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2021 Frenzy Contest

Happy New Year…..how about a contest to get it started?

My case for a full-blown frenzy is based on having additional supply to fuel the seemingly-insatiable demand brought on by the pandemic – having more homes for sale will help spike sales and prices.  Betting on more people selling their piece of paradise sounds insane as the coronavirus rages throughout the region, but we’re overdue – and there are a number of reasons why it could happen:

https://www.bubbleinfo.com/2020/12/22/my-top-ten-reasons-for-frenzy-2021/

We will know how the selling season will unravel just by the number of new listings in January.

Here is the history:

NSDCC January Listings

Year
Number of January Listings
2011
367
2012
275
2013
419
2014
425
2015
405
2016
471
2017
395
2018
427
2019
421
2020
353

The range is 275-471, the median is 412, and the average is 396 listings. Last year we had 5% fewer listings, but 13% more sales than in 2019. My 2021 prediction is 10% more NSDCC listings year-over-year, 10% more sales, and a 10% increase in the NSDCC median sales price.

OUR CONTEST: GUESS THE NUMBER OF NSDCC LISTINGS IN JANUARY, 2021!

In 2020, saw a big drop-off in January listings year-over-year (-16%), and that was before the pandemic. If we see a similar amount, or fewer, then prices will go nuts but be limited to the neighborhoods that actually have sales, and the lucky few who can win a bidding war.

If we have a surge in listings, then more of the demand will be satisfied and the frenzy will reach more areas – and prices go up faster because of the additional comps, all of which should close for a higher price than the last sale.

Having a contest based on the number of January listings will help to keep our focus on one of the leading indicators for the 2021 selling season.

The winner will be who guesses the closest (above or below) to the actual number of January listings as counted on the morning of February 15th.  The winner will receive two tickets to a day at the U.S. Open at Torrey Pines, June 17-20, and four tickets to a game with World-Series favorite, the San Diego Padres!

I have purchased tickets to both events already, so as long as the ‘rona cooperates and fans are allowed, we will have prizes.  Neither the PGA or the Padres have committed to a set policy on fans yet though, so if they both cancel out then I’ll think of something else for a prize.

Our Padres tickets aren’t front row, but they are decent:

Leave your guess in the the comment section on how many NSDCC SFR listings we’ll have in January!

Frenzy Duration

We’ll be all frenzied up for the next few months – when will it cool off?

The real estate market will likely mirror the course of the pandemic.

You’ve probably heard the comparison to the Roaring 20s – the boom that kicked off when World War 1 and the Spanish Flu of 1918 were over and automobiles and telephones fueled the new economy.  Just the relief of seeing the coronavirus beginning to clear should cause more people to get out and about….but getting back to normal could mean less real estate frenzy.

Mortgage rates will reflect the improvement, and rise accordingly.

Don’t expect rates to budge the moment he takes the oath of office, but a Biden administration could eventually impact the direction of mortgage rates.

“Expect tax rates to rise, the Fed to offset increasing inflation with higher rates, and the economy to slow,” Guy Baker, founder of Wealth Teams Alliance, tells The Mortgage Reports.

And there’s this, from Rick Sharga, executive vice president at RealtyTrac: “Biden has called for more government investment in affordable housing, which could be funded in part by proceeds from fees attached to home sales backed by government agencies like Fannie Mae, Freddie Mac, and the FHA.”

Baker, Sharga and other experts polled by The Mortgage Reports in October predicted 30-year rates would rise to an average 3.51% in 2021 under a Biden administration.

When home buyers hear that rates are going up, they will be tempted to hit the brakes and wait until sellers start lowering their prices to compensate.  Think sellers will lower their prices? Me neither, and the market will probably stall out for months or years, much like it did after the Rocking 2013 Frenzy.

My guess is that we have six more months of frenzy in the bag.

But there will be enough other distractions that the super-hot market will fizzle out by July/August.

Or the first day that mortgage rates hit 3.50%, whichever comes first!

What do you think?

Hello 2021 Frenzy!

When will we know more about the 2021 frenzy?

We already know it’s going to be hot – look at the sales count for this month, plus we have 285 pendings:

NSDCC December Sales

Year
December Sales
The Following January Sales
% Drop-off
2012
181
128
29%
2013
223
184
17%
2014
255
172
33%
2015
258
170
34%
2016
241
175
27%
2017
223
151
32%
2018
197
153
22%
2019
228
185
19%
2020
283
??
??

We knew that 2020 was going to be better than usual just by the 185 sales in January. Then the pandemic derailed us for a couple of months, but we gained it all back in the second half of the year and 2020 wound up with the most annual NSDCC sales ever.

The drop-off from December to January a year ago was only 19%, so if we see about the same decline next month, we’ll know that the frenzy is continuing.  We have 283 December sales this morning, and once we add today’s sales plus the late-reporters we’ll probably be around 310 sales for this month(!!!).

If next month’s sales end up around 251 or higher (310-19%), then we’ll know that the frenzy is continuing.

The last frenzy happened in 2013, and you can see how it continued into early 2014 with only a 17% drop off.  But by the end of 2014, the frenzy was over – expect the current frenzy to die down by the end of 2021.

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Predicting 2021 Frenzy With Numbers

Yesterday, Rob Dawg got started on his prediction on next year’s market:

Is this the official JtR 2021 prediction thread?  If so I will post again but for now…

The huge demographic groundswell of house-ready millennials will drive prices much higher.  The municipal imposition of covering costs plus will make new supply rare.  Money printing drives investment into tangible assets.

Double digit appreciation in the recorded sales.  Stagnation in the houses that don’t sell.

The demand is in place between millennials, downsizers, move-uppers, and out-of-towners to easily increase sales by 10% over this year’s record count.

The only hurdle is supply.  Will there be enough people willing to sell?

Let’s break it down to a specific number, because we’ll see that achieving 10% more sales isn’t that far out of the question.  How many more people need to sell? Here is the breakdown of 2020 listings and sales:

NSDCC 2020 Listings and Sales by Area (as of Dec 30th)

Town or Area
# of 2020 Listings
# of 2020 Sales
Median SP
Cardiff
172
108
$1,707,500
Carlsbad
1,426
1,155
$1,125,000
Carmel Valley
619
482
$1,500,000
Del Mar/Solana Bch
421
259
$2,000,000
Encinitas
618
468
$1,547,500
La Jolla
711
394
$2,262,500
RSF
546
311
$2,710,000
NSDCC
4,517
3,181
$1,479,000

Does my guess of +10% in all categories look and sound crazy?

It looks feasible that we could have an additional 319 sales next year, and get us to 3,500 total. If we pick up an extra 200 sales in Carlsbad, we only need another 119 in the pricier parts of town.

The median price going up to $1,626,900? We know that sellers will be tacking on their habitual extra mustard to their list prices, so $1.6-ish for the year is definitely within range.

Could we have 4,969 listings next year?

This is the big question, but it’s not some crazy number we’ve never seen before – in 2016 we had 5,182 listings and 3,104 sales when mortgage rates averaged 3.65%.

Having an extra 452 houses to sell means 1-2 more listings per day – I wouldn’t call that a flood – and it’s about the right number to whip buyers into a feeding frenzy without creating a glut.

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2021 Predictions

Let’s try to predict what will happen in 2021!

For fun, our reader The Old Man suggested we look back at the predictions for 2020.  I had guessed that sales would drop 10%, with the NSDCC median price rising 2% to 3% – here’s last year’s blog post:

https://www.bubbleinfo.com/2019/12/09/2020-predictions/

The 2020 sales count is already 12% ABOVE last year’s sales, and is the highest in history – and we’re not done yet.  Is it even possible to have MORE sales next year?  Yes, but only if we get a surge of inventory.

This is where it gets interesting.

The number of 2020 listings was 5% below last year, and 7% below the 2018 count. If we just get back to last year’s numbers, it will feel like a surge, but it’s really just going back to normal.  I think the extra 5% is in the bag, and because of the additional reasons for people to sell, we will have a surge that will blow way the recent numbers of listings.

MY 2021 PREDICTIONS:

  1. We will have 10% more NSDCC listings than we had in 2020.
  2. We will have 10% more sales.
  3. We will have a 10% increase in the NSDCC median sales price.

And that, my friends, is what a FULL-BLOWN FRENZY looks like.

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Home Prices in 2021

Bill has his annual forecast on home prices here:

https://www.calculatedriskblog.com/2020/12/question-8-for-2021-what-will-happen.html

Here is a snapshot of the forecasts:

(I was reading the previous chart wrong when I said that all were forecasting 7% to 10% appreciation. This is the accurate chart, with the old fuddy-duddies still lagging behind in the safety zone of 2% to 3%)

THE FRENZY IS COMING!

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Where Could Defaults Happen?

Let’s get started!

If defaulters were pressured to pay or sell…..what metro areas would suffer most? Even in the worst cases, any additional inventory from defaulters will be drawn out over time because they don’t want to move.

It looks like the San Diego-Carlsbad region is under San Francisco’s 6.22%!

https://blog.firstam.com/economics/will-record-equity-levels-prevent-a-foreclosure-tsunami

https://www.census.gov/data/experimental-data-products/household-pulse-survey.html

Red Hot, How Long?

I didn’t see this until today – but the hotness sounds similar throughout SoCal:

Katerina Krumwiede wasn’t looking to move.

She and her husband, Rob, recently spent “well over” $100,000 on a complete remodel of their Encino house that added a backyard gazebo, custom kitchen countertops, new roof and imported bathroom tiles from Spain.

But Krumwiede, 40, said the single-story house still lacked quiet space — a drawback when the COVID-19 pandemic hit and she had to work from the master bedroom if she wanted to escape the sound of her husband’s frequent video calls.

Eventually, it became too much, setting off a chain reaction that led the family to sell their Encino home for $1.5 million and purchase a larger one in Calabasas for $1.7 million.

“It was very uncomfortable sitting on the bed all day long,” said Krumwiede, an entertainment industry lawyer. “My back was really hurting.”

In recent months, the national and Southern California housing markets have been red hot. Bidding wars are common. Homes fly off the market in days.

In November, the regional median home price jumped 11%, while sales climbed 19%, according to DQNews.

Many experts say the frenzy is due in large part to the pandemic. Although many low-wage workers worry they’ll face eviction, the economic downturn has left relatively unscathed the higher wage workers more likely to buy homes in the first place.

Federal Reserve policy has helped drive mortgage interest rates into the recently unheard of 2% range at the same time people are spending more time at home and realize they could use more space.

But the torrid pace of the for-sale market raises the question: Just how long can this continue?

For some, the pandemic simply accelerated decisions planned for the near future. And unemployment is still high, which will hinder home-buying dreams for others.

(more…)

My Top Ten Reasons For Frenzy 2021

After an insanely unpredictable real estate market in 2020, will our strong sellers’ market continue in North San Diego County’s Coastal region? Probably, but it should be more balanced.

Mortgage rates around 3% (and under) will continue through at least the first half of next year, but how about the low inventory?  The number of homes for sale today is 38% fewer than it was last year at this time, so it appears 2021 will start out with the lowest inventory ever for any new year.

But I don’t think it will last.

Do we have pent-up supply waiting to burst onto the market?  Here are my categories where I think we will shave additional homes come up for sale, roughly in the order of the most-likely contributors:

1. Move-Uppers – Covid-19 changed what we want from homes. Low rates/high equity make it possible!

2. Baby Boomers – A survey said that half of seniors delayed listing their home in 2020 due to Covid-19.

3. Politics/Taxes – Many Californians have had enough. The migration trend to other states should ramp up.

4. Work From Home – This trend frees up many to move…..up and out!

5. Forbearances – Lenders will be lenient, but some in default will tap their equity, rather than risk losing it.

6. Prop 19 – Enables 55+ homeowners to take their low property-tax basis with them. Though this won’t be the sole reason to move, it makes for a nice sweetener – and may be the last straw to make it worth it.

7. Divorce Rate is Up 34% – Technically, this could add more sellers AND buyers, but realistically those coming out of a divorce will be more likely to split their equity and take a break.

8. Unemployment – Older homeowners will grapple with taking a pay cut or quitting the job-search altogether – and retiring earlier than expected won’t seem so bad when their home’s equity has never been so high.  More boomer moves that would have happened in 2022-2025 will be pulled forward.

9. Eviction Ban – In the second and third quarter of 2020, there were 11% of renters who missed a payment. Mom and pop landlords will begrudgingly sell and pay the capital-gains tax, rather than risk another episode like this one.

10. Capital-gains tax. – From the WSJ: Biden will raise the tax on the capital gains of high earners to the same rate as wage income, increasing the rate to 43.4% (39.6% plus Medicare 3.8% investment tax) from 23.8%. Mr. Biden on Thursday estimated that these increases on high earners would raise $92 billion, but that’s before they put their tax lawyers to work. Biden has also said he will eliminate the 1031 exchanges, but all of the above will need Congressional approval. Just the thought could cause landlords to hurry up their plans of selling.

The potential home sellers that are in more than one category (and have more motivation) will be the first out – which means we should get off to a fast start in 2021. We probably won’t see a flood, but it will only take 10% to 20% more sellers to change the game dramatically.

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