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NSDCC Summer Update

The July stats have been updated on these interactive graphs of the 92009 (SE Carlsbad), 92024 (Encinitas), and 92130 (Carmel Valley) markets:

We hear how the inventory has exploded, but compare it to history:

Sales during the 2022 selling season have been similar to February/March numbers:

It’s good to see the insane-bidding-over-the-list-price has slowed:

We’ve pulled forward about ten years’ worth of appreciation – sellers will be reluctant to give it back:

NSDCC July Listings

Last week, we saw here how the number of July sales has been plummeting, and with three days to go in the month, we are now at 119 NSDCC sales – which means we will end up with around 40% to 50% of last year’s July sales.

We also hear about how inventory is rapidly rising in other areas of the country.  How are we doing here?

Here are the recent monthly counts of NSDCC July listings:

2017: 412

2018: 433

2019: 445

2020: 468

2021: 349

2022: 215 so far.

The NSDCC sales really aren’t bad, considering how few new listings are coming to market.

There is a bit of a backlog of sellers hoping to get lucky, but they will likely cancel their listing in the next month or two and try again next year, rather than give it away.

Between now and February, there will probably be months when we don’t reach 100 NSDCC sales, and it will be because there won’t be enough homes available to sell!

The Barrier to Home Prices Dropping

No No No Not Today GIF - No No No Not Today Nah GIFs

The biggest barrier to prices going down is that sales are needed to prove it.

Back in the old days when we had foreclosures, the banking rules forced lenders to keep selling their REOs, regardless of price.

But who or what is going to force regular homeowners to sell for whatever the market will bear?  Anyone who needs money can borrow against their sizable equity, and virtually everyone who can’t get their price today will blame it on everything but their price (“I have comps!”) and wait for a sunnier day.

How bad will sales get?

Here are the NSDCC sales counts from recent months of July:

2017: 260

2018: 271

2019: 281

2020: 351

2021: 312

We’ve only had 103 NSDCC sales this month, with a week to go plus late-reporters.

Sellers get a vote in this process, and they can choose to not sell – and create the Big Standoff.

Frenzy Monitor By Area

The reason for breaking down the active and pending listings by zip code is to give the readers a closer look at their neighborhood stats.

In the recent years prior to the pandemic, the actives/pendings in Rancho Santa Fe ran at a 10:1 pace.  Nobody is in a hurry there, they don’t have to sell, and they’re not going to give it away.  Those days appear to be coming back.

The median list price of those RSF actives is $5,995,000 – is anyone going to feel sorry for them? Probably not. Does it reflect what is going on in the rest of the area? Not really – the other areas are mostly around a 2:1 ratio (except La Jolla) which has been our standard for a healthy market and pretty good, all considered.

In 2020, we had 400+ pendings from June 22nd to November 30th – with a peak of 491 pendings on September 7, 2020.

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Post-Frenzy Definitions

The doomers are hoping to drive the real estate market into hysterics, just for fun.  It’s easy for buyers and sellers to get caught up in it too, and think the sky is falling.

Let’s identify the terms, what doomers want you to believe, and the truth:

Inventory Surge

Doomers: Sellers are hitting the panic button.

Truth: If we are taking about a surge in active listings, it is because the list of aspirational sellers (those who will only move if they get their price) is growing longer. They aren’t the market makers; they are only helping those that are.

Price Reductions

Doomers – Home prices are falling.

Truth: Sellers mis-priced their home from the beginning, and now they are hoping that if they knock off a couple of bucks, it will make a difference.

Affordability/Revert to Mean

Doomers – Home prices must come down so regular people can afford to buy.

Truth – Around here, homes haven’t been affordable for the common man in years, yet home prices have accelerated.  The NSDCC market is only for the affluent now.

Higher Rates Will Crush the Market

Doomers – Home prices and rates go hand in hand. When rates go up, prices must come down.

Truth – The bumps in rates are only giving the affluent a reason to pause, in hopes of a price correction.

More Open Houses

Doomers – Realtors are panicking.

Truth – More realtor trainees are trying their luck.

Home Sales Dropping

Doomers – Market is being crushed.

Truth – More sellers are holding out for their price.

Sales Crushed

Doomers – Zero

Truth – If the NSDCC monthly sales stay in the 100-200 range, we will be fine. Those are January counts, and the usual market seasons have been topsy-turvy since March 2020 so it will give the demand more time to get pent-up.

Prices Crushed

Doomers – 50% off

Truth – Sellers determine what they can live with, and their ego plays a bigger role than you might imagine.  Nobody has to sell any more, so expect resistance to selling for lower than the last sale.  Only the extremely-motivated sellers will sell for a big discount today – it will take years for that to become commonplace.

I’ll add a few more later!

Fewer Listings = Fewer Sales

The latimes continued their assault on the truth today.  The number of homes for sale has a major impact on the number of sales.  What we’ve had is an inventory problem, yet they make no mention of it here:

Southern California home prices and sales edged lower in June from the month before, adding to the pile of evidence that the housing slowdown is starting to pull home values lower.

The data, released Tuesday by DQNews, marks the first month since January that Southern California’s ultra-competitive housing market saw a decline in the median home price. The median is the price at which half the homes sold for more and half for less.

The region’s six-county median sale price was $750,000, down from $760,000 in May. However, a broader view shows that prices are still soaring compared with last June, when the median price was $679,000.

Still, the drop comes as a slight surprise. Although median prices tend to peak in the summer, the average increase from May to June was 1.78% over the last decade, DQNews data show. The last time prices fell from May to June was in 2010.

Home sales, meanwhile, slipped on a month-over-month basis but plunged compared with a year earlier, DQNews said. A total of 20,289 homes were sold in June compared with 27,143 the previous June — a decline of 25.3%.

https://www.latimes.com/business/story/2022-07-19/southern-california-home-prices-and-sales-dropped-in-june-signaling-a-slowdown

Compare the La Jolla-to-Carlsbad numbers from previous months of June:

NSDCC June Active Listings and Sales

Year
# of Active Listings, First Week in June
# of June Sales
L/S
2013
892
339
2.6
2014
1,028
328
3.1
2015
983
340
2.9
2016
1,043
312
3.3
2017
939
360
2.6
2018
914
299
3.1
2019
1,005
282
3.6
2020
514
274
1.9
2021
607
357
1.7
2022
338
189
1.8

The 1.8 rate of sales-to-active-listings was about the same as it was in the last two years, which were considered the hottest on record!  The precipitous drop in the number of listings has to be considered when examining the current market conditions.

Moving in the Post-Frenzy Era

We try to talk to potential sellers every day, and their response is universal.

When they find out that they will have to pay capital-gains tax when selling – and for most local homeowners it means paying six-figures in taxes – their desire to move cools off quickly. They were already somewhat reluctant to move, because if they had a strong desire, then they would have moved already.

Now add in the heightened difficulty of buying the next home.  Most sellers would like to stay local, but it’s nearly impossible to make sense of moving up or down and stay in the same neighborhood.  If you move up, you need to spend a boatload of extra money, and if you move down you have to sacrifice/compromise in ways that make homeowners want to just stay put.

Move out of state?

It was a great idea when you could buy a decent home in Arizona, Nevada, Oregon, Idaho, etc. for less than $500,000.  But the California exodus has been underway for years now, and has gobbled up enough homes that prices there have exploded, and drained the inventory too – just like here.

The sales and pricing in the post-frenzy environment will be determined by inventory.  We’ve had the fewest homes for sale ever around here, and I think it’s going to get worse. If the only way to make sense of moving is to 1) pay six-figures in taxes, 2) leave the state, AND 3) spend $800,000 to $1,000,000 there to get a decent house, it will talk even more local homeowners into staying put.

About the only relief I can imagine is that enough kids have to leave town and start over, and then the grandparents follow later once there are grandkids to fuss over.

Here’s the free article on the shortages of housing:

Link to NYT Article

Here is a long research paper that suggests we’ll be having a boomer liquidation event by the end of the 2030s. It doesn’t mention any effect from kids will be inheriting their parents’ and grandparents’ homes and live in them forever too:

The Great Senior Short-Sale or Why Policy Inertia Will Short Change Millions of America’s Seniors

If the inventory stays low, it will put pressure on pricing to stay where it is, or go higher.

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