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Giving It Away?

It was back when some homeowners had little equity that my favorite seller quote became a t-shirt legend.

But we still hear it today – when it comes to price, home sellers regularly say, “I’m Not Giving It Away!”.

Their equity positions used to be pennies, compared to today.  Back in 2009, there were plenty who were just hoping to break even, and maybe come out with enough cash at closing to buy a steak dinner!

Now that every NSDCC homeseller has hundreds of thousands of dollars’ worth of equity, will they loosen up a bit? After all, the last 20% to 30% came pretty easy (in just a year or two) and if they had to give up some or all to make the deal, they certainly could

But will they?

Many potential sellers get so mad about paying the capital-gains tax that it prevents them from moving.  Those who are on the open market in October of 2022 have already dealt with that fact mentally, so they must have a fairly good reason to sell.

Those who will dump on price must be really motivated.  It probably also means their house isn’t that great because nobody wanted to buy it at retail, or for a little under.  Can you live with one of those?

The stock market has been cooking this week, and bond yields coming down in hopes the Fed might slow down the pace of their rate increases. Or maybe even pause, and take a look around at what they created?

If that were to happen, then the 2023 Selling Season should be somewhat healthier as rates dip into the 5s just as more quality homes are coming to market. If current sellers start to get a sniff of that, then they will cancel their listing and wait until next year.

Which means those who are still actively trying to sell the rest of this year must be unusually motived – and your best candidates to test whether they will give it away!  Stay in the hunt!

Bill’s take – there may be more deals available sooner than you think:

Reverse Offer

The local market conditions appear to be getting worse every day, mostly because the headline writers and social-media experts are piling on now.  What can listing agents do?

When most agents are content to show their listings and then go wait by the phone, there are alternatives. Hat tip to our manager Steve Salinas for bringing up the Reverse Offer technique in our sales meeting!

For two years, the buyer-agents have just been telling their clients to bid hundreds of thousands of dollars OVER the list price, so now they may need some help with advising their buyer on how to proceed in this market.  When a buyer shows some interest in the home, the listing agent can reach out to the buyer’s agent with more than just a casual request for feedback.

The Reverse Offer is where the listing agent suggests price and terms to the buyer-agent that might be the foundation of a potential deal. It needs to be handled tactfully, and with the seller’s knowledge so it’s not a breach of fiduciary or a waste of time.

It can be as casual as mentioning any needs the seller might have in their exit plan, or for terms that would be advantageous to the buyer like seller financing or rate buydowns.  But it can also be as formal as issuing written offers signed by the seller for the waiting buyers to consider – here’s more:

https://www.alexwang.com/blog/considering-the-reverse-offer

It’s worth considering because what’s the alternative? To just sit by the phone and hope it rings, and when it doesn’t, go tell the seller to dump on price?

This is the Wait-and-See period when buyers are so comfortable on the fence that it’s going to take something different to get them to buy a home.  Dumping on price during the Wait-and-See period only makes the home buyers think that if they just wait longer, the prices will go down more.

Agents should offer their sellers some alternatives to that!

Been Here Before

Thanks to JBREC for the chart, and article!

https://www.realestateconsulting.com/speedy-escape-from-housing-market-slump-unlikely/

An excerpt:

In the mid-1990s when 30-year fixed mortgage rates climbed over 9%, ARM usage jumped to 35% of all mortgages. In 1999-2000 as 30-year fixed mortgage rates shot above 8%, ARM usage raged once again to 34% of all mortgages. For comparison, the percentage of homebuyers using ARMs today is just 9%, even as housing affordability resides near its all-time worst and 30-year fixed-rate mortgages have more than doubled in the span of 19 months. As noted by the CEO of KB Home during its Q3-2022 earnings call September 21st: “We have some great and compelling interest rates on adjustable mortgages, where it’s a 10-year fixed. And if I were a buyer, I would take that in a minute. Those [rates] are couple of hundred basis points lower than the 30-year fixed, and nobody is taking it so far.”

Back in the day, ARM usage around here was probably more like 2/3s of the loans, instead of 1/3 of mortgages nationally.  Rarely did anyone think they were buying their ‘forever’ home, and moving again within 2-5 years was the plan.  I used to just go back to my past clients every two years!

It when I coined my all-time favorite slogan, “Don’t unpack, I’ll be back!”

I predict that over the next 3-6 months, the mortgage industry will be heavily advertising alternative loans like the short-term (5-year and 7-year) fixed rate, or the 2/1 buydowns.  These were the products that kept the party going after the new 2-out-of-5-year law was passed in 1997, and serial movers could cash out tax-free every couple of years and buy a better home.

It was later, around 2004-2005, that Countrywide developed their toxic version of the neg-am loan, and then was offering 100% financing to anyone with a 700 credit score that the bubble started popping.

I think we are all convinced that the Fed is going to deliberately cause a recession in the next 1-2 years, and will have to lower rates again – and continue their biggest boondoggle in history.  Anyone who buys with an adjustable-rate mortgage can refinance to a lower 30-year fixed rate then.

Wouldn’t it be great if the mortgage industry brought back the convertible loan where you could change your ARM into a fixed rate without having to refinance!

The key to igniting the demand will be a 3-handle, and it’s already in some ads:

Some listing agents are offering a seller credit to buy down the mortgage rate, but it’s vague and uncertain. Will it be enough to make a real difference? Do I have to go through your lender to get it?

I think the mortgage industry needs to advertise the specific rates and terms to gain acceptance in the marketplace.  Buyers have only been thinking about getting a 30-year fixed, and will be slow to consider an ARM.  But it might be the best hope of a softer landing.

Happy Anniversary Bubbleinfo.com!

This blog started on September 24, 2005.  It was a Saturday morning, and literally I thought I better get into this blogging thing before every other realtor started doing it. This was my first blog post that talked about 20% to 25% appreciation per year:

https://www.bubbleinfo.com/2005/09/24/20-25-appreciation-per-year-how-can-that-happen/

I am very grateful for you being here. At the height of the notoriety in 2009-2010 when all we talked about was foreclosures and short-sales, the monthly unique users was around 11,000.  To still have 6,421 over the last 30 days is fantastic, given that the market turned 180 degrees in the opposite direction since 2009, and I figure that once readers buy or sell a house, they are likely to quit reading and go on with their life:

The new-visitor count has to be loaded with bots.

Where are you from?

Ashburn must be where the bots live?

What devices are you using?

Do bots have a mobile device?

Beats me, but if they don’t, then the audience of real people is into the thousands – yay!

How about age and gender?

I love seeing the younger people – about one-third of you are age 34 and under:

About 60% of readers go straight to the home page, and the others are either searching for a specific real estate topic and find a bubbleinfo article, or readers are sharing links to articles with their friends and family, which I really appreciate – thank you:

Thank you for being here!

High-End Slump?

Here we go again with the click bait on the front page of the local birdcage liner.  They also used a photo of the most prime real estate in the county, insinuating that a slump is underway there?

Link here for the full article, and this is an excerpt:

San Diego luxury home sales are down by more than half as the high-end market sees its biggest drop in at least a decade. Out of the 50 most-populated metro areas, San Diego had the fourth-highest drop in luxury sales from June to August, said a report from Redfin released Thursday. The number of sales was down 55.3 percent from the same time last year.

The markets with the biggest drops were Oakland (down 63.9 percent), San Jose (down 59.6 percent) and Miami (down 55.5 percent). The lowest drops were in Kansas City (down 10.4 percent) and Indianapolis (down 7.5 percent).

Redfin defined luxury housing as the top 5 percent of the highest-priced homes for sale. So, what is considered luxury differed greatly across metro areas. For example, the median price of a luxury home in Cleveland was $629,000, compared to $3.3 million in San Diego metro (which includes all of San Diego County).

Rising mortgage rates are cited as the main reason for the entire housing market slowing down. Redfin also said economic uncertainty and a tepid stock market also were dampening sales.

Sales are down by more than half?

High-end market sees its biggest drop in at least a decade?

Maybe the higher-end sales in the rest of the county aren’t as boisterous as they used to be, but sales and pricing between La Jolla and Carlsbad looks pretty good to me. These are the stats from the last 2.5 months which should reflect the worst period of the summer slump they measured:

NSDCC Sales Between July 1st and Sept. 15

Year
# of Sales $3M-$4M
Median SP
# of Sales $4M+
Median SP
2017
30
$3,375,000
29
$4,995,000
2018
22
$3,315,595
28
$5,243,130
2019
32
$3,325,000
30
$6,382,500
2020
60
$3,372,776
51
$5,385,000
2021
74
$3,300,000
78
$5,650,000
2022
60
$3,450,000
57
$5,270,000

When I search the MLS for detached-home sales over $3,000,000 for the whole county between June and August, this is the result:

2021: 260

2022: 213

It doesn’t look like 55% off to me.

I have requested that Compass get into the real estate reporting business so media types have access to what’s really happening, instead of using Redfin’s stories which sensationalize the data to draw more attention to themselves, rather than help consumers properly interpret the market conditions.

Frenzy Monitor By Area

The reason for breaking down the active and pending listings by zip code is to give the readers a closer look at their neighborhood stats. We’ve considered a 2:1 ratio of actives-to-pendings to be a healthy market.

While other areas in America are reporting a surge of inventory, it’s not happening here, at least not yet.  Comparing the current stats to the last few months, there really isn’t any reason to be overly concerned:

Taking out La Jolla and Rancho Santa Fe, the actives-to-pendings is 2.4-to-1 (249:103), which isn’t bad, all considered, and it’s the same ratio as it was last month.

The holiday season is less than a month away…..and the NFL season is already two weeks old. The Super Bowl is right around the corner, and so is the 2023 Selling Season!

To Those Who Are Waiting

Here’s more click bait on the front page of the local paper, and most people won’t read any further – it’s too easy to decide to do nothing, which is fine. Wait as long as you want, and we will see where it goes.

It’s a great plan if you’re a buyer and don’t care much about what you are buying.  But if you are picky and want to wait until the headlines ease, then you can expect there will be others acting quicker than you, and probably with more horsepower.  The affluent aren’t as concerned about timing the exact bottom of the market when they just want a nice house.

Take my Aviara listing. It’s priced at 12% under the last model-match sale in June, and even the buyer of the comparable sale around the corner said mine was better than hers. In the story above, the San Diego County median price came down 6%, so I’m lower than that, and it’s got all the extras.

Yet, as I’m talking to open-house attendees, there was a steady flow of the usual soft stuff:

‘I don’t want to get into a bidding war’.

‘I want to wait-and-see where this goes’.

‘Prices are going down’.

Ok, no problem. But given what we’ve been through, you can’t expect that buying a quality home is going to get easier.  Even if the price was lower, there will be competition for the good buys – and when you think about it, there always has been in recent years. We had plenty of bidding wars and people paying over list prior to the pandemic – it isn’t a new thing.

Besides, if the market became so desolate that you could walk into an open house that you thought was a quality buy and nobody else wanted it, wouldn’t that scare you off too?

I have multiple offers on my listing and we’ll sell it for a decent price, so don’t worry about me.  I just want buyers to keep looking, and when you see something you like, don’t let the headlines written by ivory-tower guys talk you out of it.

Aviara One-Story Video Tour

There is a mystery foot in the beginning of the interior tour in this video, and it would be a good time to acknowledge the difference made by my wife Donna.

We knew on Saturday that our client’s purchase offer was accepted, contingent upon this house selling. Between Monday and Thursday night, Donna got the home carpeted, painted, and staged by her favorite vendors – people who regularly drop everything to help her out.  It is a testimony to how well she has nurtured her relationships with them over the years, and when she needs a favor, she can get one!

Where To Get A Deal

Are you waiting to buy a home until you can get a sizable discount?

Is it because you know a guy who will give you a deal on any home improvements needed; you’ve got your eye on some new appliances down at the scratch-and-dent outlet; and you were thinking about going through Redfin until you heard they are cancelling their rebates? You want a deal on everything!

Well, here you go!

These late-1990s tract homes in SE Carlsbad and in the Encinitas school district are priced LOW. The pending listing on Corte Clarita should close at $2,300,000+ because it had already gone pending once in mid-August but came back on market – then the agent refreshed the listing once he found a second buyer a couple of weeks later. He told me there was no big discount happening there:

You know that my listing is going to be closing for $2,250,000 nearby, plus this one should be over $2,300,000…..so these actives are 10% to 20% under. It looks like the market is crashing….is there a catch?

Look at their locations:

The first three are on the corner of Calle Acervo, and the fourth is next door, but hey, La Costa Canyon High School is walking distance!  But you have the traffic from high-school drivers too, and you know it will be a madhouse during football games. A deal is a deal though, and you can save hundreds of thousands compared to the remodeled home with larger canyon lot (in purple at bottom).

Or save millions here!  This house is listed for $32,500,000, or go down the street and buy this home that was newly priced today for only $4,900,000!  Both are oceanfront La Jolla!

https://www.compass.com/app/listing/5650-dolphin-place-la-jolla-ca-92037/1136258851857198681

The difference? This house is 1,167sf on a 2,982sf lot….at least for now. But it’s 85% cheaper! And the more-expensive one RAISED their price from $25,000,000.

My point? The low comps won’t suck down the expectations of future sellers of superior homes – it’s too easy for them to ignore/explain away the low comps, and will only consider pricing theirs like the other superior sales nearby – which there will be some.

Oh, what about a foreclosure? Well, they are starting to spike:

Or are you going to wait until you can rub my sizable nose in it?

Hey, I wish prices were lower, and if they crashed it would only mean more opportunity for buyers, and hopefully more volume, which is what I want.  I’m not trying to coax buyers into paying too much – I’m showing you where the deals are today, if you don’t mind an inferior home or location.

I just hoping that the coming standoff only lasts a couple of years, instead of 5-10.

Summer Listings & Sales History

Chris asked how the current environment compares to the 2008 downturn.

In the summer of 2008, there were only 601 NSDCC sales between June 1st and August 31st, in spite of there being 1,348 listings that summer. For the next two years, the number of listings far exceeded the number of sales, and in the 2008-2010 period there were twice as many listings as sales. The 2010 ratio was the worst at 2.3 to 1.

This summer we only had 825 listings, and 504 sales, which is a 1.6 to 1 ratio!

The 2022 sales were 16% lower than the previous record in 2008, but there were 39% fewer listings!

We’ve never had so few listings to consider. Now that the Fed is making it so obvious that they intend to cause a recession, more potential sellers – who tend to casually read the headlines only – will delay their decision to move.  Does anybody HAVE to move in 2023?  Every potential seller will give it a second or third thought if they believe it will cost them several hundreds of thousands of dollars.

The NSDCC inventory next year will be the lowest ever – even Ray Charles can see that coming.

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