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Bay Area Exodus

The San Diego housing market is a popular choice for those who are leaving the Bay Area (population of 6,404,512 in the five counties). It’s looks like more are coming – a report from sfgate:

Joint Venture Silicon Valley, in partnership with the Bay Area News Group, polled 1,610 registered voters across five Bay Area counties: Alameda, Contra Costa, San Francisco, San Mateo and Santa Clara.

A shocking 71% of respondents said the quality of life in the greater Bay Area is worse now compared to five years ago. Fifty-six percent of respondents said they are considering leaving in the next five years — including 53% of respondents who work in the tech sector.

“It’s the cost of living, high housing costs. I think that is the dominant thing. It’s housing housing housing,” said Russell Hancock, President and CEO of Joint Venture Silicon Valley, in a press briefing. “…That is driving almost all of the results.”

Hancock said the 53% figure is the highest percentage of people who have said they want to leave the Bay Area compared to previous polls conducted outside of Joint Venture.

Indeed, an overwhelming majority of respondents said it’s high housing costs (77%) and cost of living (84%) spurring their desire to seek out greener pastures. Homelessness, wildfires and drought were also issues respondents considered when mulling the decision to leave the Bay Area.

“We’ve long been a high-stress region. Staggering housing prices, rising homelessness, a stark income divide and a host of sustainability challenges have had us on edge for some time,” Hancock writes in the introduction to the poll. “But when you toss a highly infectious disease into the mix you get a smothering amount of anxiety.”

But as Hancock noted, these feelings go beyond the pandemic and its challenges.

“We’re split (48% to 52%) on whether the Bay Area is headed in the right direction,” he said.

The poll paints a disturbing picture of life in the Bay Area, but it’s not all doom and gloom. About 65% of respondents said “they feel a strong sense of belonging to the Bay Area” — even more so than they feel connected to their neighborhood and city. Many (66%) applauded their employers’ response to the pandemic and now feel differently about their work-life balance.

As Hancock pointed out in the briefing, polls “tell us how people are thinking. And that’s worth knowing.”

“Perception,” he added, “is also a form of reality.”

Link to Article

If there were 56% of their population who left, it would equal 3,586,526 people – which would create a whole new experience for those who stay!  But we know that talk is cheap, and once all the other variables are considered, most people don’t move.

But we’ll probably get a steady flow for the foreseeable future.

ADU Approval Process Is Deplorable

Last month, we heard from an architect on how bad the ADU permit process had been in San Diego.

Now here’s a report from our good friends at the PLF:

https://pacificlegal.org/still-no-place-to-live/

An excerpt:

Pacific Legal Foundation obtained public records from San Diego and Riverside Counties (two of the most populous counties in the state) to determine whether local governments are abiding by the new 60-day permit-approval period, which took effect in January 2020. 

Unfortunately for California residents, local governments are failing miserably to abide by the new state law.  

    • San Diego County took a median of 187 days to issue an ADU or Junior ADU building permit after January 2020. Permits issued prior to the new law took a median of 112 days to be issued. Only 52% of permits issued prior to the new law fell within the previously required 120-day mark.

Currently, only 5% of permits issued by the county met the state’s 60-day deadline. Many times, the permitting process is held up by excessive fees or approvals needed from other departments within the county. As of July 21, 2021, there are 587 pending applications, of which 90 were submitted prior to 2020. If these permits were issued today, the median wait time would be 255 days after the application was submitted.

The government, and society in general, needs to recognize how dire the housing crisis is for the citizens.  We’re going to have continued upward pressure on home prices and rents, and building ADUs is one of the best ways to alleviate the problem. It doesn’t matter if the resistance by local governments is conscious or sub-conscious, the ADU-approval process needs to improve radically to implement the will of the people, and slow down prices.

https://pacificlegal.org/still-no-place-to-live/

Shiller – “Wild West”

Shiller has been too conservative on his predictions because he’s an ivory-tower guy. If he were to talk to potential home sellers, he’d find that there aren’t many – if any – who have to move so badly that they would sell for “substantially lower” prices.  The next phase after the frenzy will be the stagnant/plateau stage where the demand thins out and sellers wait for that perfect nuclear family with 2.2 kids to come along some day.

Nobel prize-winning economist Robert Shiller is worried a bubble is forming in some of the market’s hottest trades. He’s notably concerned about housing, stocks and cryptocurrencies, where he sees a “Wild West” mentality among investors.

“We have a lot of upward momentum now. So, waiting a year probably won’t bring house prices down,” Shiller said.

According to Shiller, current home price action is also reminiscent of 2003, two years before the slide began. He notes the dip happened gradually and ultimately crashed around the 2008 financial crisis.

“If you go out three or five years, I could imagine they’d [prices] be substantially lower than they are now, and maybe that’s a good thing,” he added. “Not from the standpoint of a homeowner, but it’s from the standpoint of a prospective homeowner. It’s a good thing. If we have more houses, we’re better off.”

Rates Are Lower

Mortgage rates have settled down nicely, and are back in the high-2s for those home buyers who don’t mind paying a half-point or so (those quoted above are with zero points paid).

Not sure that it matters. Not sure that anything matters any more.

I had a great conversation with a top Compass agent today discussing the market conditions.

Specifically, what do you tell buyers?

Thankfully, the market is so hot that we have more sales to rely on.  Even with the prices going up, at least there are a few recent sales nearby that help to substantiate the trend.

Is adding 1% per month to pricing enough to keep up with the actual? 1.5%?

Or how about 2.0% per month in the quality mid-range markets, both local and national?

Home Seller Survey

An excerpt from Zillow’s seller survey:

With the rollout of vaccines against COVID-19, 70% of homeowners in a recent Zillow survey say they would feel mostly or completely comfortable moving to a new home when vaccines are widely distributed — and 78% of homeowners who say widespread vaccine distribution would impact their decision to move say such distribution would makes them more likely to move.

“We expect that the vaccine rollout will likely boost inventory, as sellers become increasingly willing to move despite COVID-19 — resulting in greater numbers of new listings beginning this spring,” says Chris Glynn, principal economist at Zillow. “That injection of inventory could give buyers more options and breathing room in a competitive market. The vaccine, however, will also likely add to already-strong demand, given that most sellers will become buyers as they trade in for a home that better suits their new needs.”

Zillow research shows that 63% of sellers are also buyers. And, as buyers, they have specific reasons for selling. A recent Zillow survey shows that homeowners who are thinking of selling in the next three years have a variety of reasons for doing so.

Additionally, 26% want to live closer to family, 24% wanted out from being responsible for yard work, 14% say their family or household is getting larger and 13% say they can no longer afford their home.

Nearly 40% of homeowners who are considering selling within three years (39%) say they think they’ll get a better price if they wait. They’re not necessarily wrong — although waiting comes with tradeoffs, according to Zillow economist Jeff Tucker.

“Potential sellers are likely correct that home prices have yet to reach their peak,’’ Tucker said, “but in the long run prices tend to rise, so there’s no clear ‘right time’ to sell.”

The catch, he said, is that waiting to sell may raise the cost of trading up to their next home if mortgage interest rates rise.

https://www.zillow.com/agent-resources/blog/potential-sellers-gaining-confidence/

Backlog Forming?

Hat tip to Ryan for his excellent job documenting the real estate frenzy underway in the Sacramento area:

http://sacramentoappraisalblog.com/

Susie says the Boise market is on fire, Noodle said that every house in North Phoenix sells in 3-4 days, home prices in Austin are similar to what they are here (according to one buyer) and even Kayla is seeing multiple offers again in Manhattan!

The potential sellers here who want to list their house for sale so they can leave the state have to be concerned about buying their replacement home, if they haven’t bought one yet.

How many will give up and say, “heck, it’s better here anyway”, and pack it in, instead?

Will a surge of supply over the next 3-4 months – when we need it the most – be stymied because of the difficulty with buying a home elsewhere?

As crazy as it is right now, it could get crazier! It probably will!

Market Topics

I love hearing from new readers!

Hi Jim,

I have recently stumbled upon your blog and find it very interesting as I am an appraiser in San Diego. I wonder if anyone has considered that the low inventory levels are in part because home prices are going up so fast why would anyone want to sell something that is going to be worth 10K, 20K, 50K more within just months. For example my home according to Zillow is up 22K in the last 30 days. Something else to consider that I have not seen mentioned….

Are sellers paying attention that closely? If so, then you’re right – it’s possible.  Add that extra supply to the post-covid/Prop-19/usual-spring listings and there could be a real surge. But the worst thing that will happen is there will be 3-4 houses for sale in your neighborhood, instead of one or two.

Do sellers risk it? Most are already making $200,000 to $1,000,000+ profit……are they going to purposely hold out in hopes of picking up an extra $50,000? Maybe, but I’d guess that when and where they are moving probably plays a bigger role in their decision-making.

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Sellers are indeed holding back for some reason.

In the first nine days of March last year we had 148 new listings between La Jolla and Carlsbad, and so far we’ve only had 90 this year.  More will be added to that nine-day total this week, but we’re still well under where we’ve been in previous years. March is when the inventory really picks up, historically:

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The Frenzy of 2013 was red-hot for about a year.  If the same happens this time, it means the market should flatten out by July as rates increase and buyer exhaustion sets in.

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The bump in rates over the last two weeks just threw gasoline on the fire for those who could find a house to buy.  But an extended run-up – especially if we get to 4% – should cool things off.

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I have two closings with buyers this week. One paid $135,000 over list, and the other paid $100,000 over.

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Over the weekend, I had buyers make a highest-and-best offer that was $207,000 over list….and lost.

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There is virtually no transparency – just take your shot and pray. Don’t think, and don’t blink!

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California Showings

No surprise here, given what we see in the market today.

But interesting that 2021 is off to 2x the start we had last year – which was pre-covid!  New listings are down 20% to 25% while twice as many people are looking!

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