Zillow’s estimates of appreciation over the next year:
Carmel Valley, 92130: +7.2%
NW Carlsbad, 92008: +7.7%
SE Carlsbad, 92009: +7.2%
Encinitas, 92024: +7.2%
Del Mar, 92014: +6.9%
La Jolla, 92037: +7.2%
Rancho Santa Fe, 92067: +6.9%
Santaluz/4S/Del Sur, 92127: +7.1%
It looks like Zillow expects 7% price appreciation for our area, which is wildly explosive for them. I looked up a an old blog post where their forecast numbers were virtually all 1s, 2s, and 3s for several years, and the actual increases usually exceeded the Zillow guesses.
Relatively-speaking, they are suggesting full-blown frenzy conditions!
Can previous experience indicate what might be brewing for 2021?
The last time we had full-blown frenzy conditions was in 2013 – let’s use the October 1 to September 30 timeframe so we can get a good experience of this year. Because we’ve had such a rebound, let’s also ignore the covid-19 effects – we’ve made up for it since:
NSDCC October 1 – September 30
# of Listings Taken
# of Closed Sales
Mortgage Rate in March
Here are the indicators from the last frenzy that suggest the frenzy is already underway:
2011-12: The number of listings declined 16% from the previous 12-month period, but sales increased 8%. This year the number of listings dropped 8%, and sales increased 3%.
2011-12: Mortgage rates dropped under the magical 4% number, and you could get a 30-year fixed rate mortgage for the same as the start rate on a neg-am loan from just 5-6 years before! Likewise, this year we dropped under 3% for the first time ever, and it has added a magic-elixir quality to the market.
2012-13: Presidential election. There might be an indirect connection, at best, but a presidential election might bring more certainty into the home buying-and-selling equation for some people.
2012-13: Inventory exploded – and so did sales. The number of NSDCC listings increased 54%….AND SALES WENT UP 52%! The median sales price went up 17% too. You could say that there was pent-up activity from the last recession that busted loose. But if we get half the action we got in 2012-13 in next year’s selling season, and inventory AND sales go up about 25% each, it will feel like a full-tilt-boogie!
2012-13: The ratio of listings-to-sales was 1.58, and this year it is an eerily-similar 1.54!
We will need a surge in inventory to re-start the frenzy in 2021, because it should simmer down over the holidays. But with so many other unique reasons why sellers should be more motivated to sell next year, it sure seems like a frenzy is likely!
The California Association of Realtors kicks off the 2021 forecast season! To show how far removed they are from reality, check their foreclosure forecast. Homeowners are flush with equity, and if they get in trouble, they will sell before they getting foreclosed because realtors will be soliciting them the minute their notice of default is recorded. Plus the banking laws were changed/ignored last time and lenders have figured it out – don’t foreclose on anyone unless there is ample equity so the bank doesn’t lose money.
Yet the association thinks that foreclosures will make up 5% to 30% of the market, and be discounted up to 40%??
My prediction? Foreclosures will make up less than 1% of the market next year, and no discounts.
The number of homes on the market — down 50% in 2020 — are expected to stay low in the coming year, creating more upward pressure on prices. Southern California likely will see a similar pattern to the statewide trend, Appleton-Young said.
This year’s median house price — or price at the midpoint of all sales — is projected to rise 8.1% from 2019, due in part to strong sales of higher-priced homes, pulling up the overall averages.
While home values rose in all price segments this year, the biggest price growth was in the top 20% of the market, Appleton-Young said. That’s because professionals and other high-income earners weren’t hit as hard by the pandemic as were renters and people working in the restaurant, hotel and hospitality sectors.
Foreclosures also are projected to rise next year, although not nearly to the degree they did during the Great Recession.
For example, CAR economists projected bank-owned homes will make up between 5% of next year’s listings in a best-case scenario to 30% in a worst-case scenario. By comparison, 60% of homes selling at the start of 2009 were bank-owned, with price discounts in the 60% range. A worst-case scenario for next year foresees discounts of 40% for foreclosed homes.
Ultimately, the housing market is ending 2020 in much better shape than anyone expected, Appleton-Young said. For example, house sales shifted from a 41% drop in May to a 15% gain in August, CAR figures show.
“The recovery coming back has been absolutely stunning,” Appleton-Young said. “There’s just a lot of uncertainty, so we tend to be conservative looking at next year.”
With the nation’s economy climbing out of a COVID-19 hole, home sales continue at a record pace. Total existing-home sales rose 2.4% from July to a seasonally-adjusted annual rate of 6 million in August. Sales were up 10.5% from a year ago.
After plummeting in March, home-buying demand continues to take steps towards recovery. On average, newly listed properties remained on the market for 22 days in August, down from 31 days in August 2019. Sixty-nine percent of homes sold in August 2020 were on the market for less than a month.
“The demand for houses is easily eclipsing the available inventory in metro areas across the country,” said Adam Contos, CEO of real estate brokerage RE/MAX Holdings. “Buyers are moving forward in record numbers, unfazed by inventory challenges and consistently higher prices. Homeowners in a position to sell are seizing the opportunity and benefiting from the one-two combination of enthusiastic, competitive buyers.”
The number of homes for sale continues to lag. Housing inventory totaled 1.49 million units at the end of August, down 0.7% from July and 18.6% from one year ago. Unsold inventory sits at a three-month supply at the current sales pace, down from the four-month figure recorded in August 2019. Six-months of supply is considered healthy.
Scarce inventory has been problematic for the past few years, an issue that has worsened in the past month due to a steep surge in lumber prices and a dearth of lumber resulting from the massive wildfires devastating Western states.
Here are nine predictions from housing industry experts on what the rest of the year will spell for the nation’s housing demand. (The text has been lightly edited.)
More exuberant but lower-motivated sellers will enter the marketplace committed to not giving it away! Their list prices will be 5% to 10% higher than today, causing some areas to be whipped into a frenzy, but in other areas, the unsolds stack up too quickly and become a glut. Buyers will determine which is which!
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!
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