Buying Opportunity?
These Instagram reels are a challenge just to see if you can say something of value in less than 30 seconds. Here’s my attempt today:
Publicizing The Listing Agent
The old rule was that any agent could advertise any MLS listing via the IDX, as long as the listing agent’s name and brokerage was displayed. But now you have to include their contact information too. He sounds confident because this is clearly a shot at Zillow but the unintended consequences from directing the consumer to the listing agent is promoting single agency which will eventually eliminate broker cooperation as we know it.
The discouragement of buyers getting their own representation from a buyer-agent is part of the dumbing-down of the business. Sellers and listing agents prefer buyers who just pay whatever it takes and don’t ask questions, and when the History of the 2020-2021 Frenzy is written, it should include that it was fueled in part by crazy buyers getting no good help.
In an emailed statement, a Zillow spokesperson said, “As part of our switch to IDX feeds and becoming CRMLS participants earlier this year, we agreed to comply with all CRMLS rules and regulations, which includes adhering to listing credit and display rules — such as the updates that went into effect this month.
“One of our core values is to empower consumers and increase transparency in real estate, which includes efforts to give shoppers the information they need to connect with listing agents. For more than a decade, our philosophy of ‘turning on the lights’ for consumers has meant that we’ve consistently displayed listing agents’ names and contact information, something not done on all IDX sites today.”
Get Good Help!
Home-Price Forecasts for 2022
The YoY change in the San Diego Case-Shiller Index in June was 31% higher than the national 10-city index. If we apply the same 31% to next year’s national forecast of roughly +5%, the San Diego home-appreciation rate in 2022 should be around 6.55% – though, if you ask me, it will more likely be 2x the national rate.
Thanks KCM:
Most forecasts call for home price appreciation to moderate in 2022.
The Home Price Expectation Survey, a survey of over 100 economists, investment strategists, and housing market analysts, calls for a 5.12% appreciation level next year. Here are the 2022 home appreciation forecasts from the four other major entities:
- The National Association of Realtors (NAR): 4.4%
- The Mortgage Bankers Association (MBA): 8.4%
- Fannie Mae: 5.1%
- Freddie Mac: 5.3%
Price appreciation is expected to slow in 2022 when compared to the record highs of 2021. However, it is still expected to be greater than the annual average of 4.1% over the last 25 years.
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From Freddie Mac:
High house price growth has been supported by increased demand due to low mortgage rates, disposable after-tax income that has risen during the current recession and a major shortage of housing supply relative to our population. The increase in house price growth will be less transitory than the increase in consumer prices, as the U.S. housing market will continue to struggle with a shortage of available housing for many months to come. But, we do forecast house price growth to moderate in 2022, with full year house price growth of 12.1% in 2021 followed by 5.3% in 2022.
The rapid run up in house prices may be starting to exhaust potential homebuyers.
We’ve seen indications of softening demand in recent home purchase mortgage applications data. And, while sales metrics remain above pre-pandemic levels, the pace of sales has cooled since the first quarter of this year with home sales slowing for the past four consecutive months. That’s reflected in our home sales forecast, which has total home sales declining to 6.9 million in 2021 and 2022 after reaching a seasonally adjusted annual rate of 7.6 million and 7.2 million in the fourth quarter of 2020 and first quarter of 2021, respectively.
Inflation-Adjusted Home Prices
On one hand, it looks like the national Case-Shiller Index is up about 40% since the previous peak (above).
But after adjusting for inflation, Bill shows how home prices are about the same as before:
https://calculatedrisk.substack.com/p/real-house-prices-price-to-rent-ratio
You could say that home prices have only been tracking inflation over the last 10-12 years.
Has the frenzy over the last 12 months just added the annual 2% to 3% increase to home pricing that we’ve always assumed over the last decade, but didn’t realize due to inflation? Could be!
Rising Home Prices to Continue
These guys are predicting a very similar market in 2022, and it will depend on the inventory. If we have the same number of listings (or fewer, which I think is probable), their 24.7% increase is in the bag.
From the U-T:
San Diego home prices will maintain their meteoric rise in the next 12 months, a new study says, with a hefty increase of 24.7 percent to a median home price nearing $1 million.
Home improvement site Porch, which provides research on housing market trends, said the San Diego metropolitan area will experience the third-highest price increases in the nation — led by current data showing how much homes are selling for over asking and wage growth.
It said Austin, Texas, will have the biggest increase at 37.1 percent, followed by Phoenix at 26.2 percent. The San Diego metropolitan area (which includes all of San Diego County) had seen prices rise 15.2 percent in a year as of July. Analysts have said low mortgage rates, scarcity, improved fortunes of stay-at-home workers and millennials aging into homeownership are the biggest reasons why prices continue to surge.
Porch predicts home prices will rise across the United States in the next year for the same reasons and will be led by Western states. It used a variety of sources for its predictions — Zillow, Redfin, the U.S. census, the S&P CoreLogic Case-Shiller Indices — to show where homes were selling over asking prices, how much they had already increased, and where median household incomes were strong.
If Porch’s prediction comes true, the median home price in San Diego County will be $940,933 at this time next year.
“The U.S. real estate market is reaching unprecedented heights,” Porch researchers said in the report.
Nathan Moeder, principal with San Diego real estate analysts London Moeder Advisors, said the Porch forecast was plausible but said a countywide 24.7 percent increase is probably high. However, he said that if you look at specific housing types and location, it’s not that hard to imagine.
Moeder said North County single-family homes could easily be up 25 percent in a year because that is where there is the most high-wage growth is and single-family home construction is considerably down. The Porch study looked at all home types — townhouses, condos, single-family — for its prediction, but Moeder said the single-family market is where we will probably see the most eye-popping results. “You can never be 100 percent correct in a forecast,” he said. “If someone asked me if single-family homes increase 25 percent, I could see that being a plausible scenario because we aren’t building any more.”
San Diego County single-family home construction has still not recovered since the Great Recession, with most regional planners favoring multifamily construction to fit more people in rapidly decreasing available land. Moeder said the problem with that scenario is the majority of the demand is for single-family properties, which means they will continue to go to the highest bidder for the reasonable future.
There were 3,160 single-family homes constructed in 2020, 3,043 in 2019 and 3,389 in 2018, said the Real Estate Research Council of Southern California. Compare that with 9,555 in 2004 and 7,904 in 2005.
Alan Nevin, Xpera housing analyst, also felt the Porch forecast was high, with a 12 to 15 percent increase in the next year more likely. He said things that could slow the growth are a rise in mortgage rates, or a change in loan-to-value terms. He said mortgages that require only 3 percent down for ever-increasing home prices might be seen as increasingly risky. However, Nevin said neither scenario has shown signs of happening yet.
In his latest report for the Greater San Diego Association of Realtors, Nevin wrote there were just 1,373 single-family homes sold for under $500,000 in July 2021 (using a 12-month rolling average). That compares with 3,445 at the same time last year. There were 7,130 condos sold under $500,000, using the same formula, compared with 7,226 at the same time in 2020.
Porch forecast the nationwide home price will increase 15 percent at the same time San Diego metro will jump by 24.7 percent. California metros are all expected to make big strides in the next year. Porch said San Jose would increase 24.5 percent, Riverside by 21.8 percent, San Francisco by 21.2 percent, Sacramento by 18.7 percent and Los Angeles by 18.5 percent.
Predictions for home prices are typically seen as tricky business because changes in mortgage rates, unexpected events (such as COVID-19) and natural disasters can shift the market considerably. The San Diego Union-Tribune’s 12-person panel of business leaders and economists predicted in December 2019 that the median home price at the end of 2020 would be $570,000 at the lowest and $624,500 at the highest. It ended the year at $715,500.
Forecast annual price growth by Porch:
Austin, Texas: 37.1 percent
Phoenix: 26.2 percent
San Diego: 24.7 percent
San Jose: 24.5 percent
Salt Lake City: 23.5 percent
Las Vegas: 23.3 percent
Riverside: 21.8 percent
San Francisco: 21.2 percent
Dallas-Fort Worth: 21.1 percent
Denver: 20.8 percent
Fresno: 19.8 percent
Pittsburgh: 19.8 percent
Tampa, Fla.: 18.8 percent
Sacramento: 18.7 percent
Tucson: 18.6 percent
Retiree Tax-Free Moving Plan
Here’s a two-year moving plan for those long-timers who:
- Have substantial equity in their home, but
- Don’t want to pay any capital-gains tax, and
- Want to move out of town – but not sure where, exactly.
This is an adventurous experience, and good for those who are retired and want/need to travel around looking for a new home while seeing more of the world.
Step 1: Rent your house for a year.
Step 2: Go visit/live in your favorite towns. Spend a month in 12 towns, or four months in three towns, etc. This will ensure that you get a good feel for these destinations before buying a home there.
Step 3: Sell your rental house here, and buy a home in your new favorite town via a 1031 exchange.
Your CPA will recommend renting the new home for a year too, so you’ll be a vagabond for 24 months or longer. But you’ve wanted to do more traveling – here’s your chance before setting down for the duration!
To really hit the jackpot, go to an area that is cheap enough that you can buy two – one for a rental too.
Forever Homes and Loans
Mortgage rates in July, 1985
After the TV show, Derrick and I were discussing the good old days when homes were cheap and everyone moved often. He is a mortgage originator, so I asked him how many adjustable loans he has done this year.
His answer? None.
Back in the day, adjustable-rate mortgages were the preferred product. Look at the difference:
$300,000 loan amount
Monthly payment at 11.875% = $3,057
Monthly payment at 9.0% = $2,414
Difference = $643 per month!
Nobody looked too hard at the terms of the ARM because a) $643 per month was a ton of money back then, and b) no one planned to stay forever. Home buyers could always refinance if they had to, but many solved their ARM concerns by moving again – heck, there were lots of homes for sale!
Then the 2-out-of-5-year tax exemption was passed in 1997 which really juiced the market. Homeowners were rewarded with tax-free money for moving!
It was rare that anyone had the full $500,000 in net profit, mostly due to the lower home prices and because of other recent moves. Yet many moved again just to say they got their tax-free money!
At the same time, the mortgage industry, led by Countrywide, flooded the market with an alternative – the interest-only mortgage with a rate that was fixed for the initial period, and you could choose 3, 5, 7 or 10 years. Once those saturated the market, Countrywide stole the neg-am ARM idea from the S&Ls and spiked them with high margins, and, well, we know how that ended.
As the private mortgage companies exited the market, the government lowered rates, and backed Fannie/Freddie to provide market liquidity. For the last ten years, the only program being offered is the 30-year fixed rate mortgage, and because rates are so much lower than before, buyers didn’t mind.
The end result? Today, you never hear anyone buying a home for the short-term.
The combination of ultra-low rates and difficulty of finding a better home has locked in everyone into their current home. Even if the current home becomes unsuitable, it beats moving again.
The low-inventory era is here to stay, and will likely get worse.
San Diego’s Housing Crisis
We are in the midst of a real housing crisis.
The rapidly-increasing home prices are exacerbating the problem too – especially for existing homeowners who had hoped to move up. If you paid $500,000 for your house and now it’s worth $1,000,000, you need to spend $1,500,000 on the upgrade just to make it worth it. But the gap isn’t between $1.0 and $1.5, it’s the whopping million dollars between the previously-comfortable $500,000 and the new price of $1,500,000. Even if you are over 55 and can take your old property taxes with you, the new mortgage amount will be double the previous amount AND last for another 30 years. It’s why more and more of the current homeowners are staying put, which is limiting the inventory now, and in the future.
It’s why I said on the TV show that the current market insanity is likely to continue.
With a finite number of homes and 1,700 new millionaires being created every day in America (we are now up to 18,000,000 millionaires!), the affluent have commandeered the local market. Apparently, they don’t mind paying these prices, and will throw in another $100,000 or so to win the home, if needed.
We hear regular calls for government to ease up on zoning requirements, but more action is needed because we are out of land. Bill Davidson, the most prolific home builder in the history of San Diego County, talked about the shortage back in 2012:
On the TV show, I suggested redeveloping the MCAS Miramar or getting the City of Carlsbad to free up some of the dedicated open space to create larger opportunities for builders, because we need thousands of more homes, not dozens, to balance the market and slow down the pricing.
But those ideas have no chance of happening.
It would take a monumental shift in priorities for our society to consider those. If the government were to propose redevelopment on a grand scale, it would take dozens of years to come to fruition. The Kearny Mesa project is a good example, but it will only add 26,000 homes over the next 30 years which probably won’t be enough to slow down pricing – and no single-family residences are planned there.
Any other new projects will face intense opposition.
The NAVWAR site off the I-5 freeway would seem like an ideal redevelopment project, and it could provide housing right where it’s needed. But the opposition is fierce – consider this attorney’s opinion:
Unless we have a game-changing shift in our community’s mindset about redeveloping the infill sites, the hordes of affluent people will dominate the home-buying – and keep pricing at these levels or higher.
Oh but wait Jim, how about those boomers – half of which haven’t retired yet? Will the boomers who are still working be more likely to need the dough, AND be young enough to endure a move out-of-state?
Maybe, but their kids and grandkids will be lined up to inherit the house, and with that being the only feasible way for them to stay in San Diego, the boomers will find a way to age-in-place instead.
Good-Faith Deposit
It is a very rare occurrence where a buyer wants to cancel the sale after releasing all contingencies because they know they could potentially lose their deposit. Would they give up a five-figure or six-figure deposit easily, or fight it out with the seller? If they fight, then the property gets hung up in litigation and can’t be sold, and most sellers want to get on with the sale. Because in almost every case, the buyer will get his deposit back one way or another, should we just quit collecting them as part of the sale?
According to CAR – we don’t need a deposit to have a binding contract:
Q: Must a buyer give a good faith deposit in a purchase agreement for there to be “consideration” to make it a binding contract?
A: No. The buyer’s good faith deposit in a real estate purchase agreement has no legal significance. It is not required as consideration for the contract because the purchase agreement is a bilateral contract and the mutual promises of the parties serve as adequate consideration to make the contract binding and enforceable on both parties. (Bleecher v. Conte, 29 Cal. 3d 345, 350 (1981).)
Under the C.A.R. purchase agreements, if a contract is entered into and the buyer fails to make the good faith deposit as agreed to, the seller cannot simply cancel. Instead, the seller must go through the procedure of issuing a Notice to Buyer to Perform and giving the buyer adequate time to perform, and only then can the seller issue a cancellation.
When to Sell Mom’s House
If you wanted proof that the tight-inventory era will persist – and possibly get worse – over the next few years…..well, here you go. As prices have risen sharply, so has home equity – which means the long-time owners can be looking at a six-figure tax hit, even after the 2-out-of-5-year tax exemption.
While you can make the case that the capital-gains tax gets paid with the same-and-seemingly free money created by the recent home-price appreciation, Americans have a real aversion to paying taxes. Especially in six-figure amounts!
The long-timers who might consider selling their home are smart to calculate the potential capital-gains tax first. For most, it will probably be the last straw!
Jim Klinge
Klinge Realty Group
Broker-Associate, Compass
Are you looking for an experienced agent to help you buy or sell a home?
Contact Jim the Realtor!
- 682 S. Coast Hwy 101, Suite #110
Encinitas, CA 92024 - (858) 997-3801 call or text
- klingerealty@gmail.com
CA DRE #01527365, CA DRE #00873197
