Zillow has recalibrated and is predicting a fairly flat 12 months ahead.
Here are the zip codes I’ve received so far, all ranging between +1.5% and 1.9% appreciation over the next 12 months – the rest of the local zip codes should be similar:
Yesterday’s Case-Shiller Index for San Diego was 425.26, which is 11% higher than it was in January.
But check how the trend increased between January and now.
Prices rose as fast as ever in early 2021 (yellow above). If they would have mellowed out along my red line, then we would have experienced slightly-increasing prices for the last year. But noooo! Instead, the early-2022 buyers – egged on by their realtors – insisted upon paying ridiculous amounts over the list price to win a house. Hopefully that practice is done.
The only reason the June reading was 11% higher than January was because it came down a bit. The San Diego Case-Shiller Index rose 11.2% between January and April, 2022, which was an annual clip of 33.6% – which nobody would have believed was sustainable after rising 43% since the pandemic started.
If the SD Case-Shiller just goes back to where it started in January, it will be a 10% drop from today, which will sound like a disaster. But the annual appreciation will be zero, which is not only reasonable, but sustainable for a while.
Is anyone going to mind if we start 2023 where we started 2022, price-wise? If mortgage rates can stay in the 5s, and hopefully the low-5s, we should be fine!
These guys are among the most negative in the business, so if they have San Diego County home prices changing –3.65% between now and the end of 2023, and then -2.9% by the end of 2024, then prices in the better areas will be positive.
The most likely to happen is that we’ll see a few wild sales at the extreme ends, and those will get the headlines. The rest will be +/-5% of the comps. Most will just fumble along – just like during the frenzy – with little or no quality data or advice.
https://fortune.com/2022/08/15/falling-home-prices-to-hit-these-housing-markets-in-2023-and-2024/
I think we can say that summer is over, and the off-season is here.
How will the rest of 2022 play out, and what will be the effect on the 2023 Selling Season?
We know that the local NSDCC sales counts will be low for the rest of 2022. Last year we had 136 closings between August 1-15, and this year we’ve had 65. If we keep having about half of the 2021 sales, then our total sales between August and December will be 594, or an average of 119 per month!
It could look something like this green line:
We will probably have fewer listings than ever in 2H22, but those sellers should be motivated to sell. If they didn’t need to sell, wouldn’t they be tempted to just wait until spring to go on the open market?
We know that every seller has a load of equity, so if they have to lower their price to sell, they could. But will they? We can speculate that if they only had to lower their price by 5%, then they would make the deal. But going lower than 5% off is where the trouble starts – and the seller’s ego gets a vote.
If sellers continue to hold out on price, and sales follow the green line, it will look like a hard landing – and the 2023 selling season could end up being a dud. It would definitely get off to a slower start, and could sputter through the selling season if the inventory is lackluster and priced at retail, or retail-plus.
How likely is that? Very!
The second-half sellers of 2022 are going to determine our fate for the 2023 Selling Season. Expect next year’s market to be somewhere in the Sputter-to-Frenzy range, guaranteed!
But if you are a buyer, what are you going to do? Wait until 2024?
Let’s re-visit this in January. If sales beat the Green Line, then a more active market in spring is likely!
Here is Bill’s graph of the national sales:
The latest Zillow 1-Year Forecasted Values are still expecting a fairly strong appreciation rate over the next year – these estimates are the same or higher than last month! I can see a path to how this could happen.
The Spring Selling Season gets frenzied up for 3-4 months where buyers and sellers all jump in at the same time, and then the market goes flat for the rest of the year…..kinda like this year!
They do have website-viewer data that nobody else has, and hopefully they are using it to track the activity and make predictions.
I’ll find someone to buy my $2,295,000 listing in La Costa Oaks, and it could be the last LCO listing of the year. It will mean that LCO sellers will be expecting at least $2-something in the 2023 selling season, which won’t feel like prices dropped much while buyers were on vacation.
La Costa Oaks sales, last 90 days:
If the reason the housing frenzy stalled was due to higher mortgage rates – and then mortgage rates come down – shouldn’t it ease the concerns? Unfortunately, the national doom-and-gloom is heavy and persuasive, and reliance on ivory-tower guesses can become a self-fulfilling prophecy.
Shiller once again thinks the U.S. housing market is headed for trouble.
“Home prices haven’t fallen since the 2007–09 recession. Right now things look almost as bad,” Shiller said. “Existing home sales are down. Permits are down. A lot of signs that we’ll see something. It may not be catastrophic, but it’s time to consider that.”
A drop in home prices, Shiller says, looks very possible.
“The Chicago Mercantile Exchange has a futures market for home prices…That’s in backwardation now; [home] prices are expected to fall by something a little over 10% by 2024 or 2025. That’s a good estimate,” Shiller told Yahoo Finance. “The risks are heightened right now for buying a house.”
While Shiller thinks a double-digit decline in home prices is possible, many in the industry don’t agree. Over the coming year, home prices are expected to rise. That’s according to forecast models produced by the Mortgage Bankers Association, Fannie Mae, Freddie Mac, CoreLogic, and Zillow. Meanwhile, modest home price declines are currently being forecast by John Burns Real Estate Consulting, Capital Economics, Zelman & Associates, and Zonda.
Why do some industry insiders think home price declines are unlikely? For starters, the country outlawed the subprime mortgages that sank the market a decade ago. Not to mention, homeowners are less debt-burdened this time around. Back in 2007, mortgage debt service payments accounted for 7.2% of U.S. disposable income. Now it’s just 3.8%.
There’s another reason some firms refuse to get bearish on home prices: a historic undersupply of homes.
“Our economists have been chiming in on this for a bit now: The market is slowing down, but homes aren’t getting cheaper anytime soon. Price growth will slow/flatten (when compared to the breakneck start of the year), but the lack of supply is a fundamental pressure that will keep values aloft,” Will Lemke, Zillow’s spokesperson, tells Fortune.
In the eyes of housing bears, firms like Zillow are underestimating the possibility of oversupply. In their view, there’s a chance all those spec homes under construction could see markets like Atlanta, Austin, and Dallas get oversupplied in 2023. If that happens, it would put downward pressure on home prices.
“Housing is believed to be structurally undersupplied, but we run the risk of finding more homes on the market than buyers in the near term due to cyclical factors. I think there’s full awareness that in some markets, an increase in inventory may hit at a bad time—a time where demand has notably pulled back,” Ali Wolf, chief economist at Zonda, tells Fortune. “We are not under the belief that home prices only go up…Our forecast calls for a modest drop in housing prices.”
https://fortune.com/2022/08/09/housing-bubble-2022-call-robert-shiller-housing-market/
Robert Shiller says a 10% nominal house price decline through 2024 is possible. pic.twitter.com/Jzr67ERFiY
— Lance Lambert (@NewsLambert) August 9, 2022
It doesn’t do any good to lower your price if there are no buyers. Sellers of superior homes should wait it out and take their chances later….because the next selling season is right around the corner.
Yesterday I joined Molly of Real Talk Media for a couple of thoughts about next year’s market:
The key to market conditions will be the inventory – no surprise there.
If there was a surge of newer McMansions for sale that were upgraded, well-presented, and had decent backyards, it would light the market on fire, mostly because we haven’t had many of those.
But it is more likely that we will have more of what we’ve had lately – homes for sale that are of the scratch-and-dent variety. They are ok, but not the premium creampuffs that every buyer desires.
The higher-end market will probably struggle a bit as sellers and agents slip back into the old normal where they ‘list ’em high and let them ride’, believing that it takes months to sell a more-expensive home. It doesn’t, but if you don’t have to sell, have plenty of time, and you’re not going to give it away, it is a fine strategy. Call Opendoor and see what they say.
There will be fewer realtors overall, and hardly anyone working with buyers – it’s too hard, and too time-consuming. With less good help, the price will really need to be right for buyers to proceed on their own.
Pricing? We don’t have a good way to measure, just bad ways. The median sales price will probably trend downward due to fewer of the higher-end sales. But sales of the sub-$3,000,000 creampuffs between La Jolla and Carlsbad will determine whether the median sales price goes up or down.
The Fed did what they said they were going to do and raised their fed funds rate target by another 0.75%.
What happened to mortgage rates? They went down!
Read the story here.
Yes the -0.01% isn’t much, but didn’t every casual observer think mortgage rates were going to rise again? That we were heading for 6% or 7% or 8%?
Everyone is going to get used to mortgage rates in the 5s, and by springtime this will all settle down and we’ll get back to a relatively normal market again.
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Late afternoon add – rates improved a lot today:
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