A few more articles like this should cause buyers to question whether pricing will get any better:
Today, the Data & Analytics division of Black Knight released its latest Mortgage Monitor Report, based upon the company’s industry-leading mortgage, real estate and public records datasets. Despite home price corrections continuing in many markets nationwide driven by tight affordability and higher rates, the pace of price declines has slowed measurably over the past two months. As Black Knight Data & Analytics President Ben Graboske explains, what would ordinarily be an environment ripe for steep declines in home prices has been offset somewhat by stagnant levels of for-sale inventory.
“We’ve now seen four consecutive months of home price pullbacks at the national level,” said Graboske. “But after a couple of significant drops earlier in the summer, the pace of cooling has slowed considerably, with October’s non-seasonally adjusted drop of just 0.43% the smallest decline yet. Though seemingly counterintuitive, the much higher rate environment may be limiting the pace of price corrections due to its dampening effect on inventory inflow and subsequent gridlock in home sale activity. While the median home price is now 3.2% off its June peak – down 1.5% on a seasonally adjusted basis – in a world of interest rates 6.5% and higher, affordability remains perilously close to a 35-year low. Add in the effects of typical seasonality and one might expect a far steeper correction in prices than we have endured so far, but the never-ending inventory shortage has served to counterbalance these other factors. Indeed, the volume of new for-sale listings in October was 19% below the 2017-2019 pre-pandemic average. This marks the largest deficit in six years outside of March and April 2020 when much of the country was in lockdown – with the overall market still more than half a million listings short of what we’d consider ‘normal’ by historical measures.
After staying around 400 since the middle of September, the number of active listings finally plunged by 6% as the holiday season finally set in. Yet, the number of pendings rose by 9%!
There were also more new pendings than new listings this past week.
The list prices are probably as low as they will be for the next six months. It would take a very sluggish spring selling season for pricing to collapse in the second half of 2023. Until then, sellers will be confident that they will beat the odds and sell for at least as much as they can get today.
There have been 80 NSDCC closings in November, which should mean we should get to at least 100 sales for the month. But with only 108 pendings today, the monthly sales in December and January sales will probably be under 100. Even though there are 393 active listings, sellers haven’t been too interested in adjusting their pricing strategies, and most will just wait it out until some unknown date in the future.
Another lady was walking by on Wednesday when we were doing the photos of the new listing. She confirmed that we were selling the house, and replied, “It’s a TERRIBLE time to sell”.
She came back yesterday, and when she heard that I already had three offers, she said, “Well I guess it’s good to get out, because I heard that PRICES ARE GOING TO GO DOWN FOR FIVE YEARS!”
The future is somewhat unpredictable, so let’s just look at how sellers have been operating in 2022.
How do the sellers feel about getting more aggressive about their list prices? If prices were going to decline for the next five years, there should be some evidence already.
Here are the weekly averages of LP/sf by price range in 2022:
Generally speaking, at least 3/4s of the sellers would rather stick to their price and not sell.
I don’t expect that trend to change.
If it were to change, it would be in the off-season when the stragglers who didn’t sell in the spring/summer are motivated enough to accept a lowball deal. But you won’t see it much in the list prices, it will only happen for those who are willing to make low offers.
In the graph above, the active inventory hasn’t been decreasing like I thought it would be, given that Thanksgiving is a week and a half away. You can’t say that nothing is selling, because there have been 50 closings between La Jolla and Carlsbad in November so far, which should keep the final monthly-sales count around the 100 as expected.
So I checked the Actives counts during pre-holiday season from the last few years, and in particular, the drop in active listings between the first week of October and mid-November:
The percentage of decline between the first week of October and mid-November:
Comparing to last year, the hottest market in history with the lowest rates ever, will look wildly negative. In 2021, the market was still cooking in the fourth quarter, so the drop in actives had as much to do with everything selling, as it did with sellers packing it in for the holidays.
But compare today’s inventory to previous years. The pandemic count in 2020 was 547 actives in mid-November, and we’re 28% lower than that today!
The number of actives may not be dropping this year, and it means only one thing.
The sellers who are on the open market today have to be motivated to sell now, otherwise they would have given up and waited for the 2023 Spring Selling Season. Future sellers will probably be similarly motivated, because it should be obvious to everyone that selling for your aspirational price is much more difficult than it used to be – and the casual sellers will decide to wait for a ‘better market’.
Last week, the NAR reported that their Pending Home Sales Index for the west was down 11.7% month-over-month, but we are beating the odds. Today there are 144 NSDCC pendings, which is the same number as there were in the first week of September!
It’s likely that the local market will mellow down easy now that we’re into the holidays. Whichever way the data goes, it will be easy to write it off to year-end malaise.
What does an uptick in both actives and pendings mean?
The local market has finally succumbed to the trend of higher inventory and declining interest, or
We’ve hit bottom!
After the beating the market has taken over the last 3-4 months, you’d think sellers would be discouraged and just wait until the 2023 Spring Selling Season. But where will mortgage rates be then?
The 50 new NSDCC listings in the last week were the most since the week of August 15th, but nineteen of those had been on the market previously and were ‘refreshed’. So this probably isn’t the flood of inventory that could change everything. Or is it?
Bill has been following the inventory in different markets, and San Diego is faring much better than other areas. He is showing a 23.8% drop in new listings YoY, but last year was the record low. Look at the previous years:
September New Listings, San Diego County Detached and Attached Homes:
Everyone talks about the demand-side, but our market is being impacted by the lack of supply too.
Could there be demand that isn’t being satisfied because there aren’t more quality homes for sale listed by good agents at attractive prices?
I had 100+ people come to open house this weekend, and there were legitimate buyers in the group.
I wanted to show a house this weekend, and the showing instructions said to text the listing agent. I started via text on Wednesday, but literally never got a response, so I didn’t show it. The listing is still active today.
Higher rates haven’t changed the frustration of finding the right house, at the right price.
The inventory is probably going to dry up further and more sellers get convinced that now isn’t a good time to sell. With a tight selection of quality homes for sale, those who are willing to sell now aren’t going to be deterred from trying peak pricing, or close.
Example: My $1,800,000 listing in Aviara? This just popped up around the corner, priced at $2,295,000:
Those folks might sell, and they might not, but they should help me with mine! My point is that we are not seeing an increasing flow of new listings being priced lower and lower in an attempt to get out now. It’s actually quite the opposite.
Hat tip to Mark for pointing out how much different our local inventory has performed, compared to other markets around the country. When you hear the doom and gloom from the national talking heads, this is what they are talking about:
Our inventory topped out in July, and has been declining since – where many other markets are exploding. In September, Las Vegas and Phoenix will probably set all-time highs for their number of homes for sale, where we are around half of our peak inventory numbers.