Our favorite doomer is predicting 15% to 20% drops in pricing net year (link in twitter feed in right-hand column). Mark has been making these dire predictions for years now, and eventually he might be right.
But it would take surge in supply to start a downturn…..so all we have to do is keep an eye on inventory counts. If the number of homes increased modestly, sales should respond accordingly.
Where is the balance of too much supply? It will vary in each area, and be based mostly on price. You could have 1-2 over-priced homes not selling in one area, and look like a glut, while in other areas have 5-10 well-priced homes hit the market and all get gobbled up.
I’ll speculate that a surge of more than 20% in the inventory counts is cause for concern. How are we doing so far?
When comparing to the very consistent last few years, a 4% rise in new listings this year stood out. But compared to 2002-2011, the inventory has been remarkably predictable lately – we even had two years with identical counts:
In addition, this year’s increase could purely be due to old listings being re-freshed, an annoying trend that seems to be more popular than ever.
Can we learn from the sales count too?
Absolutely, and any drastic swing in the sales count is the ultimate sign of demand. We will still have late-reporters adding to this year’s count, which should easily get it above the 2015 sales:
As long as rates are in the 3s, we should be fine this season!
When there are so few companies doing any exhaustive research about the market – especially at the local level – realtors will take whatever they can get and pass it along to clients. In this case, that message will be positive.
Recently we’ve wondered how many first-timers are participating, but actual data has been scant. D.R. Horton says that 41% of their buyers are first-timers, which is probably similar to the resale market and sounds fairly healthy:
Here are the current market conditions through the eyes of D.R. Horton:
The last time the market took off, it was for different reasons (easy money, shorter-term thinking, and more move-ups), but the market psychology should be similar this time around – because buyer exhaustion is inevitable.
Here is how it looked then – during the first part of 2003 you could feel the market bubbling up, and by summer it was evident in the closings.
From June, 2003 to May, 2004, average pricing rose from $331/sf to $469/sf, which is a 42% increase:
Here’s the SD Case-Shiller graph, which reports three months late and documents the whole county, which lagged behind the coast:
The big difference this time is that while it feels like a frenzy with prices increasing, the overall stats are far more moderate than last time. Comparing last July’s $366/sf to last month’s average of $420/sf, the increase is 15%:
This frenzy is focused on the quality properties, which apparently doesn’t float all the boats higher this time (or at least not as high), and the fraud is keeping a damper on the statistical increases too.
If a frenzy can stay red hot for about a year, then we should be wrapping up this version shortly – probably in the next couple of months. Future pricing trends should fall more in line with the averages (sub-10% annually), with an occasional outburst.
The demand feels extremely deep because there are so many lookers and offers – but not everyone is willing to pay these prices. It is probable that the demand is truly deep at 90% of today’s prices – back where prices used to be.
Will buyers keep stepping up?
Most likely, as long as the list prices stay within reason, and there are few choices. San Diego inventory is down 1/3 year-over-year, which is given sellers free reign to push list prices higher.
You can see below that sellers might be reaching their ‘jump the shark’ moment, with both the inventory bottoming, and the list prices on the higher-end rocketing skyward (+16% since December):
This is a great time to sell – even better if you have neighbors who have closed for high prices in the last 30 days!
Any homebuyer on the market right now will tell you the crowd of buyers and multiple offers are creating a challenge.
Those in search of distressed homes owned by the U.S. Department of Housing and Urban Development are not immune to this supply-and-demand situation. In fact, recently one HUD home in San Diego attracted 100 offers within 10 days.
“In this market, because it’s so competitive we’re seeing buyers just happy to get a house. They are being less selective on location and condition,” said Whissel, broker/owner of Whissel Realty.
But in its latest news report, RealtyTrac reported that an uptick in homes owned by HUD may create opportunities for patient buyers.
Experts project that over the next two years, as lenders steadily work through a backlog of foreclosures delayed by foreclosure-processing reviews, the supply of these HUD homes will increase significantly.
In the western part of Riverside County in California, HUD-owned home sales are increasing significantly.
“HUD sales have increased due to the hold back of bank-owned homes for robo-signing reviews, and, most recently, the Homeowner Bill of Rights,” said HUD local listing broker Nat Genis.
Genis added, “Inventory is there, just not being released during the banks/servicers review of the loan/mortgage documents.”
Rich is the king of graphs, and here are two from his latest at Piggington:
The median-price-per-square-foot since the 2009 trough:
OK, you can probably ignore the huge spike in the condo psf, as the condo series tends to be all over the map. But how about that (much more reliable) detached home psf — up 4% for the month, and 18% year-over-year.
JtR: Here is the big change – how quickly good listings are getting snapped up, which is keeping the county’s active inventory down to about 4,000 OPTs:
See his TEN other graphs, including the Case-Shiller predictions, here:
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