicked in because they KNEW they had to out-bid everyone else to win.

But with blind bidding, you don’t know anything about the other offers (if any).

The extended frenzy is causing buyers to voluntarily sacrifice hundreds of thousands of extra dollars in trade for the hope of ending their frustration – and if they still lose, then they offer even more next time!

The frustration builds over time, and buyers go through a fairly predictable sequence:

Early-on: I’m not going to play that game – I’m not desperate.

After losing 2-3 houses: These people are nuts.

After losing 4-5 houses: Ok, this is ridiculous. I gotta get this over with.

The biggest problem is that it seems there are always people with more horsepower who started the process earlier and, as a result, are MORE frustrated than you.

Once buyers reach the peak frustration level and end up winning a house, they are left in disbelief with the one universal thought: “Oh, what have I done?”

It becomes obvious that buyers are paying tomorrow’s prices today, but they come to terms with it later because there are enough other reasons to buy this house that paying the frustration fee gets forgotten.

If overpaying is part of the environment, what can a buyer do?

  1. Get to the peak frustration level quickly, and/or just buy the first house you see.
  2. If you are going to overpay, then insist on buying a superior home.
  3. Only buy an inferior home if the defects can be fixed with money.

You will have a 15-minute tour to size up the home and make decisions that will affect the rest of your life.

You’d be crazy to attempt that without a solid, experienced agent to assist you!

Yet, even with all this pent-up frustration among buyers, it doesn’t occur to listing agents to go back to all the other bidders and give everyone a chance to overpay.

Get Good Help!

Top 10 Hottest Markets

These look like the towns to which people from New York and California are moving. Excerpts:

The boomer tide in the for-sale housing market is expected to continue to rise for at least the next 8 years; younger millennials will be hitting first-time home buying age at about the same time, meaning the 2020’s will be a period of sustained underlying demand in the housing market.

Year by year, these effects will be felt differently across markets.

In 2022, the market with the most demographic lift in the for-sale market is Austin, with a trend suggesting the formation of 3.4% more owning households (assuming there are homes available for them to buy). Orlando follows at 2.8%, and then Tampa at 2.7%. Of the largest 50 markets, 29 have natural owner household growth exceeding 1% in one year, the rule-of-thumb rate at which the housing stock increases nationally. The markets with the least demographic pressure for growth are Pittsburgh, Hartford and Buffalo.

Risks

There are two large known risk factors for housing markets in 2022. First, mortgage interest rates are expected to rise in 2022, making home loans more expensive for aspiring buyers. At the margin, this would restrict the inventory accessible in the most expensive markets, potentially driving up competition for the lowest-priced homes in those markets or removing them from consideration altogether.

Historically, home value appreciation in the following markets has strong negative correlation with interest rates — so if interest rates go up, these markets are likely to slow the most: San Diego, New Orleans, Washington DC, Los Angeles, San Jose and San Francisco.

Second, forecasts on the performance of stocks are incredibly wide, with analysts’ 2022 year-end targets ranging from -7% to +13%, slower growth in any case than what we’ve seen in the last 2 years if not declines. A slower stock market would mean buyers are bringing relatively less to the table for a down payment in 2022.

This would most affect markets where there are a lot of first time buyers or where more buyers are entering from lower cost areas, bringing less equity from their previous home. (Or if housing is treated as an asset it could mean a substitution to housing in the next few months. What follows addresses only the downside risk.)

In the following markets, growth has strong positive correlation with stock market returns — so if the stock market falters next year, we’d expect home value growth in these places to slow disproportionately: Phoenix, Las Vegas, Cincinnati, Hartford, St. Louis, Miami, Cleveland, Los Angeles and San Jose.

https://www.zillow.com/research/zillow-2022-hottest-markets-tampa-30413/

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