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.
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%.
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.
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:
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 listing agent Seth gave me permission to run these clips as long as I find the buyer! So if you watch this film and want to buy it, then you gotta call me!
Today, there are 160 pending listings between La Jolla and Carlsbad, and 36 sales have closed this month so far – and currently, there are 470 active listings with a median list price of $2,997,000.
It means that the July sales will be under 200 for the second month in a row (June’s total is currently at 189 sales). Because the 2021 frenzy was so insane, the comparisons to last year will be shocking.
We had 357 sales last June, and 312 sales in July, 2021, which means the monthly sales totals this summer are going to look like year-over-year declines of 35% to 50% – yikes!
To the casual observers, it will look like the market is in shambles.
But is it?
The quick and easy assumption is that the active listings are overpriced, and yes, price will fix them. But it is also due to them being inferior – and at this stage, buyers don’t want to compromise, or at least not much.
During the frenzy, buyers were so desperate to just win a house that they paid about the same for the fixers as they did for the creampuffs. Not any more, and the price gap between them is back. But sellers of the inferior homes haven’t gotten the memo yet – and those homes are languishing on the market.
I’ll make my case with one that just happened yesterday. The model-match directly across the street from this new listing had just closed for $2,900,000 a month ago. But this house had a decked-out backyard that cost hundreds of thousands of dollars. They priced it 9% higher at $3,175,000:
They received six offers and according to the listing agent, it sold for “way over list”.
I know that I’m cherry-picking and there will always be a market for the creampuffs with a fancy backyard that have a good comp across the street. The market might wind down to just these types of sales, but there are buyers willing to pay retail, or retail-plus for them!
What can sellers do who don’t have a fancy backyard?
When pricing your home, omit the sales with fancy backyards.
When pricing your home, don’t use the sales price of comps that were radically bid up (use the list prices).
When pricing your home, compare to the active (unsold) listings and start lower than them.
Here is a good sampling of the NSDCC pricing decisions made in May (mortgage rates started going up the first of April). The days-on-market are on the left.
Days on Market: All 28 found their buyer quickly – only one took as long as ten days!
Paid Over List: 21 of 28 paid over the list price (75%).
Of the 21 who paid over the list price, the average amount paid over list was $185,761. Literally 11 out of 21 paid at least $200,000 over list – and these 28 sales are the mid-range group!
The number of detached-home listings between La Jolla and Carlsbad has plummeted this year, compared to previous years. We saw the June counts (included again here), but how does the overall count look for the first six months of 2022?
NSDCC Listings, First Half of the Year
Year
# of Listing, Jan-Jun
Median LP
Median SP
# of June Listings
2016
2,996
$1,425,000
$1,154,000
513
2017
2,703
$1,425,000
$1,225,050
416
2018
2,698
$1,499,000
$1,325,0002
476
2019
2,708
$1,550,000
$1,300,000
435
2020
2,303
$1,675,000
$1,400,000
448
2021
2,166
$1,900,000
$1,850,101
386
2022
1,682
$2,400,000
$2,428,000
326
We used to have around 2,700 listings in the first half of the year, and a sizeable gap between the median list price, and the median sales price.
Now we have 1/3 fewer listings, and a median sales price that is $577,899 higher than last year (+31%) – and it’s also HIGHER than the median list price!
As more potential sellers get the (wrong) impression that now isn’t a good time to sell, don’t be surprised if listing counts drop further. And people think prices are going to go down? Why? There isn’t much to buy now, and it’s going to get worse – the trend is fewer people want to sell.
Sales are toast – we are probably going to have months this year where the NSDCC sales count gets down around 100 per month, which has never happened before. But it’s because fewer people want to move, and those that do list their home for sale will want to hold out on price – or just wait until ‘the market improves’.
Paying over the list price must have some addictive qualities!
Either that, or the superior homes are still attracting a lot of attention. Well into the higher-rate environment, more than half of the June buyers paid over the list price!
Here is the breakdown by price range:
The average and median sales prices have been drifting downward, but both are still above the list prices:
The year-over-year sales are going to look terrible because 2021 was an incredible frenzy. The NSDCC June sales in the three previous years were 274, 282, and 299, so the 188 is only 34% below that average.
My La Jolla sale was the fifth-highest sales price in June, and sold for $1,150,000 more than the oceanfront house on Calumet. My $800,000 over list was #1 – it was the most over list of all the June sales!
We are having fewer sales between Carlsbad and La Jolla, but about the same percentage are closing over the list price as we’ve seen in the previous months of 2022:
NSDCC Detached-Home Sales, June (Month-to-Date)
Number of Sales: 104
Number of Sales Closed Over List: 68 (65%)
Average List Price of Over Lists: $2,298,732
Average Sales Price of Over Lists: $2,448,509
SP:LP = 107%
Median List Price of Over Lists: $2,100,000
Median Sales Price of Over Lists: $2,267,500
SP:LP = 108%
Can we say that the list pricing has come down much? Not really.
The median days-on market of those that closed over list was 8 days, so pretty much all of the buyers were into the higher mortgage-rate era when they made their decision.
I know it’s tempting for waiting buyers to think it’s going to get better, later – but so far, all that’s happened is fewer sales.
