It’s natural for people to wonder how this will all play out.
The Fed raising their rate until they crush inflation (and everything else), home prices are higher than just about anyone can afford, and inventory levels so low that prices will probably keep trending higher too.
How could this all stay afloat?
We are already in the midst of the greatest wealth transfer in the history of the world. Unless there are changes in the law, those who have accumulated between $5,000,000 and $11,000,000 will be expediting their distributions over the next three years to save on taxes before the limit is lowered in 2026:
The free-and-easy money has already been flooding into our real estate market. Back in the old days, the cash buyers always demanded a discount – but today the craziest sales are to buyers paying all-cash.
With the gift and estate taxes changing in 2026, it should continue, and possibly increase.
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.
Four areas have MORE pendings than active listings, which is a sign of a red-hot market, and all areas except Rancho Santa Fe are around the healthy 2:1 ratio. But the most interesting datapoint is how the number of active listings has been skidding downward ever since rates went up:
The demand may have dropped off, but the supply is shrinking just as fast, or faster. Virtually everyone who is thinking about selling their house this year is going to be on the market in the next 2-3 months, and so far, it doesn’t look like the number of springtime sellers will be anywhere close to what we’ve had in the past.
The number of 2023 NSDCC listings is already 20% behind last year’s count – which was the lowest ever.
This house first listed for sale on November 1st for $1,650,000, and got all the extras; one Coming Soon, two Holds, four price changes, two Pendings, and finally closed today for $1,397,500.
The listing agent gave it a good go, but it just looked like too much work at the higher prices. A similar-sized home nearby sold for $1,675,000 last month which demonstrates the disdain for the fixers:
I’m not going to get crazy-optimistic just because the over-list percentage more than doubled MoM, or because last month’s median sales price was 11% higher than it was a couple of months ago.
I’m just happy that the number of sales appears to have bottomed out.
Let’s say that it looks like our local market has stabilized.
So far, there have been 37 sales closed in March, which means we should hit 100+ easily.
It was a year ago that my uncle’s girlfriend’s house went on the market for full retail at $3,195,000.
Nobody is going to feel sorry for the buyers who pay a half-million or more over list, and the buyers probably knew that it was lost money for now. But hey, they got their house!
Our local market is dependent upon the higher-priced markets like Los Angeles and the Bay Area holding up, and continuing to make our market look like a bargain. So far, it looks like the the value of this home is about the same as the value it was a year ago when the listing agent comped it out.
It was the most insane frenzy ever, and it was the most intense at the beginning of last year as inventory started to thin out. Compared to that environment, I think these stats look pretty good:
NSDCC Monthly Sales and Pricing
Down 5% to 10% YoY, and on the rise? I’ll take it!
The local index is 11% lower than its peak in May.
The beauty about this market is that buyers don’t have to fight with the decision to buy now or wait. Because the inventory of quality homes is so thin, having to wait is baked in.
How often do buyers see a home for sale that interests them? Once a month, maybe?
The higher rates go, the more sellers will think it’s a bad time to sell – causing FEWER homes for sale.
It’s a big game of chicken, and you have to wonder if every buyer will get the memo to hold out. If renegade buyers keep paying retail for the premium properties, it spoils the whole idea of prices dropping.
Will higher rates cause better pricing on the homes you are willing to buy?
Don’t ask Jay Powell, because he doesn’t know. He said:
We are well aware that mortgage rates have moved up a lot. And you are seeing a changing housing market. We are watching it to see what will happen.
How much will it really affect residential investment? Not really sure.
How much will it affect housing prices? Not really sure.
We have an unusual obsession with home pricing – I say unusual because nobody cares that our measuring devices are deeply flawed and regularly give the wrong impression. With the stakes being so high, you’d think homebuyers would investigate thoroughly – but everyone just wants to grab and go!
You can see in the graph above how the smaller sample sizes cause more volatility – Encinitas only had 19 houses sold in December, and ten closings in January – so the 10% to 15% bounces up and down aren’t good representations of the pricing trend.
This is a better look at the trend – the average and median $$/sf for houses sold between La Jolla and Carlsbad, and this includes the 70 sales so far this month:
The upward trend should continue as more of the premium products come to market this spring.
I predicted that there wouldn’t be a sale under $2,000,000 in the Davidson Starboard tract in La Costa Oaks after we closed the Plan 2 in October. The first new listing there since is coming soon, priced at $2,899,000 and they should get all the money:
I know they paid $1,999,919 in 2019, but there have been others that have closed for a million dollars over their 2019 purchase price. The Plan 3 layout probably isn’t as popular as the Plan 2, and the backyard is filled with a pool. But this street is a culdesac and it has the best south and west views which only come up occasionally for sale. It’s been so long since we’ve had an offering like this that I wouldn’t be surprised if she has 100+ people look at it next week – in spite of all the doom!
Let’s revisit yesterday’s graph and add the sales to compare the relative health of the market.
If higher mortgage rates were stopping home buyers, then sales would plummet, especially in relation to the number of listings. But if the number of listings plummets too, and we’re down to just the most serious buyers and sellers, we can still have an orderly market:
NSDCC Listings and Sales Between Jan 1 and Feb 15
Year
Number of Listings
Number of Sales
Listings/Sales
2019
625
239
2.6
2020
563
253
2.2
2021
449
290
1.5
2022
341
226
1.5
2023
280
148
1.9
The local market isn’t in shambles or falling apart.
The number of buyers AND sellers are much lower than they were previously, but they are acting in concert and fairly similar to the frenzy years. By the time the late-reporters log in, this year’s L/S will get down to 1.8 or 1.7 which is remarkably similar to the hottest frenzy years of all-time!
I cold called a storage facility in OK - older lady had 3 properties, full occupancy, and a great business.
She said "son I sold it all to some city slicker who paid me far more than its worth. I bought a condo in Santa Barbara and Im spending the rest of my days watching the… https://twitter.com/i/web/status/1637846196621553664
