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Over List, June (Preliminary)

We are having fewer sales between Carlsbad and La Jolla, but about the same percentage are closing over the list price as we’ve seen in the previous months of 2022:

NSDCC Detached-Home Sales, June (Month-to-Date)

Number of Sales: 104

Number of Sales Closed Over List: 68 (65%)

Average List Price of Over Lists: $2,298,732

Average Sales Price of Over Lists: $2,448,509

SP:LP = 107%

Median List Price of Over Lists: $2,100,000

Median Sales Price of Over Lists: $2,267,500

SP:LP = 108%

Can we say that the list pricing has come down much? Not really.

The median days-on market of those that closed over list was 8 days, so pretty much all of the buyers were into the higher mortgage-rate era when they made their decision.

I know it’s tempting for waiting buyers to think it’s going to get better, later – but so far, all that’s happened is fewer sales.

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Getting Back to 5%

Over the last few decades, the 30-yr fixed mortgage rate has run at 1.75% over the 10-yr yield – which if true today, it would put us at 5.0%, instead of 6.0%. Here’s what the MND thinks about the bond yields:

As for Treasuries, yields are now high enough as to be pricing in virtually all of the expected Fed rate hikes over the next year.  Once that happens, the only way for them to go much higher is for the data to deteriorate further.  Bottom line: if we can avoid upside inflation surprises like last Friday’s, we may have just seen the highest rates of the year.

If the bond yields settle down (the 10-year was 3.48% on Monday), and bring in more MBS buyers, then maybe the mortgage companies can give up the extra 1% spread they are sitting on today. Our chances of survival will be much more likely with 5% mortgage rates, then 6%!

Read full article here:

MND Article

Fed Trying to Tank the Market?

Now he’s done it.  Chairman Powell’s remarks yesterday (and my comments at bottom):

Rates were very low. A good place to start is rates were very very low for quite a while because of the pandemic and you know the need to do everything we could to support the economy when unemployment was 14% and the true unemployment rate was well higher than that. So …

And that … that was a, uh, rates were low and now they are coming back up to more normal or above levels. So … in the meantime, while rates were low and while demand was really high … obviously demand for housing changed from wanting to live in urban areas to some extent to living in single family homes in the suburbs. Famously. And so, the demand was just suddenly much higher.

So we saw prices moving up very very strongly for the last couple of years.

So that changes now. And rates have moved up. We are well aware that mortgage rates have moved up a lot. And you are seeing a changing housing market. We are watching it to see what will happen.

How much will it really affect residential investment? Not really sure.

How much will it affect housing prices? Not really sure. Obviously, we are watching that quite carefully. You’d think over time … There is a tremendous amount of supply in the housing market of unfinished homes … and as those come online …

Whereas the supply of finished homes, inventory of finished homes for sale is incredibly low. Historically low. So it’s a very tight market. So prices might keep going up for a while, even in a world where rates are up. So it’s a complicated situation and we watch it very carefully.

I’d say if you are homebuyer, somebody or a young person looking to buy a home, you need a bit of a reset. We need to get to back to a place where supply and demand are back together and where inflation is down low again, and mortgage rates are low again.

This will be a process were by ideally, we do our work in a way were the housing market settles in a new place. And housing and credit availability are at appropriate levels.

Good grief!

One of the most powerful players in the world is making moves that will negatively affect every American, and he’s not sure how it will turn out?  Did you ask anyone?  Did you seek advice from anybody who is actively involved with the real estate market (not economists) to get some opinions?

Certainly, someone from the real estate industry will help him out….like Larry:

Oh, ok great. In response to her question about whether home prices will go down, he said we should produce more oil to reduce gas prices and lower inflation so mortgage rates could come down and make homes more affordable. Thanks for clearing that up, Larry!

What nobody is considering is that SELLERS GET A VOTE. If potential home sellers think that the Fed is trying to tank the real estate market, then they won’t sell now – they will wait for better days ahead.

I talk to buyers and sellers every day. I’ve knocked 1,000+ doors this year in search of potential home sellers, and haven’t gotten a single listing. The ridiculously high price they can get today isn’t enough to get them to sell. If they think that we’ve past the peak, they really won’t move!

Buyers need a reset, alright. But this won’t be it!

Who’s Left

By the end of today, the 30-year mortgage rate should be in the mid-6s – who would buy a house now?

Between higher prices, higher rates, and the hefty federal and state capital-gains tax, the move-up/move-down homeowners are effectively locked in to their existing home.  It’s just too hard to make sense of a move, unless there is another strong reason to overcome those.

It would help if they don’t mind leaving town, and probably leaving California.  But who wants to do that?

Without the move up-and-downers, the supply and demand will both be greatly diminished, and the number of sales should drop significantly. But there will always be sales!

Here are the potential buyers who might still be interested, even at 6%-7%:

The Mega-Rich – When they see something they like, they just buy it.

Tenants – They are sick of how high the rents have become, and they don’t want to keep moving around trying to ease the pain. Some inheritance would help.

Inheritance/Gifts – They have been waiting, and now their ship has come in.

Job Transferees – They are used to owning, and they usually have their company’s blessing – and relocation package ($$) to assist them with the transition.

Contarians/Opportunists – The deal hunting will kick into high gear.

Self-Employed – Lenders should ease up a bit on underwriting to keep the doors open, and the alternative mortgage products might get more love.  Qualifying with 24 months of bank statements, instead of tax returns, and getting a 8% or 9% rate won’t sound as onerous as it did when rates were 3%.

Most Everyone at a 10% to 20% discount – Those who stay in the hunt might get lucky!

Hopefully, the floor for NSDCC sales should be around 100 per month while the market recalibrates in preparation for the next selling season.

If sales drop below 100 per month, then I’ll be looking for the panic button!

Frenzy Wrapping Up

The frenzy wasn’t going to last forever.

Coming off the initial covid months, everyone thought the red-hot market was an acceptable reaction to the way our world had changed.  But it’s gone too far, and somebody had to do something – and the Fed is going to do it again tomorrow, which will continue the rise in mortgage rates.

It means sales are going to tumble, which is nothing we can’t handle.

Here’s how it looks so far:

NSDCC June Sales

2017: 360

2018: 299

2019: 282

2020: 274

2021: 357

2022: 61

Currently there are 198 homes in escrow, and 68 of those were marked pending this month.

Of those that went pending prior to June 1st, let’s guess that 100 of them will close in June – and there might be a few others that are just coming together this week with a quick close date in June too.

It will make for around 180-200 NSDCC sales this month!  It’s quite a bit lower than usual, but we’ll survive.

We’ll have more unsold listings, longer market times, price reductions, and fewer sales – it’s all part of the recalibration!  Additional price reductions are an unreliable indicator because you don’t know how crazy the recent list prices were in the beginning, and they have never been so optimistic, even for the frenzy.

The closed-sales pricing will be the last thing to change, if at all.

I’m sticking with my +/- 5% for NSDCC pricing here in Plateau City.

$475,000 Over List

As you can see in my mortgage-rate tracker (in right column), we had another meltdown today, and the conforming rate now is over 6% (with no points).

The idea of paying higher prices AND rates really discourages the move-up/move-down markets.  Combined those with having to pay federal and state capital-gains taxes and the existing homeowners aren’t going to give moving another thought. They probably weren’t giving it much thought any way! And now they might have to sell their home for less?  Forgetaboutit!

While most will be (rightfully) concerned about how the buyer pool could dry up, also keep in mind that for every move-up/move-down homeowner that decides not to move, the supply side shrinks a little more too.

Bill added more towns to this list, and it keeps showing how San Diego is bucking the national trend:

We’ve had enough buyers who NEED a house that sales will keep happening, regardless of mortgage rates.  I’m sure buyers are hoping to just pay the list price, or less, to compensate.

Yet, after rates got into the 5s and several ER sales closed for less, here’s another over-list:

 

Post-Frenzy Transition

With mortgage rates blowing through the fives and another Fed meeting coming up on Wednesday, I think we can declare that the frenzy is over.

Or at least we can expect that it’s over in the buyers’ minds.

But one fact remains the same: There still isn’t anything to buy.

Will there be a surge of new listings? It would be very unlikely.  If homeowners weren’t motivated to sell for all-time record prices during ideal conditions, they won’t be interested in the thought of taking less either.

There will be a transition period while buyers, sellers, and agents get comfortable with the new environment. The talking heads will keep reminding us that rates are still historically low, and that buyers have more negotiating power now (up from zero, previously).

By the time we get to the Selling Season of 2023 though, the market players (buyers, sellers, and agents) should establish a decent comfort level with the direction of the variables.

The big question is: What will happen between now and February?

We can probably count on these:

  1. Superior homes that are priced at 10% under recent comps will sell.
  2. Inferior homes that are priced at 20% under recent comps will sell.
  3. Buyers will wait it out, sellers will wait it out, and agents will keep doing what they’ve been doing and ignore anything that’s negative.
  4. Sales will plunge.

Ponder the other likely possibilities:

  • There are going to be occasional deals, and almost all of them will be on inferior properties. Because all homes will need more improvements to be able to sell for retail, more agents will be inclined to recommend a dump-and-run on the original-looking homes.
  • There will be a ton of false starts. We are already seeing new listings get cancelled pre-maturely or being refreshed with a new and improved price (but not improved enough to make a difference). There will also be wicked buyer’s remorse as friends and family react violently to those buying now.
  • Surprisingly, there will be bidding wars and homes selling over their list price.  Of the 55 NSDCC houses that have closed in June, 62% of them sold for more than their list price.  It’s almost like an addiction!

The market will be driven by the out-of-town buyers who really want and need to live here.  They didn’t let higher prices stop them, and neither will higher rates.  What are they going to do? Not move here?  There might be fewer of them, and they might take longer, but they will keep coming – count on it.

We will survive this!

Detached-Home Graphs, Coastal North

Here are graphs that look generally supportive of the local market.

The SP:LP is still well above 100%, though hopefully it will keep receding. Everyone should be happy with it running around 100% or a little under, like it has throughout the history of real estate:

There are more homes for sale – but still low for the selling-season:

June sales are going to be really low, which is fine. Both buyers and sellers have the right to wait for some future date when it might be different (conditions are not likely to change though).

Rapidly-rising prices have decimated the lower-end markets. We’re left with an affluent, higher-end market where buyers and sellers both tend to wait for something better, later:

Check out my new mortgage-rate widget in the right-hand column – we just hit 5.85%! >>>>>>>>>>>>

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