More On Home Prices & Appreciation

More plain talk from Steve about home prices and future appreciation rates. He is talking to realtors.

What I sent to Steve:

Hi Steve,

I enjoyed your deep dive today and also put it on my blog where local realtors are known to hang out.

You mentioned that you are studying the locked-in effect.

I don’t think it has the effect people think it does, and I’m not sure there is¬†any¬†effect.


  1. The extreme difficulty of finding a superior home.
  2. The extreme difficulty of winning a superior home, once you find one.
  3. Paying capital-gains taxes on the sale of the previous home – and usually six-figures of taxes.
  4. Higher property taxes for most, even in California.
  5. Start the 30 years over again on the mortgage – which those extra years should be a bigger hurdle than the higher rate for those who analyze the differences in costs.
  6. Then pack up the stuff and uproot everybody and everything from the previous house to start fresh in the new place….and hurry up with the $25,000 to $50,000 in repairs and improvements that literally every buyer has to do when buying a resale home.

We will only know if there is a locked-in effect if rates plunge to 3% again, which is very unlikely. So it’s all just fodder for the twitterverse.

But if rates did plunge – even to 4% – then we’ll find out that homeowners are still reluctant to move.

Then the problem will be re-labeled as the Forever-Home Effect.

Just my 2 cents!

Eleven Offers!

We’ve received ELEVEN offers on our new listing at 7114 Columbine!

The five cash buyers have declined to go any higher, so the six financed offers will be competing today for the win. We sent all of them a highest-and-best counter with a 4pm deadline today. Meanwhile, any other agents who want to show and sell are encouraged to do so – we don’t stop the showings or offers, like most agents do.

We’re already $100,000+ over the list price!

Santa Clara

Though the local inventory has ticked up a bit, San Diego still has an extreme shortage of homes for sale.

Santa Clara is probably the most interesting metro though. For all the stories about tech layoffs, there sure doesn’t seem to be a mass exodus – inventory is 53.9% lower than last year?

Prices seem to be holding up too. We’ve been using this house as our marker.

It listed for $3,195,000 on March 2, 2022 and was overbid substantially during the red-hot frenzy and closed for $3,710,000.

But look at the recent sales nearby. They look supportive of the overbid sales price paid during the frenzy!

But with their inventory way down, one thing to fear is fewer people moving here from the Bay Area! Could it be that the whole California market is slowing considerably? It could grind to a halt in 4Q23.

Frenzy Monitor

The Carlsbad market has been surviving quite well – there are 14% more pendings today than last July.

The other areas are all above the 2:1 ratio of actives-to-pendings (our standard for a healthy market). The number of actives in Encinitas DOUBLED in less than a month!

Last July there were 171 pendings, and it’s the same number today!

The pendings should steadily decline like last year, and by December the count should be around 110.

Loan Fraud Pushed Home Values

While the PPP fraud was rampant across the country, the ultra-low mortgage rates and lack of inventory were more to blame for inflating home values recently – at least around here:

Anecdotal evidence suggests that many recipients of fraudulent PPP loans used the funds they received to purchase expensive houses, cars, and luxury items.13 In this section, we examine whether recipients of PPP loans flagged as potentially fraudulent are more likely to purchase houses than non-flagged recipients. We first examine house purchases using property records from PropertyRadar for a random sample of 250,000 individual PPP borrowers.

The sample was collected in February 2023 and consists of individual borrowers who received PPP loans during all three rounds of the PPP with data on house purchases through the end of 2022. Round 3 of the PPP ended in June 2021, so we observe at least 18 months of post-PPP house purchase activity for all individuals in the sample. We match names purchasing houses in the PropertyRadar data to names of PPP borrowers, limiting the sample to names that are unique.

Link to 150-page report

Forever Homes

The experts say that the majority of homeowners are locked into their homes by their low mortgage rate, and if/when today’s high rates come down, then the inventory of homes for sale will bounce back.

Boy, are they going to be disappointed.

For the last 10-12 years, San Diegans have been buying their ‘forever home’, whether they knew it or not. They are locked into their home all right, and their low rate is only one of the reasons – with two other facts being more of a burden:

  1. Difficulty of finding a better home at a reasonable price.
  2. Capital-gains taxes in the six figures.
  3. Ultra-low mortgage rate.

If mortgage rates magically came back to the 3% to 4% range, would it make sellers shrug off the first two? If rates came down to the 2% to 3% range? They would still need a very good reason to move, and endure the first two problems.

The low-inventory environment is here to stay.

San Diego Is Still #1

San Diego is the #1 area that homeowners don’t want to leave! Don’t you get the feeling that we are going to out-perform every other real estate market in America for a long time to come?

Today we have 2,293 active listings of attached and detached homes in the county – population 3.3 million!

Comping Out The Crazy

How did the local home prices go up 40% in two years?

The low rates helped buyers lose their minds, but it was more attributable to how we price homes.

When there was a sale that was 10% or more above comps, it became the new standard – and made the next seller so giddy that they started from there. Prices were leapfrogging higher!

Look at how hot the uber-frenzy was in early 2022:

It was a result of most buyers paying crazy amounts just to win something:

The big difference now? While many are still paying over the list price, they’re not going WAY over. The latest 41% Over List (above) sounds like the market is on fire but the SP:LP ratio of around 100% reflects how it only takes a few bucks over the list price to win these days.

It’s a whole new world of home pricing….just when we were getting comfortable with the last new one!

With these two graphs showing more reluctance to overpaying – even when more are doing it – future sellers need to be smart about pricing their home.

If there happens to be a wild sale that went 10% over the logical comps nearby, it was probably a fluke with no guarantee that another buyer will go for it again. You see it regularly now where listings are stacking up unsold because they relied on a single hyped-up sale nearby.

What to do when pricing the next home near a sale that wildly overpaid?

Use the list price of the comparable sale, not the sales price, and ignore the one-offs.

Their list price was the logical conclusion of value last time, and what the seller was willing to take then. Any extra money paid above list was a gift to him, and not a reflection of the actual value.

Then hire an agent who is an expert at causing prices to go up, not down!

Frenzy Monitor

The number of active (unsold) listings has been on the rise, and is now 13% higher than it was a month ago – though I would still characterize the current market conditions as steady.

Compare your stats from this month to last June and July when higher rates had begun to take their toll. The rate-change was rather abrupt, and it was natural for buyers to wait-and-see about the impact which caused the active inventory to soar.

If your area looks similar to last June/July, it’s probably not a good thing.

The activity this year is more normal and typically what happens as the selling season closes out – sellers are too enthusiastic after a couple of hot months and don’t adjust their price expectations fast enough.

There have been 57 closings between La Jolla and Carlsbad this month, which is good. The monthly sales total should finish over 100, but it probably won’t get up to the 168 sales we had in May.

There will be a few more eye-popping sales, but generally the 2023 market is fading away.

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