At first glance you would think that the lower mortgage rates of 2019 have made NO difference in the market this year, compared to 2018.
But if we didn’t have rates in the 3s for most of this year, where would we be? We would have had a lot tougher time getting sellers and buyers together on price. It’s already been a challenge:
NSDCC Detached-Home Sales & Median Sales Price, Jan-Oct
2018: 2,418 $1,325,000
2019: 2,393 $1,325,000
Will sellers capitulate in 2020? No, because there isn’t enough evidence that they need to.
Will buyers pay more in 2020? Probably not, especially if there’s anything that makes them think that waiting longer is a good idea.
The inventory ‘shortage’ is limited to the lower-end. If you can spend more than a million, there are 785 choices today, which accounts for 92% of the houses for sale between La Jolla and Carlsbad.
How the mix has changed:
NSDCC Total Number of Listings Between Jan 1 – Sept 30:
Year
# of Listings Under $1M
# of Listings Over $1M
% over $1M
2015
1,543
2,689
64%
2016
1,247
3,100
71%
2017
1,004
2,928
74%
2018
805
3,198
80%
2019
734
3,237
82%
As rates head back towards 4% and more and more homes list for more than a million, expect increased sluggishness next year as affordability continues to diminish. Unless, or course, you are Lawrence Yun:
Buyers looking at homes priced in the upper half (today’s NSDCC median list price is $2,395,000, the highest that I can remember) are probably thinking they can go to sleep for the rest of the year. There are about the same number of active listings priced over $2,000,000 now as there were last year.
What about the Under-$1,000,000 market?
Last year at this time, we had 110 active listings priced under $1,000,000. Today we have 60!
Those buyers should keep looking. At this rate, there won’t be much left under a million next year!
Nick was nice enough to include my quote in the Journal this morning:
The Fed’s U-turn on rates this year has delivered “the ultimate soft landing for the housing market,” said Jim Klinge, a real-estate agent in Carlsbad, Calif. Housing markets in the second half of last year felt “like a ghost town.”
At the same time, however, heady home-price gains in recent years have dulled the potential boost from a decline in borrowing costs.
Falling interest rates extend buyers’ purchasing power. A general rule of thumb holds that a one-percentage-point drop in interest rates is equivalent to a 10% reduction in the costs of purchasing a home.
“If you are thinking about buying a home, that drop in rates is very important,” said Brian Wickert, president of Accunet Mortgage in Waukesha, Wis. “But the drop in rates has been gobbled up by the increases in price caused by higher demand and lower inventories.”
Our inventories have been lower around the NSDCC (see below), but even when combined with lower rates, our NSDCC sales have been flat, with average and median pricing up 4% to 5% recently. Tomorrow’s Case-Shiller Index for San Diego County will show about a 2% to 3% increase year-over-year.
NSDCC End of October:
Price Category
Active Listings, 2018
Pendings
Active Listings, 2019
Pendings
Under $1.0M
114
64
66
52
$1.0M – $1.5M
204
51
160
54
$1.5M – $2.0M
159
57
177
67
Over $2.0M
523
81
506
76
Totals
1,000
253
909
274
If rates had not come down this year, our landing would have been much more turbulent!
Let’s flashback four months to the height of the selling season to check on prices:
Price
May 13 #Actives
Avg LP/sf
#Pendings
Oct 14 #Actives
Avg LP/sf
#Pendings
0-$1M
102
$470/sf
78
82
$478/sf
54
$1M-$1.5M
201
$497/sf
131
171
$546/sf
94
$1.5M-$2M
159
$599/sf
72
177
$608/sf
79
$2.0M+
507
–
88
517
–
80
The MLS doesn’t want us to know what’s happening to pricing above $2,000,000, but the average list pricing under $2,000,000 is higher today than it was four months ago.
The price point that everyone thought would have the most trouble this year ($1M-$1.5M) due to the tax reform is actually doing the best. The average list price has risen 10% in four months!
The end-of-summer market feels similar to last year, with just a few more pendings over the last five weeks. In spite of the high prices, people don’t seem interested in selling much though.
There was a 13% drop in new listings, year-over-year:
NSDCC Last Five Weeks:
Year
New Listings
New Pendings
2018
434
246
2019
379
257
Diff
-13%
+4%
When is the best time to sell? When there is little or no competition, and rates are in the 3s!
We had quite a rebound this week in new pendings! The previous count was 46, and we had 59 NSDCC houses go pending in the past week!
Buyers may have figured that the inventory isn’t going to get better, and, indeed, the weekly count of new listings dropped a ton. There were 102 new listings the previous week, but only 67 in the last week (-34%).
Tomorrow: The latest reading of the Case-Shiller Index!
Even though mortgage rates have improved this year, the NSDCC pendings and sales are struggling to keep up with where they were in 2018 (Jan-Aug closed sales = 1,969 in 2018, and 1,925 in 2019):
With rates being 21% lower than last year, there really should be at least 5% more sales this year – but there have been 2% fewer. Sellers are holding out!
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