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Going To All-Cash Market?

How bad could it get? What else could happen?

The market could deteriorate into a cash-only environment, where the buyers and sellers who can avoid mortgages altogether are the only players left.  If mortgage rates get into the 7s and 8s, the temptation for financed buyers and sellers to wait it out will be overwhelming.

Sellers who are downsizing/leaving town are home buyers who won’t care much about mortgage rates because the only way it makes sense for them to move is to pay cash for their next home. Especially those who are older.

There are plenty in this category, thankfully!

From FATCO:

Of those who owned their home free and clear, nearly 78 percent were owned by homeowners aged 55 or older. Not surprisingly, older homeowners are more likely to own their homes free and clear. As the Baby Boomer generation, which is larger than any generation before it, has aged, the share of homes owned free and clear has increased. This gives some hope that while many existing homeowners remain rate locked-in, there is a large cohort of older homeowners who are not. However, older households are typically less likely to move than younger ones, which is especially true as seniors today increasingly age in place. So, while some portion of the free-and-clear inventory will come to market in the next decade, it will likely trickle in slowly.

Free-and-Clear Homeowners May Hold the Key

As demand for homes starts to inch up as we approach spring home-buying season, a key question is, will there be more inventory for those potential home buyers to buy? Existing-home inventory makes up the bulk of available home inventory, and many existing homeowners refinanced into sub-3 percent mortgage rates over the course of the pandemic. But there’s a large group of homeowners who are not deterred by higher mortgage rates—those without a mortgage on their existing home or those with a small remaining balance. These homeowners may hold the key to unlocking more supply and, in turn, more home sales.

https://blog.firstam.com/economics/why-free-and-clear-homeowners-hold-the-key-to-unlocking-more-housing-supply

Local sales recently have been purchased all-cash about a third of the time. As sales drop further, the percentage of all-cash sales should end up at half or more of the total sales – and help to provide a floor.

New Senior Homes in SD

Ok, ok you want to downsize but you don’t want to bake in the desert – plus you like living in San Diego. Aren’t there any newer, smaller choices around here?

Lennar has purchased three local golf courses and are on their way to building them out. The development of the Carmel Mountain Ranch golf course off the I-15 freeway (above) faced some resistance from the locals, but they beat that back and a gated senior community is now underway.

The Junipers is a senior community (55+) in Rancho Penasquitos and will include a mix of 455 single-family detached-homes and townhouses for sale. There will also be 81 attached homes for rent for low-income seniors households. It will include a 2.87-acre public park and a 2.82-acre loop trail.

Pricing isn’t out in the open but I’m guessing it starts just under a million.

https://www.lennar.com/new-homes/california/san-diego/san-diego/junipers

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Another new-home development is called the Farm, and it’s right off Rancho Bernardo Road. It isn’t solely for seniors, but they have a couple of one-story plans.  Here’s a quick tour of their 2,500sf one-story home under construction:


Inventory Watch

There are only 88 pending listings today, which means we are unlikely to get up to 100 sales between La Jolla and Carlsbad this month.

How radically different is that?  Here’s how this month will compare to the previous Januarys of interest:

NSDCC Detached-Home January Sales & Listings

January Year
Number of Sales
Number of New Listings
2009
114
458
2019
151
418
2022
141
223
2023 – projected
~90
~160

Discard all previous assumptions, and prepare for market conditions that we have never seen before.

I might leave this fact on every blog post this year, because it probably matters most:

There are over 76 million American baby boomers. All will be 65 years or older….IN EIGHT YEARS.

(more…)

Seniors Are Flush

The #1 reason that the real estate market has been in the doldrums over the last few months is because of the inept response from realtors on how to handle it. There hasn’t been ANY real guidance or advice coming from NAR and other industry leaders on what to do, which gives the appearance that they probably don’t have a clue.

But the least they can do is respond to doomers leaving unsubstantiated teasers on your twitter account.  This guy is begging you to respond, and you just let it go?  Have some guts and reply with something that forwards the conversation…..please!

I’d respond with this:

The baby boomers own most of the homes, and 91% of them aren’t interested in accessing their equity, let alone moving!  There isn’t going to be a flood of boomer liquidations, though I hope it comes some day.  While there might be some minor outbreaks in 2023, for the most part, seniors are going to age in place and chuckle at the real estate mailers that promise instant riches.

Headscratcher Of The Day

No surprise that our new listing found a buyer already. The one-story homes with all the extras are probably the most attractive buys in the marketplace, and anyone can sell these – it’s just a matter of who can get what price.

I had 200+ people attend the open houses last weekend – and at least 90% of the people were seniors.  Yet, NONE of them submitted an offer.

Think about that!

I thought this home would be a perfect match for those who are getting older and want to get out of their two-story home. Those looking to retire here and want a pool for the grandkids. Anyone fitting the typical downsizer profile.

While there were plenty of lookers, none of the seniors made an offer. Why?

  • Are there hundreds of seniors just beginning their search?
  • Are there seniors who thought they were legitimate buyers but couldn’t pull the trigger fast enough?
  • Are there hundreds of seniors passing on the third one-story offering in this tract this year because of price? Anyone who lives nearby can sell theirs for a similar price and take their property-tax basis with them, so it’s just a swap of equity so why would price be a mental barrier?
  • Is it the perceived difficulty of selling one and buying another?
  • Are they just happy enough in their two-story home, but have a natural curiosity about living in a one-story? Is moving to a single-level just a nice idea?

Most of the attendees were getting around fine – there were just a couple of old guys limping around. My theory is that living in a two-story will be tolerated until the very end, and if it gets bad enough, you can always sleep on the couch downstairs!

What do you think?

Open House Report 2

I had another 80+ people attend my open house on Sunday, and a total of more than 200 people for the weekend.  Virtually everyone who came was older, and the overwhelming message was that the buyer pool for one-story homes is large and they are hungry for product.

We have received one full-price cash offer so far, and there should be 2-3 more coming in today.

This smaller tract was built by Davidson in 1996, and sold in the $300,000s originally.  Only 12 of the 82 homes are the one-story floor plan – which is typical (some newer tracts don’t have ANY one-story plans).  Of the 82 homes, 57 of them, or 70% were purchased for less than $1,000,000.

I sure get the feeling that there are boomers occupying most of the newer tract homes in North San Diego County’s coastal region, and they aren’t going anywhere – unless they can buy a single-story home.

The most interesting part is that my listing will be the third sale of this floor plan in 2022, in a neighborhood where there hasn’t been a sale of this model since June, 2018. It could be another few years before the next one sells, because those who have a single-story home tend to hang onto them.

The doomers want to blame higher rates for the slowdown in sales, but unless we get a flood of one-story homes for sale, the inventory will probably keep shrinking – and be mostly made up of the two-story homes where boomers have gotten lucky and snagged one of the few single-story homes coming to market, or where they gave up and left town. It makes it tough on those buyers who are coming here to retire!

There’s Hope For Contingent Sales!

We opened escrow today on my first contingent sale in 2+ years – where my buyer has to sell their home to purchase the subject property.

There were two offers submitted – and BOTH were contingent upon selling another property!

Thankfully, the house we’re going to sell is a single-level home in Aviara, which was well-known to the listing agent – plus I submitted my price, a thorough set of comps, and photos to help him with the decision.

It means we’ll have an open-house extravaganza coming this weekend, and get to test the demand for a prime one-story home with all the extras….including an attractive price! Stay tuned for more on Thursday!

 

Aging-In-Place & ADUs

Around the coast, the housing stock is finite – there isn’t any more room to build new houses.  Whether they knew it or not at the time, everyone has bought their ‘forever’ home and aging-in-place has become the natural trend. The higher prices and rates have locked out the majority of possible home buyers, but there still aren’t enough homes to sell – evidenced by the relatively low inventory.

A month ago, there were 466 houses for sale between Carlsbad and La Jolla, and today we’re down to 422 active listings – in an era where other areas are reporting a surge in inventory.  There is a real push to build granny flats to create more housing, but that isn’t going to help the resale market. In fact, the building of ADUs will actually make the real estate market WORSE by keeping more seniors aging-in-place, and limiting the resale inventory.

Higher rates and prices will only continue the shift of homeownership being for the elite – only.

From the AARP:

The COVID-19 pandemic has altered how people think about their lives and homes – which has collided with exponential growth in the number of older heads of households and renters. These trends highlight the urgent need to rapidly increase and improve age-friendly and affordable community and housing options.

AARP’s 2021 Home and Community Preferences survey found that over three-quarters (77%) of adults age 50 and older want to remain in their homes as they age. This desire is consistent across the lifespan with 63% of adults overall saying the same. The numbers of older adults wanting to remain in their homes as they age has remained relatively consistent for more than a decade and was not impacted by the pandemic.

Increasing the number of multigenerational households, providing more options like accessory dwelling units (ADUs) or “in-law units”, and encouraging renovations that support aging-in-place are all critical to support this desire.

https://livablecommunities.aarpinternational.org/

Number of Seniors is Growing

It’s probably true that seniors are leading healthier, longer lives and will prefer to age-in-place – which will keep a limit on the number of homes for sale and temper any downdraft in pricing.  What is worse is that the resulting back-up will cause others to stay in their current home forever too!

It was asked on Twitter, ‘how could homes prices get cut in half?’ I said, “Boomers die 10x faster”, which got my Twitter account suspended temporarily.  Let’s see if they do it again!

Reader ‘just some guy’ sent in this UT article – an excerpt:

On Thursday, county officials announced that San Diego County has become the first county in the nation to have all 18 of its eligible hospitals receive the Geriatric Emergency Department (GED) Accreditation.

San Diego County is home to a large population of people age 60 and older, and that demographic is projected to continue growing over the next decade. Today, there are approximately 670,000 county residents in this age group, and by 2030, they are expected to surpass 900,000, said Nick Macchione, director of the county’s Health & Human Services Agency.

Seniors are more likely than almost any other age group to visit the emergency room. The county reports that each year, about 275,000 county seniors make ER visits, which leads to about one-third of all hospital admissions. “That is why it’s critically important to have all our hospitals that are eligible be geriatric certified,” Macchione said.

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