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Frenzy or Glut…Or Frut?

The 2021 market is shaping up to be a humdinger!

Will ultra-low rates and more inventory cause it to be the Frenzy of All-Time?  Or will a surge of home sellers – namely the baby-boomers – bring about a flood of homes for sale that swamp the market?

Frenzy, or Glut?

Or as the market transitions from one to the other, shall we call the combo a Frut?

We know pricing will be higher than it is today.  It is inevitable that the 2021 sellers will add a little mustard to the comps; after all, this is their opportunity to hit the jackpot.

It will look like a frenzy, right up to the point where buyers back off because they see a few too many homes not selling.  It won’t happen in February or March because it will be too early. But by April and May the unsold listings could start stacking up, and what looked like a frenzy could turn into a glut in a matter of a few days.

If sellers don’t flood the market in April and May, we should experience a full-blown frenzy straight through to summer….as long as pricing seems reasonable to buyers. But some areas, and maybe only a few, won’t have enough demand to soak up the April/May supply.

Buyers AND sellers will struggle to identify which is which.

Here’s a way to know.

It will be different for every neighborhood, but let’s say in a neighborhood of 100 homes, the current average length of ownership is 12 years. It means the number of sales should average around 8 homes per year, with them bunched up around the spring selling season.  Let’s say 4-6 of those sales would happen between March and June.

You can also calculate how many homes sold in your neighborhood this year, and compare.

In either case, if you saw new listings hitting the market in early spring that would double the number of sales in either of the two measurements above, then you’ll know that something unusual is happening.

The demand has overwhelmed the supply this year, at least in the NSDCC Under-$2,000,000 category.  We should survive, and probably thrive with additional supply.  So it would take about double the number of homes for sale to make it obvious, and cause concern.

Buyers are known to stop on a dime, so the impact will likely be immediate.

For a precursor, track the number of new listings hitting the market, and whether they go pending in the critical first 7-10 days they are for sale.

Single Agency

The pandemic is still raging, the President of the United States is in the hospital, the election is right around the corner, and so are the holidays. The frenzy has to slow down at some point, doesn’t it?

So I schedule for 11am, and show up to find today’s list of showings taped to the front door:

The listing agent happens to be there, so we discuss the current market conditions. She is a long-time independent broker like myself (who now also works @ Compass) and we agree that the environment is ripe to convert to single agency naturally, and buyer-agents being eliminated.

It’s not because it’s what best for everyone involved, because clearly it’s not good for buyers and sellers – except maybe for those sellers who live in the house being barraged by showings the first few days on the market. It doesn’t sound like much of a price to pay, but for homebodies, or those with little kids & pets, it can be a major inconvenience.

Zillow is the only entity who spends eight or nine figures per year on advertising, so they will control our destiny – and with them setting up brokerage units manned by employee-agents in all 50 states, you can get a feel for what’s ahead.

In the meantime, consider these developments.

Today’s listing agents are making it harder to show and sell their listings, they are lowering the buyer-agent commissions (and taking the difference), and some realtors are advertising guaranteed cash offers as the better way to sell your house.

As is the case throughout America, the truth doesn’t matter nearly as much as how loud you can scream.

The greed displayed by these listing agents feeds upon itself, because other agents witness these practices happening without any reprimands, and they start to believe it’s acceptable…..and then they do the same thing. The game is evolving into how to beat the buyer-agents out of their commission.

In the short-term, realtors can justify this revolution by pointing to the commercial brokers who have practiced their real estate like this all along. Heck, less competition will slow down the rapid price increases we are experiencing, and help to trim the over-population of realtors everywhere too….so you can say there are good things about it.

But it all plays into the hands of Zillow, and eventually they will be who processes your order.

More Waiting Until Spring, 2021

I wonder if the rest of America looks at the homes in the bottom half of this photo above and correctly guesses that they are selling in the mid-millions…..Excerpts from article linked at bottom (hat tip Ray!):

Would-be home sellers have numerous reasons for staying out of the market, say real-estate agents. Some are worried about potential virus exposure by letting strangers tour their homes. Others have canceled or delayed their plans to move due to the pandemic, or they are worried about finding a new home in a competitive market.

KC Hart has experienced the inventory shortage firsthand as a real-estate broker in Missoula, Mont., where demand is high from buyers moving from other states. He’s also contributed to the problem. Mr. Hart and his wife were planning to sell their house this summer after their youngest went to college, but they delayed their move because their son is staying at home this fall while taking classes locally.

“That’s one more house not on the market,” Mr. Hart said.

In some cases, sellers are waiting until the spring, traditionally the busiest home-selling season, said Quentin Dane, chief executive of Dash Realty Group in Raleigh, N.C.

“We hear this all the time: ‘They might get a vaccine for Covid coming at the end of the year, and the spring market is right around the corner,’” Mr. Dane said. “Sellers [are] saying, ‘If I don’t need to sell, why go through the risk of selling right now?’”

Another obstacle for sellers is the high demand for contractors, painters and other workers who can perform repairs or upgrades to houses to prepare them for sale, said Beth Traverso, managing broker at Re/Max Northwest Realtors. Once houses in her area of the Seattle suburbs go on the market, they are usually sold within days, she said.

Jeff and Jill Borgida wanted to sell their house in Bothell, Wash., this spring now that their children were grown. But with inventory so low, they struggled to find a new house in their area and budget that met their needs.

“We were getting nervous, because we were along a path to list our house and we’re not finding any really suitable options,” Mr. Borgida said. Finally, they widened their search parameters and found a house farther out than they had originally looked.

Link to WSJ Article

2021 = Market Compression

The 2021 selling season should be the craziest market in the history of the world.

My theory: The covid-19 pandemic has jumbled the usual timing of the elective movers, and we are experiencing a not-natural compression of reasons to move.

We will have our Big Three (death, divorce, and job transfer) causing their usual sales.  Making the difference will be the elective buyers and sellers who expedite their plans.

There are always a group of buyers and sellers who contemplate moving for 1-5 years before they get around to it.  But the current environment (covid+ultra-low rates+unemployment+prices+politics) has captured their attention, and it will pull forward buyers AND sellers from 2022-2023.

Plus we will have some buyers AND sellers who ordinarily wouldn’t have even thought about moving until 2022-2023 who are realizing sooner that they should move in 2021.

Not all of them, but some of them.

It won’t take many.

We have been very fortunate to have a steady consistent flow of listings and sales over the last few years. The number of listings between January and August varied by less than 1% between 2017 and 2019.

The pandemic changed that though, and look at results. Listings dropped off significantly YoY (-11%) yet sales are only down 4%. Oh happy day, we’re surviving the covid – for now!

NSDCC January-August

Year
Number of Detached-Home Listings
Number of Detached-Home Sales
2015
3,811
2,160
2016
3,930
2,085
2017
3,560
2,135
2018
3,586
1,969
2019
3,604
1,928
2020
3,206
1,851

But we know that more than half of boomers delayed their plans of selling in 2020.

All we need is for the compression of moving motivations to cause 500-800 more listings in the 2021 selling season and it will be a whole new ball game – unlike anyone has seen recently!

Historically, buyers are known to freeze up quickly when they see more homes hitting the market. But all we need there is 300-400 more buyers to jump at the chance of securing their forever home at ultra-low rates, and ending their unsettling insanity of 2020.

With all the bidding wars, there are probably 300-400 unsatisfied buyers in the marketplace today.

Next year’s selling season could be the Frenzy of All-Time!

What’s Hot!

We know that covid, and it’s impact on schooling in particular, is causing some people to want more space around them.  Bigger houses, with bigger yards, are becoming more desirable…..and buyers are scrambling to get situated and comfortable before school starts – or at least not get too far into the school year.

The Poway area offers such relief at a fairly affordable price.

My buyers and I finalized this list of homes on Monday, and picked yesterday as our tour date. By Wednesday night, this is how the list looked:

17307 St Andrews Dr., Poway.  $1,399,000  Active listing

14260 Hacienda Ln., Poway.   $1,150,000  Active listing

16105 Lakeview Rd. Poway.  $1,350,000  Active listing

12612 Stoutwood St., Poway.  $1,070,000  Pending

13615 Sunset View Rd., Poway.  $1,100,000  Pending

11828 Clearwood Ct., San Diego.  $1,290,000  Pending

12429 Damasco St., San Diego.  $920,000  Pending

14473 Trailwind, Poway $1,465,000 Pending

14220 Primrose Ct., Poway $1,249,000  Pending

3428 Tony Dr., San Diego $1,329,000 Pending

12020 Blue Diamond Ct., San Diego $1,300,000 Pending

9972 Falcon Bluff, San Diego $1,389,000  Pending

14048 Old Station, Poway $999,000 Pending

12488 Caleta Way, San Diego $1,098,000 Pending

13427 Calle Colina, Poway $1,250,000 Active listing

Out of the 15 listings, eleven of them already went pending this week!

The agent sent this message on his Blue Diamond listing, priced at $1,300,000:

The sellers don’t want any more showings, they have 10 offers and half of them are over $1,400,000.

Yowsa! Get Good Help!

Signs of Frenzy

We have a real frenzy when many of the signals are happening at the same time:

  1. Record-low mortgage rates.  Rates are so low, it feels like free money now!
  2. Record-high sales.  We’ll never see this many July sales again.
  3. Homes sell quickly. Last month’s average days-on-market was 38 days, and the median was 14 days!
  4. The SP:LP is close to 100%.  Last month’s ratio was 98%, and that includes 51 sales over $3,000,000.
  5. Pricing is wildly optimistic, yet sales keep happening. The best sign of a frenzy is when the comps don’t seem to matter any more.
  6. In the midst of a recession, record unemployment, and a 100-year pandemic, PRICES KEEP GOING UP!

We have all of the above!!!

Frenzy to Continue

Because baby boomers tend to own in the best locations (they got there first), we should have an extended frenzy, and maybe an occasional glut of older and dated 2-story homes in some areas:

Nearly a third (31%) of home sellers are “extremely anxious” about selling their home in 2020. The percentage of sellers in each age group who feel this way are:

  • 37% of millennials
  • 35% of Gen Xers
  • 20% of baby boomers

Another 46% of sellers are “somewhat anxious” about a home sale this year, while 6% have no anxiety at all.

While 32% of home sellers already have their home listed for sale, more than 6 in 10 sellers (62%) haven’t put their home on the market yet. Another 6% previously listed their home, but have since taken it off the market.

More baby boomers (57%) plan on waiting to put their home on the market, due to the COVID-19 pandemic, than Gen Xers (41%) and millennials (42%).

Link to Full Article

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