The worrisome spike last month did flatten out, but it does make you wonder if we should adjust our sights.
I agree with Rich that the months of active inventory will probably be rising from now on. But if the coastal market had 3 or 4 months of active inventory, it wouldn’t be a bad thing. Rancho Santa Fe is 7+ and doing fine.
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.
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