For months the talking heads have cited the ultra-low rates, the shortage of new homes being built, stock market, millennials, covid, etc. as reasons why the real estate market has exploded.
Let’s add a few no-so-obvious reasons.
Did we fully recover from the last downturn? We know that because Bernanke and the banks unilaterally changed the rules to rescue the MBS investors, we never hit the true bottom. The short-sales muddied the water further because there were so many that were never exposed to the open market and sold instead at artificially-low prices by unscrupulous realtors. In 2010-2014, we saw it here on the blog where many commenters expected the downturn to last for at least a few more years, and even the Frenzy of 2013 didn’t convince everyone we were out of the woods. Low (but not ultra-low) rates made it interesting, but there wasn’t enough confidence for buyers to flood the streets desperating seeking a home to buy – though in hindsight, they probably wish they did.
The lower-end inventory has been decimated by rental conversions and aging-in-place. Because the rents have exploded, any of those homeowners who didn’t have to sell their existing home had to consider hoarding their prized possession that was probably the best investment they ever made and turn it into a rental instead. The high costs of senior care is causing many if not most to age-in-place, and besides, one of the kids or grandkids can take over and assume the low tax basis. While pricing is flying on the lower-end today, it’s a recent occurrence that the appreciation has been 2% to 3% per month. If there had been more listings in recent years, we would have had prices rising faster, sooner. In the chart above, the rest of the categories look fairly uniform – it’s the lower-end that has changed drastically and having the most impact on the frenzy upstream.
The builders never got the memo about open bidding. Still to this day, it is first-come, first serve. Pardee is down to their last 20-30 houses ever in Carmel Valley, they were taken over by Tri-Pointe, and they have nothing left to lose. You know there has to be 50-100 people waiting on their buyers’ list yet they only release 2-4 homes per phase. Toll Brothers sold two of their models for $4,000,000+, yet Pardee is keeping their production homes attractive priced in the mid-$2,000,000s. If they just opened up the bidding at each release to ALL the buyers on the list, they would pick up an extra $500,000 easily – just because if you are number 50+ on the list, you’re not going to get another chance. But they don’t do it, which is keeping a lid on pricing. Because most everyone is buying their forever home, there won’t be enough turnover in the next few years to generate the momentum needed to find the real top-dollar value.
There are three examples of what has been undercutting the trajectory of home pricing.
When we have BOTH sales and pricing on the rise exponentially like we do now, it demonstrates what is possible when you take off the inhibitors. We are probably running a little hot today – can we be so undervalued that this frenzy could keep going for months or years?
Perhaps – especially if there are new market factors we haven’t considered before!
The U-T asked their twelve real estate experts about the effects of Prop 19:
Q: Will Prop. 19 substantially increase home inventory in California?
Of the local experts, 11 out of 12 said NO, and the justification for the one YES answer could have been just as easily been reasons to say NO. Gary’s answer above was the best and most-accurate. See the rest here:
The boomer sales spree is inevitable, it’s just a matter of when. But if it’s a slow methodical process over the next two decades, will we even notice? Let’s say the 100,112 homes turn over in the next 25 years (and only 1/3 are inherited by the kids), we’d average 223 more sales per month. There were 3,827 residential sales in the county in September. Results may vary!
Homeownership has long been considered part of the American dream. But first-time homebuyers — especially millennials and Gen Xers — are facing an uphill battle when it comes to house hunting.
This is in part because of a growing trend in which baby boomers, the generation that owns the largest share of American homes, are planning to stay put. In fact, a 2018 survey conducted by AARP found that 76 percent of Americans over the age of 50 would prefer to remain in their current home — rather than move in with family, to a nursing home, or to an assisted living facility. That is leading to less inventory for new buyers.
According to the U.S. Census Bureau, the share of homeowners over the age of 55 has been steadily increasing. In 2008, at the onset of the Great Recession, Americans over the age of 55 owned 44.3 percent of homes. By 2019, that percentage had increased to 53.8 percent. While the share of homeowners under the age of 35 remained fairly steady within the same time span, the share of homeowners between the ages of 35 and 54 decreased from 42.3 percent to 34.1 percent.
While baby boomers — defined here as Americans between the ages of 55 and 74 — comprise just over 22 percent of the U.S. population, they account for nearly 42 percent of homeowners nationwide.
My friend Ken Perlman at JBREC consults with new-home builders primarily, but these thoughts apply to the resale market too – notably, the 65+ generation growing by 17 million people in the next ten years!
With the national housing market surging, active adults have decided it is time to participate again. As discretionary buyers, they’ve had time to “restart” their purchasing process, and many of our developer and builder clients report that with proper health precautions in place, they’ve been willing to do so. In many age-qualified communities across the nation, home sales were particularly strong in August and September.
The pandemic hasn’t changed the size of the active adult population or its motivations. The active adult buyers are a key component of housing demand, as the 65+ population will grow by a net 17 million people over the next ten years. We know one of the highest priorities for this buyer set is being close to children and grandchildren. This means that as the Great American Move takes place in hot markets from Phoenix to Southern California’s Inland Empire to Sarasota, Florida, active adult buyers are following.
They are wealthy with large homes they can sell. Our active adult developer and builder clients told us one of the biggest fears their buyers had heading into the pandemic was the negative impact on their stock portfolios and on the homes they had to sell. Those fears have largely subsided with a rising stock market where the S&P 500 is up 10% year over year (YOY) and existing home Google searches up 30% YOY, as well as the Burns Home Value Index (BHVI) up 5.5% YOY.
4 Keys to Success
Active adult buyers are ready to buy now, so make sure you have inventory. Builders we spoke with in the active adult space told us standing inventory numbers are low, and some are tripling the number of standing inventory homes they produce to satisfy demand. Some are also simplifying what they offer in their homes, a process that streamlines housing production and keeps new home prices more attainable. Despite their wealth, these buyers are still prudent about how they spend their money.
Design elements that appeal to primary buyers also appeal to active adults. Per JBREC’s Consumer Products and Insights survey, more than 70% of new home shoppers between the ages of 55 and 69 included a member who worked at least part time. Work-from-home spaces were always critical to this buyer and are even more so today. Indoor/outdoor spaces are top of mind for active adult buyers, particularly those who live in warmer climates. Opportunities to live in the “healthy” outside while still maintaining cover is a big reason why open corner sliders and outdoor living rooms are immensely popular among this buyer set.
A strong virtual presence is essential. Active adult buyers are not afraid to use technology to search for a home; they rely on it. Active adult developers and builders around the country reinforce that their buyers are doing extensive research online before ever coming to the sales office, and we’ve heard reports of conversion rates among prospects in this space tripling post-pandemic. With travel more restricted and the market expanding rapidly, some active adult buyers are tying up their lots and homes efficiently via builder websites before ever visiting the neighborhood. Empire Communities in Atlanta told us, “We leveraged our virtual platforms, created new virtual platforms, optimized our online campaigns and online sales consultant initiatives, coached the sales teams to get out of their comfort zones, and shifted into a ‘we got this’ attitude.”
Active adult buyers still want to visit sales offices before they buy. While technology is helping buyers become educated, developers were universal in their opinion that this buyer cohort still want to make its final purchase in person. This means that an on-site sales office, decorated models, and well-organized system for coordinating appointments are still critical for selling homes to this buyer profile. Our clients across the country told us that with proper safety precautions in place, active adult buyers prefer visiting sales offices or models in person.
While the first-time and move-up buyers have clearly been the headlines of the housing market resurgence, the active adult buyer is starting to reemerge. We are assessing active adult housing across the country and watching product trends and buyer preferences. Let us know how we can be a resource for you. email@example.com
Who is selling? The chart below tracks when the home was purchased by the sellers. Today’s numbers are from those sales closed between Aug 21-31 of this year:
0 – 2003
2004 – 2008
2009 – 2011
2012 – 2020
So much for my theory about boomers leaving town! Today’s percentage of long-time owners sellers was the lowest yet…..but we know that over 50% of boomers delayed selling their home due to covid.
The chart at the top (click to enlarge) shows the California migration, and it’s a money thing.
People who leave the state find it too expensive here, and can do better elsewhere – and are willing to go for it! Younger people are probably more inclined to leave, at least at first. Grandparents to follow!
Of course, even the recent purchasers have no problem selling for a decent-to-huge gain, and more of them have been taking their profits – and hopefully buying another home, either here or elsewhere. Though the 2012-2020 group is the only one that grows just because we’re adding years over time.
# of Sales
DOM = 0
There were four flippers in today’s group, same as last time.
I wonder if the rest of America looks at the homes in the bottom half of this photo above and correctly guesses that they are selling in the mid-millions…..Excerpts from article linked at bottom (hat tip Ray!):
Would-be home sellers have numerous reasons for staying out of the market, say real-estate agents. Some are worried about potential virus exposure by letting strangers tour their homes. Others have canceled or delayed their plans to move due to the pandemic, or they are worried about finding a new home in a competitive market.
KC Hart has experienced the inventory shortage firsthand as a real-estate broker in Missoula, Mont., where demand is high from buyers moving from other states. He’s also contributed to the problem. Mr. Hart and his wife were planning to sell their house this summer after their youngest went to college, but they delayed their move because their son is staying at home this fall while taking classes locally.
“That’s one more house not on the market,” Mr. Hart said.
In some cases, sellers are waiting until the spring, traditionally the busiest home-selling season, said Quentin Dane, chief executive of Dash Realty Group in Raleigh, N.C.
“We hear this all the time: ‘They might get a vaccine for Covid coming at the end of the year, and the spring market is right around the corner,’” Mr. Dane said. “Sellers [are] saying, ‘If I don’t need to sell, why go through the risk of selling right now?’”
Another obstacle for sellers is the high demand for contractors, painters and other workers who can perform repairs or upgrades to houses to prepare them for sale, said Beth Traverso, managing broker at Re/Max Northwest Realtors. Once houses in her area of the Seattle suburbs go on the market, they are usually sold within days, she said.
Jeff and Jill Borgida wanted to sell their house in Bothell, Wash., this spring now that their children were grown. But with inventory so low, they struggled to find a new house in their area and budget that met their needs.
“We were getting nervous, because we were along a path to list our house and we’re not finding any really suitable options,” Mr. Borgida said. Finally, they widened their search parameters and found a house farther out than they had originally looked.
Proposition 19 is on the ballot, and the California Association of Realtors wants you to believe that if it passes, there will be a surge of new inventory from seniors finally being able to sell their homes and take their ultra-low property-tax basis with them to a new home in a county not previously available.
They have deftly orchestrated a campaign that touches on all the hot buttons too. Just look at the title – who doesn’t want to protect the homes of seniors, severely-disabled, families, and victims of wildfire or natural disasters?
But they ignore that seniors have been able to sell and take their ultra-low property-tax basis with them for years – but only if they move to one of the 10 counties in California (out of 58) who have previously approved the benefit.
The ten counties are the major population centers; Alameda, Los Angeles, Orange, Riverside, San Bernardino, San Diego, San Mateo, Santa Clara, Tuolumne, and Ventura. So they want us to believe that seniors have always wanted to move to the sticks – and if passed, the taking of their property-tax basis is the game-changer that gets them to finally move?
How much do seniors need to spend on a replacement home in the sticks? Half a million should do it, so without Prop 19, the regular tax basis would be around $5,000 per year. If a senior pays less than $2,000 annually on their old home….the actual savings isn’t a large amount ($1,000 to $3,000 annually) but yes, every little bit helps.
Did the grandkids already move to the same town? Probably a more-important ingredient than saving $1,000 to $3,000 per year.
It only benefits seniors leaving the big cities for small towns. Are they going to live without their modern conveniences like doctors (a big issue), shopping, entertainment, and a way of life to which they’ve become accustomed to for decades, just to save $1,000 to $3,000 per year?
Prop 19 protects the ability of kids and grandkids to inherit the ultra-low tax basis from the parents and grandparents. How does that create more homes on the market?
But the Association is throwing their full weight behind Prop 19, have gotten the firefighters on board in order to play the wildfire card, and they are advertising on TV:
To me, the thought of Prop 19 creating “tens of thousands of housing opportunities” is preposterous. But seniors are overdue, and maybe it will be the final reason that gets them to move. For that reason, let’s add the passing of Prop 19 to our list of reasons why the 2021 selling season will be like no other!
The turnover and upgrading of neighborhoods is commonly called gentrification, and what it means around here is that the affluent buyers (many, if not most, from outside the county) take over the real estate market, one house at a time.
Their money does the talking – they pay more for houses because they can.
Those with the most horsepower tend to gravitate towards the coast, and once they arrive, they stay – heck, it’s paradise! This has been happening for the last 100 years.
As a result, the North San Diego County coastal region is comprised of older homes, and homeowners who have lived here for 20, 30 or 40 years. We are overdue for more turnover!
Who will be selling in the next 1-2 years?
Homeowners used to be more mobile when real estate was civil. There were up & down cycles that kept a throttle on pricing, and moving up was more feasible. For example, you could have bought a home in the mid-to-late 1980s, had a kid or two, and then in the mid-to-late 1990s move up to a bigger home without too much financial strain because the market took a dip in between. But if you bought anytime before 2015, it is extremely tough now to justify a move-up today due to the much-higher home prices and property taxes – unless you really need it.
Once the covid & politics simmer down (i.e., Spring, 2021), we should have more boomer liquidations.
We have to – they own all the houses around here, and they will be the only ones moving – they are the market. We will be dependent upon how many of them will be clearing out.
Oh, you say, “Boomers are settled in, and they’re not moving!”
It certainly has been the trend for the last ten years, but we’re all much older now. Isn’t it inevitable that more boomers – or their kids – will be selling? Each day, 12,000 Americans celebrate their 60th birthday – look how it’s stacking up:
Even if the vast majority of boomers don’t sell in the next 1-2 years, there will be more selling than we’ve had recently. Covid-19 has added a new dimension that held back the majority of boomers – 57% are waiting to put their home on the market, which means a potential surge next spring:
The number of boomers selling will be different in each neighborhood, and they will be selling for different reasons besides just being old:
Be closer to grandkids.
They need the money.
Kids need the money.
Neighborhood has changed.
Tired of the maintenance.
We’ll have the usual number of home sales due to death, divorce, and job transfers (The Big Three). It will be the number of younger boomers, ages 60-75, that move for the reasons above that will supplement the supply and create more balance between sellers and buyers than we’ve had in recent years.
More balance = more sales, and less pressure on prices.
It’s a fine line though. A few more sales would build more comps to keep prices rising faster. But if we get 57% more listings in one spring, the competition will settle down and pricing will do the same.
Results will vary in each neighborhood. Just do a count – how many homeowners around you are 60+ years old? Don’t be surprised if you see more of them move in the next 1-2 years than ever before.
Are you of the age (40+) where you might move one more time? Here are my resources to assist you.
Reasons to move again:
Be closer to family (primarily to be near the grandkids).
Change from two-story to one-story home.
Better neighborhood for you.
Being closer to family, and especially to be near the grandkids, is high up the list of reasons for seniors to move. Not only will it be easier for you to get some help from them as you grow older, but they will appreciate the free babysitting and help around the house!
If that means you will be leaving San Diego County, then Donna is the best at finding a quality agent in your new neighborhood. We are part of two different agent networks, and she will screen agents from those and make a recommendation. Cut & paste her email: firstname.lastname@example.org
Are you thinking about buying a single-level home around here?
I input the best one-story homes from the MLS into my public collection here – it might ask you to sign-in but I promise I won’t call you every day until you buy or die:
If you want to buy and wouldn’t mind getting a reverse mortgage with no monthly payments, then Dean Jones is your guy. There are other private lenders that can do larger amounts but they cost more and the lenders want a piece of the equity – Dean only does government-backed FHA reverse mortgages:
You may already be in a terrific neighborhood, but it may not be the best for you at this age. There are several active communities for those who are 55 and older – both for sale and for rent. Some examples:
This article is written by a professor at the Wharton School who has a book coming out this week. It appears we have a glut of boomers – will we stay put, or sell the family homestead (once the covid is solved) and explore the world during retirement?
Population aging is a powerful force. By 2030 the population above age 60 will have grown so much that other generations like millennials and Gen-Z will be outnumbered by them in Europe, China, Japan and the United States.
Each day, 12,000 Americans celebrate their 60th birthday; in China, 54,000; and in the world, about 210,000, according to the United Nations Population Division. The pandemic will only accelerate this trend given the predictable decline in fertility — which tends to occur whenever unemployment is high — and the shifting demographics of cases and deaths, which are trending younger as time goes by.
The 60+ crowd will become very important economically for three reasons.
First, they own more than half of the net worth around the world, a proportion that reaches 80 percent in the United States, according to a study by the Federal Reserve. Second, the same study concluded that the net worth of seniors is more evenly distributed than among younger age groups, and poverty rates are also lower. And third, their incomes tend to be more resilient because many of them depend on pensions or investment income, and they can do some work on the side to cover potential shortfalls.
Not all seniors are financially secure, but they tend to be less exposed to large-scale financial disruption during episodes of crisis. Moreover, there are 25 percent more women above the age of 60 than men, they tend to be much better at managing their money and making it last, and they account for a smaller percentage of COVID-related health problems and hospitalizations, mainly because they heed the advice of health authorities and they have more robust anti-viral immune responses to begin with.
The gray market is quickly becoming in vogue because ever larger proportions of seniors are enjoying life by using their income and wealth wisely to procure goods and services that enhance their experiences.
Moreover, a 70-year-old nowadays lives the life of a 50-year-old in the 1980s.
The pandemic has also accelerated the technological savviness of this group, and not just in the area of e-commerce. In fact, a study in the Journal of Gerontology found that use of the Internet increases cognitive functioning rather than vice versa. Myriad new applications in virtual reality, robotics, and artificial intelligence are seeking to capture a rapidly growing market.
Other areas of technology will help seniors live longer and more fulfilling lives. Virtual reality can stimulate motor functions and the overall performance of the nervous system, and it can help reduce loneliness, a key problem afflicting large numbers of people at advanced ages. Artificial intelligence and robotics will also contribute to quality of life. Over the last decade, Japanese companies have invested heavily in robotics to aid with daily tasks like lifting weights, conduct physiotherapy sessions, and provide for companionship.
The only people that matter are those who stay in the game.....because you can't win if you don't play. Burned by Hot Housing Market, Some Buyers Back Off https://www.nytimes.com/2021/07/23/realestate/housing-market-burnout.html?smid=tw-share
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