After another weekend of multiple-offer situations where the listing agents made no attempt whatsoever to create a bidding war, and instead just shut down the showings, it’s hard to believe there is any downturn coming our way. When you can get a mortgage rate in the twos, the demand is unyielding.
But some authors still want you to believe that doom is around the corner – they should talk to realtors on the street! An excerpt:
The price of low-tier housing in San Diego County skyrocketed after the latter half of 2012. 2015 experienced another price increase, due to the boost given by decreased mortgage rates throughout 2015 and 2016. Lower mortgage rates free up more of a buyer’s monthly mortgage payment to put towards a bigger principal. Thus, San Diego’s high home prices continued to find fuel from increased buyer purchasing power.
But in 2018, home price increases sharply declined in reaction to slowing sales and rising interest rates, which began in late-2017. Home prices have since turned back up, but today lack the fundamental support of home sales volume to continue. The annual pace of increase is now just 5%, lower than in recent years when the annual rise averaged around 10%.
Accurate home price reports run about two months behind current events. Even when caught up, sticky prices tend to persist several months beyond the moment when home sales volume begins to slow. Starting in March 2020, economic volatility and shelter-in-place orders caused home sales volume to decline dramatically. However, historically low interest rates have provided a boost for buyer purchasing power, which has propped up home prices thus far.
Later in 2020, the impact of record job losses will see downward pressure on home prices. The overall home price trend for the next couple of years will be down, the result of job losses and plummeting sales volume. As during the 2008 recession, the drop in sales volume and prices will first be most volatile on the coast, before rippling outward to inland areas.
Sales and pricing should be directly connected to inventory.
When there is hardly anything to buy, sales may decline, but pricing would stay the same or go higher because only the quality homes would be selling. A surge of homes-for-sale in 2021 would fuel the demand and energize the marketplace…..to a point.
There will be a fine line between frenzy and glut!
It was on April 15th that I drew up the calendar above, and then I added the additional red box around June when it was becoming obvious by the end of May that the market was taking off.
June, July, and August were all dead-red-full-tilt-boogie, then we had a blip around Labor Day/heat stroke/schooling, and we’re back to a healthy-hot market. The green = good description (at the top of chart) is about right – but it could be red hot if we just had more inventory.
While we’re due for a cooling off, but the October market could be better than expected if sellers get the memo that there are buyers starved for quality homes to purchase. I’m sticking with the November flurry right after election day too, figuring that realtors will want to get in one more sale before Christmas.
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.
Catherine asked what I thought about the next 1-2 years of real estate.
First let’s discuss why real estate in the future won’t be like it’s been in the past – we’re out of dirt. Here’s my conversation with Bill Davidson in 2012 about the future of home-building in San Diego:
This is from 2015:
“We’ll be the Bay Area in no time,” said Borre Winckel, president and CEO of the Building Industry Association of San Diego. “We can offer very few product lines for the middle-class buyer.”
San Francisco was once a quirky, counter-cultural city that was home to a bevy of activists, artists and writers. But that city is vanishing because of sky-high housing costs. Now, only the elite can afford to live in the city and, like in Manhattan, low- and middle-income workers are forced to live further afield and make long commutes to their jobs.
San Diego is not far behind. It is already the nation’s fifth most expensive housing market, according to the National Association of Realtors. Only an estimated 25 percent of households can afford the median home price.
Even more troubling, most of the apartment units under construction are higher end, catering to wealthier millennials.
“My lament is that we’re royally screwing the housing opportunity for the middle class and young people,” Winckel said.
San Diego’s population grew by 159,000 people from 2010 to 2014, but the region added only 22,000 housing units in that time, according to the U.S. Census Bureau.
With today’s supply and demand being so out of whack, the outcome is being determined by money. Our home prices have risen steadily over the last ten years (which has never happened, at least since I’ve been around), and it looks like it will continue.
It’s the basis for any forecast, and with that said, let’s explore what could happen, shall we?
Next year will be here before you know it – could it get any crazier? Oh yeah!
In the video below, you’ll hear my list of buyers and sellers who we can expect to be extremely active next year. Then add in the Big Three (death, divorce, and job transfer), and we could have the most insane real estate market in the history of the world!
San Diego County isn’t included in the graph above but the trend is similar. The author is happy to point out the negatives, but with inventory still well under what it was last year and pandemic/unrest raging, it’s a miracle that sales are so strong. San Diego County had 3,557 sales last month, which was only down 2.4% from June, 2019, and the median sales price of $600,250 was up 1.7% YoY.
We only have about a month left of prime homebuying before buyers get distracted by school starting and election fervor. With more inventory and rates in the 2s, the next 30 days should be the best of the year!
Are Southern California homeowners back in a selling mood?
Zillow’s weekly report on activity from brokers’ listing services in Los Angeles, Orange, Riverside and San Bernardino counties shows owners listed 5,117 existing homes for sale in the week ended July 18. My trusty spreadsheet tells me that’s up 3% vs. the previous week. But this nugget is more noteworthy: It’s the largest addition to the for-sale inventory in 19 weeks.
One unsolved puzzle of the pandemic-riddled economy is why homeowners have refused to be sellers. Were they fearful of home showings? Or skittish about looking for another home to buy? Or perhaps they’re unsure of their own finances?
Even with a recent jump in new listings — the highest since March 7 — the week is down 13% vs. a year earlier. And the four-county inventory of everything a house hunter could buy was 27,170 this week — off 32% in a year. Limited supply may be one reason sales have slumped over the past three months.
Perhaps these newly eager-to-sell owners are reacting to new escrows: 3,696 existing homes were under contract last week, 6% more than the previous seven days.
It’s the 11th positive week for pending purchases out of the last 13 as the housing market rebounds from economic turmoil created by “stay at home” orders designed to slow a pandemic’s spread.
Let’s note that a rapidly uncertain employment picture could be overpowering the record-low mortgage rates that have put some house hunters in a buying mood. California’s U-turn on business reopenings doesn’t help consumer confidence.
With mortgage rates staying under 3% this past week, more people were out looking at homes – a whopping 66% more than last year! It should be a full-tilt boogie for the next few weeks. Hopefully buyers can get their hands on something suitable!
My calendar from April 15th (which was the approx. bottom) with the added red circle for June that came later:
The experts were surveyed on what they think about the market – a sample question:
Fleming: “Our research has found that in past recessions, house prices show their “downside stickiness,” meaning they remain flat or their growth slows during economic downturns, but often do not decline much with one exception – the Great Recession. Because of the downside stickiness of home prices, and the supply and demand imbalance that exists in the market today, we anticipate nominal house price appreciation to actually accelerate this summer. House prices are going up!”
Marr: “As mortgage rates decline, prices rise. Demand fell, but so did supply, which muted any impact to home prices. Right now, they are continuing to grow at the same pace as before the pandemic. Growth may slow as the economic impacts grow, but the consensus is that home prices will continue to rise over the year.”
Tucker: “Overall, Zillow is forecasting a slight decline in home prices through October, followed by a slow recovery through 2021.”
McLaughlin: “We think price growth is going to slow, and even possibly turn negative, by the beginning of next year, as lower aggregate demand emerges and legislation that protects homeowners from foreclosure expire. However, we do expect price grow quite strongly by the end of next year, growing between 4-6% on a year-over-year basis.”
Teta: “Some pockets around the country may do well – like suburban areas around big cities if large numbers of people decide to move because of concerns that it’s too risky to stay in densely populated places where the virus has spread so rampantly. That could sew a silver lining into the market. But it may be more likely that the price boom of recent years is in serious jeopardy.”
I guessed that NSDCC sales would be down 60% in 2Q20, but April was the low point (sales were down 42% YoY), and May won’t be better but June could finish strong. Quotes from the UT article which is linked at bottom:
“Sellers have taken a bigger step back than buyers,” said Jordan Levine, deputy chief economist at the California Association of Realtors. He said low inventory means many buyers in markets like San Diego are forced to fight it out for a limited number of properties — and continue to push prices up.
Levine said he did not expect a major drop in prices like during the Great Recession because the fundamentals of the market were strong going into this crisis. That is, there weren’t a lot of shaky home loans that couldn’t be paid back and banks that were over-leveraged. Also, he said governments and banks are more determined to keep people in their homes now than during the recession, when a lot of foreclosed homes flooded the market.
“Institutions realize it is better to try and help folks hang on to these homes and make it through the crisis,” he said, “and that will ultimately be a lot cheaper and less damaging to the economy.”
At least some analysts and business owners say this might be a good time to buy or sell. Take Josh Stech, the CEO of the San Francisco-based company Sundae. His business buys distressed homes quickly from homeowners and only focuses on houses that need significant work.
Stech said it may actually be a good time to sell. He predicted there would be a big increase in new listings as stay-at-home orders are lifted so buyers would have more options. Also, he said there would be at least some foreclosures coming out of the economic shock of the past few months, also increasing supply.
“The recommendation I’ve been giving people is not what I’ve been reading,” he said. “My perspective is if you are thinking of selling in the next year or two, this is the time to sell. I would say you will get a better price today than the next year or two.”
On the buying side, he also said low interest rates are likely not to be this great forever, so there is also opportunity from that side on the market. At the same time, he said mortgage credit requirements are only getting tougher. The mortgage rate for a 30-year, fixed-rate loan was 3.31 percent in April, said Freddie Mac, down from 4.47 percent at the same time last year.
Home prices were up annually across Southern California by 4.3 percent. Riverside County had the biggest jump, rising 5.8 percent for a median of $412,500.
It was followed by San Bernardino County, up 5.4 percent for a median of $353,000; San Diego County up 4.3 percent for the median of $594,500; Los Angeles County up 3.8 percent for a median of $630,000; Orange County up 2.7 percent for a median of $755,000; and Ventura County up 2.6 percent for a median of $600,000.
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