Here are the histories, and forecasts, of our local Zillow Home-Value-Index for each area:
They are forecasting flat or declining prices in three of our larger areas – and they are also predicting a drop-off in values as the selling season will be getting underway in March, 2020 (which sounds far-fetched).
Their track record hasn’t been that great though. Here is their Carlsbad prediction in December, 2015, when they expected a 1.9% increase for 2016 – the actual was +7%:
The Carlsbad HVI has risen 19% since the beginning of 2016!
Can we agree on one likelihood? Prices probably won’t be going up much in the next year or two.
A summary of the 2019 forecasts – they say mortgage rates will be above 5% this year, and that pricing will continue to go up too. Something needs to give, and the only thing left is the number of sales:
So far, the limitations on mortgage-interest and property-tax deductions haven’t had a negative impact. Instead, rising mortgage rates and home prices are doing more to put a damper on the market.
Economic uncertainty brought on by global trade tensions, stock market volatility and the government shutdown also isn’t helping. In this environment, potential home buyers can be reluctant to make a large purchase such as a house. The last sustained government shutdown in 2013 saw a slump in home sales.
It is too soon to tell whether the recent decline is a temporary lull or a major pullback.
In their forecasts for 2019, real estate experts anticipate the housing market slowing down, but not stalling, with prices and mortgage rates moderating.
“If mortgage rates trend sideways next year, as we anticipate, and home price appreciation continues to moderate, improving affordability should breathe some life into the housing market,” said Doug G. Duncan, chief economist at Fannie Mae.
Below is a snapshot of what housing experts are forecasting for 2019.
We’re going to start a contest for Padres tickets in the new year, so let’s get a read on how things wrapped up in 2018.
We know that NSDCC sales were down 10%, and the median SP was up 8%. Sales of detached homes in San Diego County were down 11%, and the median sales price was up 7%.
If sellers were feeling a sense of panic about the market – and prices – we would be seeing more new listings hit the market.
Have there been more listings than usual lately?
NSDCC Listings, 4th Quarter
4th Qtr Listings
Median List Price
Median List Price
The other comparisons we’ve done have shown that the 2018 stats have mostly been similar to previous years. But once we have the complete total for new listings, it looks like the 4Q18 number is likely to be at, or above, all of the recent years. It’s already 12% above last year, and the MLP is actually lower.
There were fewer December listings, but that means the October/November count was higher than ever. With soggy conditions in place already, did potential sellers this month decide to wait for a 2019 launch?
Will we see a surge of new listings in early 2019?
We are wrapping up another year, and have eyes on 2019!
Here are guesses from the more prominent real estate prognosticators:
National Association of Realtors: Sales +1%, prices +3.1%.
Realtor.com: Sales -2%, Median SP +2.2%.
California Association of Realtors: Sales -3.3%, CA Median SP +3.1%.
KW: Sales -2%
The opinions are fairly universal throughout the industry. Sales might be down a little, and prices up a little.
But I’m sticking with -20% for NSDCC sales, which by comparison, sounds catastrophic. We only had a 10% decline this year and everyone was reaching for the panic button, so if it happens, it will feel uncomfortable for most. But the inventory will be there, it just means more of it won’t be selling.
Here is the data for detached-homes between La Jolla and Carlsbad:
# of Listings
# of Sales
MSP YoY %chg
Additional inventory is encouraged….up to a point.
In 2006, the inventory ballooned to 6,046 listings, which was 9% higher than the previous year’s count. The surge in new listings set buyers back on the their heels, and sales plunged 13% in 2006 compared to 2005.
The 2018 counts above are today’s numbers, so a few more will be added. Using these numbers, listings are up 3% YoY, and sales are down 11%, YoY.
The median sales price is +8% YoY, but that’s for the whole year. We saw the October Case-Shiller Index be up only 3% YoY, so pricing is decelerating.
The stock market crashed 635 points on Monday, only to go up 1,086 yesterday – and yet the 30-year jumbo rate hasn’t budged (still at 4.41%).
Pricing might drop a little, but the sales go first, so I think we won’t see much change in the NSDCC median sales price in 2019.
The Chargers – still euphoric from having 7 of their players make the Pro Bowl – lost badly last night, and that should doom the rest of their Cinderella season. They will probably end up in Pittsburgh or New England for their playoff game, and have a premature ending to their Super Bowl run – and eliminate a potential distraction for our early-2019 housing market.
The stock market should level out early in the new year, after causing mortgage rates to dip into the low-4s, which will be good news too.
All we need is some well-priced inventory, and off we go!
Except for one thing – will sellers and agents remember the Struggle of 2018?
The holidays always provide a nice distraction for all, and help to put some distance between our previously sluggish market conditions and the clean slate of a new year.
We can predict the usual occurrence:
The Top 30% of listings will have no trouble selling. They are in excellent condition and are priced fairly.
The Bottom 40% of listings won’t sell. It happens like that every year.
It’s the Middle 30% that will determine the fate of the selling season of 2019.
The jitters in the stock market should translate over to real estate, and nervous home-sellers will be listing earlier than ever. We’ll probably have a new record high for January listings – which should set buyers back on their heels even more as they wonder who is going to go first.
The Top 30% of listings will be fine and orderly. It will be how the Middle 30% decide their pricing – are sellers nervous enough that they will resist adding a little cushion to their list price?
No way – the sluggishness of 2018 will be a distant memory, if remembered at all. The higher comps of 6-18 months ago will be used to justify retail-plus pricing, just like always.
There will be mixed messages because those in the Top 30% that sell briskly will make potential sellers think everything is fine again. But if we see unsold listings are starting to pile up by May/June, it will become obvious to buyers that the Middle 30% needs to adjust their pricing radically if they want to sell.
Sellers should get it done early, before it becomes obvious. The sluggishness started in July this year, and it will probably be back earlier in 2019.
First, the WSJ posted an editorial on Sunday – a snippet:
If you think your job is tough, consider Federal Reserve Chairman Jerome Powell. He’s signaled for months that the Fed will raise interest rates again this week, but economic and financial signals suggest he should pause. Meanwhile, Donald J. Trump is beating him up almost daily not to raise rates.
What to do? The right answer is to ignore the politics, inside and outside the Fed, and follow the signals that suggest a prudent pause in raising rates at this week’s Open Market Committee (FOMC) meeting. Get the monetary policy that best serves the economy, and the politics will work itself out. Get the policy wrong, and Mr. Trump will be the least of Mr. Powell’s political worries.
Josh agreed in his tweet above, and it looked like we had a shot!
Trump could have just let it go…..but noooo, he had to tweet one more time:
In case the Fed is looking around for evidence, consider our recent home sales:
End-of-Year Detached-Home Sales and Pricing
NSDCC # of Sales, 10/1 – 12/15
NSDCC Median SP, 10/1 – 12/15
SD County # of Sales, 10/1 – 12/15
SD County Median SP, 10/1 – 12/15
The Fed is going to be tempted to make their rate decision based on politics, and show Trump who the boss is. Median pricing is like politics – it makes you want to make decisions based on less-relevant data.
Keep your eyes on sales – they are the precursor of what’s ahead.
Even if the Fed skips this rate hike, we are still going to see sales plummet next year. They could help make it a softer plummet though!
Let’s mention those who will be making the market in 2019:
Those with the least amount of experience and education.
Those who don’t own a home here yet.
People in these two categories aren’t hampered by the over-analysis that comes with owning a home here currently. Those who already own a home in San Diego have paid less, and have a lower mortgage rate. We are trying to make sense of giving that up, and paying more!
It’s a burden that thwarts most attempts to move by current homeowners.
But those who don’t study it too hard, or don’t already own a home will forge ahead. They have already decided that buying a home make sense in this environment, and have their own personal consequences if they don’t buy. They aren’t going to be talked out of it either.
Figure out how many people are in that group, and you can predict the future.
Here are the categories:
Up-sizers with strong needs
Incomers from out-of-county/state/country
Everyone else will enjoy their comfortable spot on the fence and wait-and-see what these folks will do. Let’s acknowledge though that people in these five groups aren’t tethered with the same restraints as the rest of us – it’s just a matter of how many people are in these groups.
How many? My guess is 80% of those who bought in 2018.
Realtor.com is optimistic about the 2019 real estate market (Sales to be -2%):
“Inventory will continue to increase next year, but unless there is a major shift in the economic trajectory, we don’t expect a buyer’s market on the horizon within the next five years,” says Danielle Hale, realtor.com®’s chief economist. “Unfortunately for buyers, it’s only going to get more costly to buy, especially the most-demanded entry level real estate. To be successful, buyers should think through how they’ll adapt to higher rates and prices.”
2019 Predictions for Home Buyers
Buyers who are able to stay in the market will find less competition as more would-be buyers get priced out, realtor.com® notes. But home shoppers likely will still feel a sense of urgency as buying a home gets more expensive.
“Their largest struggle next year will be reconciling wants, needs and budget versus the heavy competition of 2018,” realtor.com® notes in its report. “Although the number of homes for sale is increasing, which is an improvement for buyers, the majority of new inventory is focused in the mid- to higher-end price tier, not entry-level.”
2019 Predictions for Home Sellers
The market is largely expected to remain a “seller’s market” in 2019, but homeowners will start to see greater competition from others looking to sell. They “shouldn’t necessarily expect to name their price and get it in full—a change from the past few years,” realtor.com® notes. “Above-median priced sellers may find it will take longer to sell and require offering incentives, such as price cuts or other offerings.” But for those sellers who price their homes competitively, they’ll “still walk away with a handsome amount of profit,” just not with the price jumps seen in previous years, realtor.com® notes.
C.A.R.’s “2019 California Housing Market Forecast” sees a modest decline in existing single-family home sales of 3.3 percent next year to reach 396,800 units, down from the projected 2018 sales figure of 410,460. The 2018 figure is 3.2 percent lower compared with the 424,100 pace of homes sold in 2017.
“While home prices are predicted to temper next year, interest rates will likely rise and compound housing affordability issues,” said C.A.R. President Steve White. “Would-be buyers who are concerned that home prices may have peaked will wait on the sidelines until they have more clarity on where the housing market is headed. This could hold back housing demand and hamper home sales in 2019.”
The average for 30-year, fixed mortgage interest rates will rise to 5.2 percent in 2019, up from 4.7 percent in 2018 and 4.0 percent in 2017, but will still remain low by historical standards.
The California median home price is forecast to increase 3.1 percent to $593,450 in 2019, following a projected 7.0 percent increase in 2018 to $575,800.
“The surge in home prices over the past few years due to the housing supply shortage has finally taken a toll on the market,” said C.A.R. Senior Vice President and Chief Economist Leslie Appleton-Young. “Despite an improvement in supply conditions, there is a high level of uncertainty about the direction of the market that is affecting homebuying decisions. This psychological effect is creating a mismatch in price expectations between buyers and sellers and will limit price growth in the upcoming year.”
The pundits are chiming in on their housing expectations for next year, and the opinions revolve around one topic: Higher mortgage rates are changing things.
Here are two experts who don’t think the number of sales will change much:
“As we look toward 2019, we are anticipating home sales to decline around 2%. We’re expecting it to be another slightly slower year as buyers continue to wrangle with higher mortgage rates after contending with several years of rapid price growth.” — Ruben Gonzalez, chief economist at Keller Williams
“We’re going to have the same number of transactions, but…rates are going to nudge up to 5 percent; market times are going to expand out to 30 days. You’ll have to have a different set of skills.” – Brian Buffini
For sales to stay the same, then buyers will have to agree that the sellers’ prices are about right. Will sellers list their homes attractively enough, especially early in the selling season?
Or is it more likely that they will add a little mustard to their price in spring, just because they’re not going to give it away?
I want to compare a full 12-month history to prior years, so let’s examine the December 1st to November 30th period – let’s have history guide us:
NSDCC Detached-Home Sales
NSDCC Sales, Dec 1 – May 31
NSDCC Sales, Jun 1 – Nov 30
The 2018 sales are similar to those in 2014, which happens to be the last time rates had popped up 1%.
But then the rates started declining right away, and by the end of 2014 they were back in the 3s, which powered the strong sales between 2015-2017:
(click to enlarge)
But today, rates are much higher – and so are prices:
Something has to give, doesn’t it?
Sellers aren’t going to bend much on price, especially early in 2018 – they won’t believe their prices are wrong until they try them out for months, and maybe longer.
So if most buyers wait-and-see, then sales have to give.
I’m sticking with my prediction that 2019 NSDCC sales will drop 20%, YoY.
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