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Backlog Forming?

Hat tip to Ryan for his excellent job documenting the real estate frenzy underway in the Sacramento area:

http://sacramentoappraisalblog.com/

Susie says the Boise market is on fire, Noodle said that every house in North Phoenix sells in 3-4 days, home prices in Austin are similar to what they are here (according to one buyer) and even Kayla is seeing multiple offers again in Manhattan!

The potential sellers here who want to list their house for sale so they can leave the state have to be concerned about buying their replacement home, if they haven’t bought one yet.

How many will give up and say, “heck, it’s better here anyway”, and pack it in, instead?

Will a surge of supply over the next 3-4 months – when we need it the most – be stymied because of the difficulty with buying a home elsewhere?

As crazy as it is right now, it could get crazier! It probably will!

Daring You To Buy

In the last couple of weeks, you may have seen prices on new listings reflecting today’s exuberance.

Homes that are priced attractively will generate the crowds, and likely get bid up over list.

Others are listed for a price that raises an eyebrow. In areas where we’ve seen 10% to 20% appreciation in the last six months, are sellers packing that much on to their list price PLUS another 5% to 10% – or more?

How do you recognize the difference?

The difference between a bidding-war listing, and a seller just daring you to pay their price?

Thoughts for Buyers Wondering If The List Price Is A Dare:

Compare to the Pendings

If you only consider the sold comps from the last six months, you probably won’t buy a house in this market – one which should last at least a couple of more months before there’s any possibility of unsold listings starting to stack up.

Who is the Listing Agent?

Known and successful listing agents aren’t going to list a home for some crazy too-high price. They know it’s better to keep it attractive, and let the market do its thing.  If you’ve never heard of the agent and he acts more like a kook from Montaluk, then know that their list price is more likely to be outrageous.

Quiz the Listing Agent

The number of showings doesn’t matter as much – the number of offers does. If there have been 50 showings but only 2-3 offers, it means the price turned off 90% of the buyers. Unfortunately most listing agents are shutting down the showings so fast that it’s hard to get an accurate count – or to get them to fess up.

The Age of the Home

The older the home is, the less likely it’s worth a premium.  The floor plans aren’t current and the upgrading over the years is likely to be inconsistent – those will be even more difficult to sell in a normal market. They do tend to be in the better locations, so the home’s age isn’t a hard stop.  But typically the older homes are less likely to be worth a big premium today, let alone in the future.

Days On Market

If you’re not sure if the price is right, then wait it out.  The initial frenzy dies off quickly, so if you don’t need this house like you need air to breathe, let ride and see if it goes unsold for the first 7-10 days.  It’s really the only way to know for sure if the price is wrong.

Stay Picky

Only pay a huge premium if it’s the perfect house for you. There’s a decent chance that appreciation flattens out over the next few years and you end up high & dry for a while. But you don’t care because you’re in it for the long haul, so make sure this home fits ALL your needs. No compromise.

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The market for the best homes has been hyper-competitive for years – it’s only because of the covid/low-rate cocktail that buyers are flooding the streets in numbers we’ve never seen before.

Maybe you should wait it out?  Aren’t all sellers daring you to buy now?

You’re just buying homes today at tomorrow’s prices. If prices go up another 10%, and appreciation flattens out and you can score a deal at 10% off, then you’re only back to where you would have been today.

Market Imbalance

Everyone says that inventory is low because potential sellers don’t want people in their house during covid……but that’s not stopping the buyers!  The showing counts are rising quickly and more people are looking – maybe more than ever for early March:

The competition among buyers is increasing daily, yet the number of homes coming on the market is still well behind previous years, creating an imbalance of gigantic proportions – twice as many lookers to buy 18% fewer listings than last year:

San Diego County Number of New Listings, January + February Combined

Year
New Listings of SDCo Detached-Homes
2013
5,148
2014
5,533
2015
5,834
2016
5,832
2017
5,195
2018
5,328
2019
5,658
2020
4,925
2021
4,035

This year we were 26% below the average of the previous 8 years!

The extraordinary demand mixed with fewer properties is causing everything to get bid up.

In past years, any defects or concerns might limit the number of buyers, and affect the value. These days, it just means you’ll have less than ten offers. The flipper paid $911,500 for this in November, listed for $1,089,000, got seven offers and two bid it up to $1,300,000:

How Much Over List?

The trend of paying over the list price is increasing.

NSDCC Detached-Home Sales Closed Over List Price

January: 38%

February: 43%

March: 51% (of the first 75 closed sales of the month)

Most sellers and agents are happy just to get 1% to 5% over list which will cover some or all of the commission. There were only four that went double-digit over:

Most % Over List Price

List Price
Sales Price
Percentage Over List Price
$1,900,000
$2,255,551
19%
$1,200,000
$1,350,000
13%
$1,750,000
$1,953,800
12%
$1,095,000
$1,205,000
10%

NSDCC Sales, March 1st-10th: 75

Average List Price: $2,072,379

Average Sales Price: $2,049,937 (99%)

Median List Price: $1,750,000

Median Sales Price: $1,800,000 (103%)

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Market Topics

I love hearing from new readers!

Hi Jim,

I have recently stumbled upon your blog and find it very interesting as I am an appraiser in San Diego. I wonder if anyone has considered that the low inventory levels are in part because home prices are going up so fast why would anyone want to sell something that is going to be worth 10K, 20K, 50K more within just months. For example my home according to Zillow is up 22K in the last 30 days. Something else to consider that I have not seen mentioned….

Are sellers paying attention that closely? If so, then you’re right – it’s possible.  Add that extra supply to the post-covid/Prop-19/usual-spring listings and there could be a real surge. But the worst thing that will happen is there will be 3-4 houses for sale in your neighborhood, instead of one or two.

Do sellers risk it? Most are already making $200,000 to $1,000,000+ profit……are they going to purposely hold out in hopes of picking up an extra $50,000? Maybe, but I’d guess that when and where they are moving probably plays a bigger role in their decision-making.

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Sellers are indeed holding back for some reason.

In the first nine days of March last year we had 148 new listings between La Jolla and Carlsbad, and so far we’ve only had 90 this year.  More will be added to that nine-day total this week, but we’re still well under where we’ve been in previous years. March is when the inventory really picks up, historically:

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The Frenzy of 2013 was red-hot for about a year.  If the same happens this time, it means the market should flatten out by July as rates increase and buyer exhaustion sets in.

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The bump in rates over the last two weeks just threw gasoline on the fire for those who could find a house to buy.  But an extended run-up – especially if we get to 4% – should cool things off.

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I have two closings with buyers this week. One paid $135,000 over list, and the other paid $100,000 over.

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Over the weekend, I had buyers make a highest-and-best offer that was $207,000 over list….and lost.

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There is virtually no transparency – just take your shot and pray. Don’t think, and don’t blink!

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Automated Scheduling of Showings

The industry has been abuzz over Zillow buying ShowingTime, our appointment-scheduling service.

Wouldn’t it be great if Zillow published the number of showings publicly? The intel that could be gathered would be of great interest to buyers, and help enhance the home-selling transparency.

The data is already available.

Buyer-agents who book their appointments to show on the ShowingTime mobile app can see the whole schedule of times already reserved by other agents. It also makes you wonder if listing agents are reserving a bunch of times to make their listing look more popular (no names or other info is given on the app).

If buyers knew how many showings were scheduled, it would help them decide how much to offer.

Same with the number of offers.

The trend is to do less for buyers, so when asked, most listing agents won’t discuss how many offers they’ve received – and they certainly won’t divulge the offer prices.

But they should.

It would give other buyers a number to shoot at, and that transparency alone makes them more likely to hit it, or even offer more.  It’s an old wives’ tale that you can’t divulge – the opposite is stated in the contract:

Another benefit of divulging the number of offers and their terms is you quickly eliminate the non-players.  Most buyers are comfortable offering the list price, and +/- 5%, so why not just tell them that you have an offer that is 12% over list and save them the trouble – and save the listing agent from having to process another offer that’s going nowhere.

You can then concentrate on having the real players compete against one another.

It sounds like an auction, doesn’t it?

Pandemic Housing Fever…..With Regrets

There will be a whole new wave of lawsuits against listing agents who insist on rushing buyers through the process.  They think it’s a good thing to shorten the contingency periods and then make themselves scarce – and they are going to get what they have coming to them.

Get Good Help!

From the wsj and realtor.com:

Stella Guan spent months searching for a home to buy, getting outbid again and again in the white-hot real-estate market of the Los Angeles suburbs. Finally, her offer on a “beautiful” Santa Clarita house was accepted in August, she said. The graphic designer, 30, paid roughly $600,000 for the house. But after sleeping there for only a few nights, she had an unfortunate realization. “I was like ‘uh-oh, I hate this house,’ ” she recalled. “I hate this house so much.”

Looking back on it, she said, “I should have seen all of the warning signs, but the pandemic housing fever got the better of me.”

A house, unlike expensive jewelry or clothing, can’t be returned if the buyer is unhappy with it, so a cardinal rule of home buying is that you shouldn’t rush into a purchase. But in 2020, millions of Americans did just that.

Fleeing small apartments, buying vacation homes or simply looking for a change of scenery amid the crushing boredom of lockdowns, people scrambled to buy houses amid the pandemic, spurring bidding wars and supercharging real-estate markets across the country. Now, many are discovering the pitfalls of these hasty purchases, ranging from buyers’ remorse and financial strain to damage caused by unexpected problems.

This spring especially, “people were so panicked,” said Priscilla Holloway, a Douglas Elliman agent in the Hamptons, a popular spot for New Yorkers seeking refuge from the pandemic. “Buying a home is a huge commitment. You have to be thorough. But people were getting all crazy, and they weren’t as thorough as they usually are.”

Ms. Holloway said she helped a family move this summer after discovering that the Hamptons house they had just bought had an infestation of wasps nests in the backyard. The family didn’t find the wasps until after closing because they had waived the inspection in the midst of a bidding war, said Ms. Holloway, who wasn’t representing them at the time. Deciding the property was unsafe for their young children, they immediately put the Westhampton Beach home on the market. Ms. Holloway and a colleague helped them find another house to buy.

Nature had an unpleasant surprise in store for Richard and Meaghan Weiss when they bought their first home in Northern California after moving from Brooklyn.

When Covid hit, the couple left their Brooklyn apartment to stay with Ms. Weiss’s parents in Sonoma, Calif. Ms. Weiss was pregnant and they had a toddler at the time. “Being cooped up in an apartment, not being able to see people in New York, sounded like a miserable existence,” said Mr. Weiss, 40, who works in commercial real estate.

After a few months they decided to relocate permanently to the Bay Area, where Ms. Weiss grew up, and started looking for a home to buy. They found the market to be “super-duper competitive,” Mr. Weiss said. They were outbid on one house and backed out of a contract on another when they found out it had serious foundation issues.

Finally, they were able to buy a four-bedroom house they loved in the East Bay, paying about $100,000 over the $1.89 million asking price to beat out another bidder. “We were a little bit overeager because we’d been burned twice,” he said. “We probably didn’t do the due diligence we should have and looked at everything as thoroughly as we probably should have.”

They closed on the hillside house in November. When they returned a few weeks later to move in, “we see all these holes in the siding,” Mr. Weiss said. On closer inspection, they found that the wood on one side of the house was “absolutely devastated,” with some 90 holes in it. It turned out that the culprits were acorn woodpeckers living in the large oak trees surrounding the house. “Come to find out, it’s a systemic problem in the neighborhood,” Mr. Weiss said.

The seller hadn’t said anything about the birds, he said, and coming from Brooklyn, he and his wife didn’t know to ask. Since then, they have tried various deterrent devices and consulted with exterminators, but the only permanent solution is to replace the home’s wooden siding with cement at a cost of roughly $150,000.

If it weren’t for the frothy pandemic market, Mr. Weiss believes they would have discovered the problem before closing. “I think we would have been slower and more thoughtful and more methodical,” he said. “Buying a home becomes emotional. Because we were emotional from losing the first two and the competitiveness, we just kind of dropped our level of diligence and plowed through.”

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