The experts were surveyed on what they think about the market – a sample question:
Fleming: “Our research has found that in past recessions, house prices show their “downside stickiness,” meaning they remain flat or their growth slows during economic downturns, but often do not decline much with one exception – the Great Recession. Because of the downside stickiness of home prices, and the supply and demand imbalance that exists in the market today, we anticipate nominal house price appreciation to actually accelerate this summer. House prices are going up!”
Marr: “As mortgage rates decline, prices rise. Demand fell, but so did supply, which muted any impact to home prices. Right now, they are continuing to grow at the same pace as before the pandemic. Growth may slow as the economic impacts grow, but the consensus is that home prices will continue to rise over the year.”
Tucker: “Overall, Zillow is forecasting a slight decline in home prices through October, followed by a slow recovery through 2021.”
McLaughlin: “We think price growth is going to slow, and even possibly turn negative, by the beginning of next year, as lower aggregate demand emerges and legislation that protects homeowners from foreclosure expire. However, we do expect price grow quite strongly by the end of next year, growing between 4-6% on a year-over-year basis.”
Teta: “Some pockets around the country may do well – like suburban areas around big cities if large numbers of people decide to move because of concerns that it’s too risky to stay in densely populated places where the virus has spread so rampantly. That could sew a silver lining into the market. But it may be more likely that the price boom of recent years is in serious jeopardy.”
The graph above shows the raw data – how the pendings started to increase as we got into April. It seemed like the action began to slow down just recently, and, sure enough, the rolling averages have been in decline over the last week or two in San Diego – and elsewhere.
If you just need some covid relief, then the graph below will make you feel better. For the last month, the pending sales in San Diego have been comfortably ahead of last year’s counts.
One key to any potential comeback is having more homes to sell.
The weekly counts above are the net effect of new listings minus new pendings. When we have a good week of net new pendings (like we did this week with +13), it means a positive move by the new listings is even more impressive. Let’s also note how different this year started.
Last year we averaged 103 new NSDCC listings per week, and today’s count was 79 for the past week, so we’re not far off our normal springtime pace. We can probably expect a very active summer!
To get a feel for when the market is starting to come back, let’s watch these data points.
When sellers are feeling more comfortable putting their house on the market, we should see the number of houses for sale begin to increase (or that will be a sign that fewer are selling, and the unsolds are stacking up).
Let’s compare the drastic difference between today and a few years ago – this includes Oceanside:
March Inventory:
2011: 3,350
2015: 1,541
2020: 1,158
The lack of homes for sale was already a problem before the coronavirus hit – with this few on the market now, don’t be surprised if sellers try to push their list prices even higher.
The baseline for the mortgage industry is Fannie and Freddie. Let’s keep an eye on their thoughts – especially if they start pulling back on their loan programs:
Freddie Mac’s Economic and Housing Research Group says that due to the stay-at-home orders in effect in more than half of the states, housing markets will not have their typical spring sales surge. They will probably fall 45 percent on a seasonally adjusted annual basis in the second quarter. House prices, however, will be insulated to some extent by the fiscal stimulus and extended unemployment insurance coverage provided by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The forbearance and foreclosure mitigation programs put into effect by lenders and reinforced by the CARES Act will limit the fire-sale conditions that emerged during the Great Recession. Freddie Mac expects home prices to decline by 0.5 percentage point over the next four quarters.
Also preventing a price collapse is the persistent lack of available homes for sale.In addition, population growth and pent up household formations will provide a “tailwind” to housing demand. When the recovery begins, the company forecasts that price growth will accelerate back to a long-term increases between 2 and 3 percent a year.
When Treasury yields became volatile several weeks ago the Federal Reserve stepped in to shore them up. They then turned to the secondary market in mortgage-backed securities (MBS), buying billions of those when demand dried up and interest rates surged.
Freddie Mac forecasts that inflation will remain in check as economic growth slows and long-term interest rates, including those for mortgages, will remain low for the next two years. Refinancing will regain the momentum seen earlier this year but will slow next year. Purchase mortgage originations will be the mirror image of refinances so total originations will be around $2.4 trillion in both 2020 and 2021.
The economists say their forecast is relatively optimistic and there are significant downside risks. Some of the important data reported over the last month, such as unemployment insurance claims and job growth, have been surprises, and not in a good way. They conclude, “If the economic contraction is larger and longer than what we currently forecast the housing market will suffer. Home sales may be slower to bounce back if potential buyers do not come to market. House price declines could also be larger than what we expect, particularly if forbearance and foreclosure mitigation programs do not successfully limit contagion effects on house prices. In the downside scenario mortgage origination volumes would be significantly lower than we forecast.”
How about mortgage rates? A general rule-of-thumb today would be when rates are under 3.5%, we can expect a positive effect on the market, and when they are above 4%, it’s a negative:
Let’s watch these indicators, and add others as time goes on. The sellers will probably need to go first, and bring more homes to market. Then once we see showings and pendings start to trend upward, then we can say we are getting somewhere!
Our median home price – fueled by low rates and the Bank of Mom&Dad – more than doubled the percentage increase in the median household income!
Our net migration was fine really – we must have a steady influx of affluent folks:
Here’s an interesting graph on those renters over 60 years old. San Diego was 20th by percentage, but we were fifth in the total number of additional seniors who rent (could be renters who just reached 60?):
Hat tip to AL for sending in the link – with loads of other data:
Another indicator that the local market is holding up and sellers aren’t desperate – an excerpt:
Nahjla Wehbe Dipp, a Pacific Sotheby’s International Realty agent, said buyers seem more receptive to not overpricing their homes than a year ago. She said another reason sellers might not want to reduce their asking price could be declining numbers of homes for sale.
Home inventory increased as sales started to slow last year around August, but any extra houses on the market seem to have already sold. There were 6,491 homes for sale in September, said the Greater San Diego Association of Realtors, down from 7,824 at the same time last year.
“There’s just less for buyers to pick from,” Dipp said.
The number of price reductions in a given month can correlate with a hot market. For instance, in San Diego County just 12.1 percent of listed homes had a reduction in 2016, and an average of 11.6 percent in 2017.
Even when a market is red hot, there are reductions. A selling tactic, not usually recommended by most real estate agents, is to price a home higher and then come down so the buyer feels like they are getting a deal.
San Diego still had the most reductions of any of California’s large home markets. Riverside metro area had 16.5 percent of homes with a price reduction in September, followed by 16 percent in Los Angeles and 15.3 percent in San Francisco.
The median home price in San Diego County in September was $570,000, said CoreLogic data provided by DQNews, down from $575,000 at the same time last year.
Double-digit increases can’t last forever – but could home prices plateau for years? It will probably depend on mortgage rates, and having enough reasonable sellers who are willing to take the same $ as what the last guy got.
From our friends at JBREC:
Price appreciation has slowed across every major housing market, in what we are coining the Great Price Deceleration.
The biggest deceleration occurred in San Jose: Last year, resale prices in San Jose were up 20% YOY! Today, prices are down 6% YOY—a deceleration of 26%. Last year, San Jose was frenzied with less than one month of supply and very strong job growth. Builders were selling homes faster than they could build them. In the second half of 2018, the San Jose market slowed substantially due to affordability issues, but conditions have stabilized this year.
Top California markets, Seattle, and Las Vegas have experienced the most price deceleration. Home buyer affordability remains weak, even with historically low 4% mortgage rates, and homes are sitting on the market longer (especially higher-priced homes). We are seeing more buyer demand in markets such as Seattle, where home builders have adjusted prices.
Markets in the Southeast, Midwest, and Northeast have been far less frenzied this cycle and have had much steadier prices. These markets are typically lower risk in their fundamentals (more affordable, less risk of oversupply, and steady job growth). Raleigh-Durham has experienced the least deceleration in price from last year. Resale prices gained 7% YOY last year, and today they are up 6%, a 1% price deceleration.
Nationally, we expect resale prices to gain 2% through 2022, cumulatively, but there are huge disparities by region and metro.
We explore all top housing markets each month in our Regional Analysis and Forecast report for our paying research clients. If you are interested in becoming a research client, please reach out to our team of expert analysts.
Rich’s latest graphs are out, and this inventory history above shows how relatively few homes are for sale locally.
The median detached-home list price for the county today is $849,000!
He did mention a reader’s theory that in the era of online search portals, the inventory has become more efficient. Better-educated buyers are making faster decisions these days, which keeps the inventory counts down. But the hot buys have always sold quickly, and the over-abundance of data could be dumbing down the decision-making.
He mentioned the slightly-negative turn in pricing last month, but I like these two graphs above. The pricing trend is going to bounce around – as long as we have sales counts close to previous years, we’ll be fine.
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