Mike thinks this year’s price explosion was unusual, and is working its way back to a more-normal pace. I agree with Mike, and think the market will split, with those products that have been the hottest (one-story homes, family homes with yards and pools, etc.) will stay red hot, while those on the fringes (inferior locations, condition, age, etc.) will struggle to keep up and their appreciation rate will flatten faster.
Here is his Twitter thread, and webinar – thanks Mike!
The housing market is hot as home prices continue to rise, but Nobel Prize winning economist Robert Shiller predicts prices will eventually drop. “They’ll come back down, not overnight, but enough to cause some pain,” Shiller told Yahoo Finance Live.
The latest S&P CoreLogic Case-Shiller national home price index posted a 13.2% annual gain in March, the fastest pace prices have risen in more than 15 years. Last week, the National Association of Realtors (NAR) reported the median existing-home price in April was $341,600, up 19.1% from April 2020.
“This is not a market that collapses overnight,” Shiller said. “It’s less short run volatile than the stock market. But you can see that we’re seeing price increases now that haven’t quite been realized since those years just before the financial crisis.”
Shiller said there is no “clean explanation” why the housing market is so hot. He expects it to continue another year or two driven by low interest rates and the COVID-19 pandemic work-from-home revolution.
But Shiller cautions that people are also driven by narratives and market sentiment. It’s a topic he wrote about in his book “Narrative Economics: How Stories Go Viral and Drive Major Economic Events.”
“I think it is some kind of irrational exuberance,” he said. “People are having fun, and they will as long as prices keep going up.” He said today’s housing market looks similar to 2003. “There is excitement and people are talking and some people are bidding way more than the asking price and that becomes a narrative or a story.”
But he tempers his comparison saying the current housing craze is different from the mortgage crisis that caused the last housing bubble to burst.
“So it’s not the same as 2003,” Shiller said. “It could be stronger. I think we have better protections, we have better supervision of lenders. So I don’t know if we should be worried about 2007, 2008, 2009 happening again.”
The current run up in prices, according to Shiller, “is disquieting” and he cites Phoenix as an example. “The biggest increase over the last year was Phoenix and home prices have gone up 20% in one year,” he said.
Shiller points out that demand in the housing market gets all the headlines while supply tries to catch up. Record prices for lumber, he says, are driving up prices for newly built homes. “The builders might be building to profit from these high prices now. But, it hasn’t happened yet,” said Shiller and that has him worried.
Shiller helped create the CME S&P Case Shiller home price index futures 15 years ago so people could hedge their risk during housing markets like this one. “So our futures market is now predicting big increases over the next year or more but it’s not certain,” he said.
“It kind of reminds me of the spirit that ended after World War II,” Shiller said. “There was a spending spree by people. They were jubilant the war was over,” he said comparing the mood of the country then to the mood now as the United States emerges from coronavirus pandemic.
Shiller has been too conservative on his predictions because he’s an ivory-tower guy. If he were to talk to potential home sellers, he’d find that there aren’t many – if any – who have to move so badly that they would sell for “substantially lower” prices. The next phase after the frenzy will be the stagnant/plateau stage where the demand thins out and sellers wait for that perfect nuclear family with 2.2 kids to come along some day.
Nobel prize-winning economist Robert Shiller is worried a bubble is forming in some of the market’s hottest trades. He’s notably concerned about housing, stocks and cryptocurrencies, where he sees a “Wild West” mentality among investors.
“We have a lot of upward momentum now. So, waiting a year probably won’t bring house prices down,” Shiller said.
According to Shiller, current home price action is also reminiscent of 2003, two years before the slide began. He notes the dip happened gradually and ultimately crashed around the 2008 financial crisis.
“If you go out three or five years, I could imagine they’d [prices] be substantially lower than they are now, and maybe that’s a good thing,” he added. “Not from the standpoint of a homeowner, but it’s from the standpoint of a prospective homeowner. It’s a good thing. If we have more houses, we’re better off.”
For Mark Stapp, a real estate professor at Arizona State University, what’s going on in the real estate market right now is not a bubble.
“The definition of a bubble is that when it pops, there’s nothing there,” Stapp said. “That’s not this case. There’s very real demand that exists and that’s what’s causing prices to increase.”
Realtors across the country generally agree.
Mary Jo Santistevan, a top-producing sales associate with Berkshire Hathaway HomeServices in Phoenix, said buyers are flowing in from congested cities of California, Washington State and the Midwest. They are looking to take advantage of Arizona’s lower home prices, lower property taxes and quality of life. But they are confronting a situation where inventories of unsold homes have been dropping steadily in recent years and are now teetering on a one-month supply in some areas and less than that in others.
“Even builders are struggling to keep up with demand,” Santistevan said. “There’s a 10-month wait time for construction. The majority of builders are using a lottery system. One builder in particular in Gilbert had a waitlist of 100 deep.”
Stacie Lee, a fellow agent at Berkshire Hathaway, says whenever something goes on the market in Phoenix, the showings are usually back-to-back and a closing comes within a matter of days.
“Many homes go for $30,000 to $40,000 over list price and a few homes in the mid $300,000s have sold for $100,000 over list,” Lee said. “A lot are going for cash. Cash is king right now.”
Lee added that she had 70 people show up for an open house over the summer and had 15 offers in the first couple of hours. The home sold for $375,000 and is now back on the market at $550,000.
“There’s a lot of investors flipping homes here,” she said.
Nearly 3,000 miles away in Augusta, Maine, the housing market is just as frothy.
Fifteen of Maine’s 16 counties experienced a 10% increase in median home prices in 2020, according to Aaron Bolster, president of the Maine Association of Realtors. Some of those counties saw leaps of 20% or more.
“We already knew Maine was popular,” Bolster said. “More than 32 million people visit between Memorial Day and Labor Day. They don’t typically come at this time of year. But in a pandemic, it’s a safe place to be. The population density is very low and teleworking suddenly got popular in 2020.”
Bolster said 25% of buyers in 2019 came from out of state. Last year, that number rose to 33%. Without a large housing stock to begin with, available listings got siphoned off pretty quickly as out of state buyers bid up the prices.
At the moment, there are only 6,000 homes for sale in the entire state, Bolster said, and half of them are under contract.
The situation is unique for Maine and Bolster is not sure how long it will last, especially given that the demand is driven by people coming from out of state – many of whom will presumably be able to work from home – and not by job creation within Maine’s borders.
“Maine doesn’t create a lot of new jobs,” Bolster said. “When we create a new job, we give one up. So real estate doesn’t usually appreciate that fast. It’s interesting to see such a robust market when it’s not really tied to economics.”
Last December, I had guessed NSDCC sales would drop by 20% this year, but that was back when mortgage rates were touching 5%. With rates back in the 3s for most of 2019, our sales exceeded my expectations – here are the NSDCC detached-home listings and sales for the first 11 months:
NSDCC Detached-Home Sales, Jan-Nov
Total # of Listings, Jan – Nov
# of Sales, Jan – Nov
Median Sales Price
We’re only 28 sales behind last year, and the late-reporters should pull us up real close to 2018.
This year’s sales AND pricing statistics are virtually identical to last year!
There should be more forecasts coming in the next week, but let’s consider what we have so far.
This in today from realtor.com – they have sales dropping in 2020, and prices flat:
Home sales will drop, the housing shortage could become the worst in U.S. history, and home values will shrink in some cities. That’s the 2020 forecast from realtor.com, which holds one of the largest databases of housing statistics available.
Sales of existing homes will fall 1.8% from 2019, according to the forecast. Home prices will flatten nationally, increasing just 0.8% annually, but prices will fall in a quarter of the 100 largest metropolitan markets, including Chicago, Dallas, Las Vegas, Miami, St. Louis, Detroit and San Francisco.
It is a seemingly contrary assessment, given the current strength of the economy and of homebuyer demand, but the dynamics of this housing market are unlike any other — the result of a housing crash unlike any other.
“Real estate fundamentals remain entangled in a lattice of continuing demand, tight supply and disciplined financial underwriting,” said George Ratiu, senior economist at realtor.com. “Accordingly, 2020 will prove to be the most challenging year for buyers, not because of what they can afford but rather what they can’t find.”
They also predict that the San Diego-Carlsbad metro sales will drop by 3.2%, and prices rise +0.2%.
“Low interest rates and a shortage of starter homes will continue to push up prices,” DeFranco said. “This is especially the case for lower price points, since builders have tended to focus on more expensive, higher-profit houses and less on replenishing low inventories of entry-level homes.”
It seems the price growth may continue beyond 2020, too. Data from Arch MI shows the chance of home price declines at a mere 11% for the next two years. There are currently no states or metro markets projected to see prices declines in that period.
Hat tip to PC for sending in this doomy article about the future of real estate – an excerpt:
At some point, housing prices become so expensive that no matter how low interest rates go, the average household simply can’t afford to buy.
We may very well be at that point now. But even if not yet, it’s clear that the tremendous tailwind driving US housing prices since the Great Financial Crisis is sputtering out.
With this year’s plummet in mortgage rates and the seasonally-strong summer months just ended, one would expect a strong boost to home sales. But instead, Realtor.com just reported a highly unusual price drop from July to August — the largest summer decline seen since the company started compiling this data set.
Suddenly, many of the most incandescent of the red-hot US housing markets are now cooling off fast. This list of the 16 Fastest Shrinking Housing Markets includes San Francisco, San Jose and Boulder, CO
It’s not just prices that are slumping. Home construction is plummeting in hot markets, too. Take San Diego, which just reported that there were 43% fewer homes built in H1 2019 than the year prior. All of SoCal fell 25% for the same period.
What’s behind the sudden softening?
Well, as mentioned, affordability is a big issue. While wage growth has been anemic since the Great Recession, US household debt is now higher than it has ever been.
Our blog friend Ryan touched on the thought on everyone’s mind today – will the impending recession have an effect on real estate? There were 23 comments – see his blog post plus lively discussion here:
Jim the Realtor is legit - I interviewed three brokers; he said list price should be $100,000 higher than the other two brokers; listed it with him and had all cash (no financing) offer in two days, five day contingency period, closing in two weeks - and it closed at his recommended list price. I could not recommend anyone more than I recommend Jim the Realtor.
When we moved to San Diego in 2005 we rented a big house on Mt. Soledad (La Jolla) with 180 degree ocean views for the same payment as a mortgage on a dump in Chula Vista. Clearly something was wrong. Yet, the media was full of the usual happy-talk nonsense, so I was glad to find Jim's blog. I've followed his honest assessments and data since.
We decided to sell and move to AZ at Thanksgiving. Dec. 1st we met with Jim to sell our home. We closed today (29 days later). Jim orchestrated a feeding frenzy -- we had 25 showings in 2-1/2 days, multiple offers, and sold for well over asking price. I'd say he earned his commission! We have owned and sold homes in 5 different States always using experienced, productive, full-time realtors. Jim outshines them all.
You don't decide to sell and close 29 days later over Christmas (with COVID lockdown) without some miracles. Donna was amazing at performing lots of those miracles and ensuring that everything was done right and on time. They are a terrific team with a very responsive and professional network.
Where do we begin..2020 has been a year for everyone. When COVID hit and shut down both my husband and my businesses, we were left with a mortgage and very little income coming in. We were stressed, scared and felt stuck. We made the hard decision to sell our home and move out of state. We contacted the Klinges' and spent a good hour going over what we hoped we could accomplish. Jim and Donna came over with comps in hand and suggestions on improvements to get our house ready for the market. It was overwhelming to think about, but Donna was there and one step ahead in every scenario. Basically we just approved what they suggested and Donna handled literally everything. We placed our house on the market and within the first day we had multiple offers well above asking price! We couldn't believe it. We were overjoyed! Jim countered the offers to weed through them, and everyone came back with way more. It was amazing, and we are ?? sure it was because of the staging and repairs the Klinges suggested we do.
Due to unforeseen dishonesty from the buyers lender, we hit a big hurdle when trying to close. We had already moved out of state and were shocked when three days before closing the lender dropped a bombshell on the buyers and us. However, Jim and Donna handled it like veterans, not afraid to play hard ball and represent their clients. After a few phone calls with us, and several between Donna and the lender, they had a plan B-Z to make sure we were taken care of. In the end we closed with even more money than we ever thought possible and with very little work from us. The Klinges handled this entire "2020" worthy event with the utmost professionalism and did everything in their power to not only make this as smooth as possible for us, but we also walked away with more money from the sale of the house than we ever hoped for. After working with Jim and Donna, you don't ever use anyone else. They are hands down the best team to represent you in any scenario.
Working with Klinge Realty Group was a great experience! They are very responsive, professional and knowledgable about the real estate market! I would definitely recommend Klinge Realty Group.
Jim and Donna Klinge made the sale of our condo extraordinarily easy. They know the market and gave us sound advice backed by details and very considerable experience, reflected both in the initial pricing and subsequent negotiations. They work together as a team and are always available to talk. We had a few challenges with our property and they were able to coordinate the resolution to everything, including items that I would not think would ordinarily be their responsibility to handle. They made the whole process effortless on our part. They are folks with high integrity and we cannot recommend them highly enough.
Review for Member: Donna Klinge
I cannot believe there are no reviews of Donna yet, ugh!! She is the secret sauce of the Jim Klinge/Donna Klinge combo! I will touch on Jim here, but Donna is why I'm so totally loyal to these two (no offense to Jim :)).
I consider myself a rather savvy buyer/seller. I've bought/sold 7 times in about 15 years. On the buy side, Jim is the PERFECT combo of: completely digitally savvy (he will pull data all day long until you feel comfortable with your chosen house, area, school district, anticipated appreciation rate...anything!), he's super well respected and known in the area by other agents, an amazingly cool but strategic negotiator, is totally devoid of desperation for a sale/commission, and more.
Then once you get into contract phase, Donna literally handles every last and final detail in a concierge-like manner -- totally shielding you from the daily back and forth, noodling and annoyances of the buyer's requests. She solves it ALL; it's miraculous what that woman accomplishes over and above what is even expected in a buy/sell transaction.
On the sell side, Jim and Donna do the same, but even moreso. Donna in particular truly takes everything off your plate: she'll manage getting the house painted, the carpets replaced, she'll go on site (as she Jim both did for me when selling our rental properties) to work with the renters and make sure the house is ready to show -- freeing me to have to take time off of work to do so. They work with A+ integrity, too, so you know you are serving all parties fairly and lawfully throughout.
A home purchase/sale is the most considered you'll ever make. HIRE A SAVVY AGENT, not a friend!, and get what you need out of the transaction. Jim and Donna are our agents for life.
Jim and Donna Klinge are by far the most professional, personable and responsive realtors I have ever worked with. They provide VIP concierge level service in every area of the process of selling your home. My home was marketed so successfully that we received an offer the day after our first and only open house. Thanks to Jim's pricing and negotiating, our house is now the highest sold in our community. Jim's vast experience means he has worked with several realtors and knows the market all over north county. Donna is AMAZING in processing everything in the transaction. She scheduled trades people to work on the house in preparation for the sale as well as the repairs needed before closing. She communicated clearly every step of the way about what would be happening. She took the weight off my shoulders for the whole process. I will always use Jim and Donna for my future real estate needs and I whole heartedly recommend them to anyone buying or selling a home.
Jim and the team at Klinge Reality are without a doubt the best in the business! Not only was Jim helpful and extremely knowledgeable, he was patient and determined to help me find my first home. Jim and his team have been in the business for many years, and it shows. Jim is a wealth of knowledge and was my biggest proponent despite the temperature of the competitive market. I ended up getting the perfect property in my dream neighborhood all thanks to Jim. From the day my offer was accepted, Donna was a real lifesaver. She was extremely helpful, responsive, and knowledgeable when it came to every minute detail, and held my hand through the process. As a first time home buyer I had no idea what the process would entail, but Donna curtailed every concern I came across and made the escrow process feel seamless. Jim and Donna provided me the best home buying experience, and I am very grateful for all they did for me. It was truly a pleasure to work with Jim and Donna and I am already looking forward to the next time we work together!
Review for Member: Richard Morgan
Richard is an amazing realtor! He has high integrity and genuinely cares about his clients and their needs. Richard paid close attention to what I was seeking in a home and was very patient in our search to find it. I would highly recommend Richard and will use him for future transactions. Truly a different kind of realtor experience!
Could not be happier with my experience with Jim and his team. He helped me sell a very unique and challenging property. Throughout the entire process he was always available, honest, transparent, trustworthy, and always put my interests as a seller first. A (rare) true professional! During close of escrow Jim went above and beyond to complete the deal. It would not have been possible without his experience, fantastic team, and pure dedication. Highly recommended!
Thanks Jim and Donna Klinge!