Low Rates, No Nuts

Ryan is probably the most similar blogger to me because he’s in the business and sees what is actually happening on the street.  He does a ton of charts and graphs, so if you’re analytical give his blog a look:

www.sacramentoappraisalblog.com

He sums up his current market conditions quite well with these thoughts:

Normal: The market felt really dull last year, but it’s been a somewhat normal year so far in 2019. There are certainly concerns about affordability, but from a stats perspective it’s been a pretty standard first half of the year. Pendings continue to be strong also, so buyers still clearly have a strong appetite for the market.

14 months in a row of slumping volume: Despite mortgage rates being low we’re seeing somewhat sluggish sales volume. In fact, sales volume was down 11.6% in the region last month and it’s down 8.6% so far in 2019. Moreover, we’ve had fourteen months in a row with lower sales volume compared to the previous year. In my mind it’s still best to say we’re having a slower year instead of a volume meltdown because levels aren’t alarmingly low by any stretch. Let’s watch this carefully.

Dude, rates will never get below 4% again: It’s been a little surprising to see how low rates have gone again, right? The narrative for a while was, “Dude, they’ll never go below 4% again. We’ve bottomed out.” Yet here we are. My sense is if rates keep going down it’ll only increase competition and artificially inflate prices. That would be temporarily nice for buyers, but an unfortunate byproduct is low rates in a wider picture tend to create less incentive for sellers to move. Why sell if you’re sitting on a 3.5% mortgage rate?

Purplebricks & the tech invasion: Last week it was announced that Purplebricks will be exiting the United States housing market after a 75% loss in shares. This company is going to the grave in the U.S., but the reality is we’re still in a market where tech companies are trying to disrupt the traditional real estate model. Next up? Zillow is said to be coming to Sacramento by the end of the year.

Joe Montana’s $49M overpriced listing: Former Quarterback Joe Montana listed his property for $49M and it didn’t sell because it was profoundly overpriced. In fact, the price has now been reduced to $28M. Many sellers are like Joe in trying to attract mythical unicorn buyers who will mysteriously overpay for some reason. My advice? Be aware that today’s buyers are incredibly picky about paying the right price.

The dream of selling at the top: I met a guy who wants to sell because he says the market might top out soon. His concern is a friend sold two years ago thinking the market was at its peak, but it wasn’t. The truth is it’s not so easy to time a market perfectly. We talk about how simple it is to do this, but most people pull it off from dumb luck more than anything. The reality is the bulk of buyers don’t buy based on price metrics, but rather lifestyle and affordability.

My thoughts on his thoughts:

The first time mortgage rates went under 4%, it did spark a mini-frenzy because no one had seen that before.  Those who moved up – or refinanced – were able to mitigate their payment shock with a lower rate than they had before.  But now the sub-4% rates are a yawner for those who already have them, and as a result, we’re not seeing the same enthusiasm we saw previously.

I’ll add a bit to his thoughts on Joe’s mansion.  Are buyers being extremely picky? Yes, absolutely, yet it’s more about finding the perfect house than the perfect price.  Once buyers find a great fit, they will pay whatever it takes.  I saw a starter home in Carlsbad yesterday get four offers over list price, which will make it the most expensive sale for that model ever. But it was also a great location and house was dialed in.

Selling at the top used to be a big driver for decision-making back in the old days.  But the market is so tight today that you can’t just go out and replace a quality home without a real struggle.  Now, selling at the top is only one of the criteria for home sellers, and it’s dropped down the list for most.

Ryan has more thoughts and graphs here:

www.sacramentoappraisalblog.com

Getting the Price Right

I don’t know if they surveyed actual home sellers, but if these stats demonstrate the current sentiment, it shows how critical it is to list a home at ‘market price’ vs. ‘dream price’.

An excerpt from this HW article:

You’ve listed your home for sale, and no one is taking the bait. One month passes, then two. How long do you wait before you increase the odds of an offer by dropping the price?

According to a recent survey, most American home sellers opt to reduce their asking price after three months of zero offers.

Specifically, a survey of 1,000 consumers revealed that 33% would opt for a price reduction after three months, making it the most common choice.

Just under 20% said they would wait one month, while 17% would wait five months. For about 9%, it would take an entire year before they’d reconsider their price.

But for others, they’d rather not sell at all as opposed to selling for less than they originally wanted, with about 12% said they would never lower the price of their home.

The 33% would wait three months, but 38% would wait at least five months or longer to lower their price, if at all (17%+9%+12%).

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Zillow says that the average price reduction is 2.9%, which isn’t going to impress buyers much.  When prices were rising 5% to 10% annually, the market would catch up with a wrong price before too long.  But now that pricing is flat, we don’t have that luxury – and we need to be smarter about price strategy.

https://www.zillow.com/sellers-guide/when-to-reduce-house-price/

NSDCC Listings, First Six Months

Bill (in Giants jersey) from the Bay Area has been reading the blog for the last ten years!

He won the earlier contest for Padres tickets, so when he and his family were here on vacation, they took in the first game of the series last night – a 13-2 shellacking by the Giants! They got on TV too:

Congrats Bill and family!

The contest was predicting how many new listings we would have in the first two months of 2019. Bill’s guess was 777, which was the third lowest of those submitted – we all thought more sellers would want to cash out at these prices!

Yesterday’s doomer was looking for the right evidence – historically, one of the first signs of trouble is a surge of inventory.  We saw it last time in the first half of 2006 when listings jumped 23% as sellers started scrambling to get out:

NSDCC Detached-Home Listings Jan 1 to June 30:

Year
Number of Listings
Median List Price
2005
2,892
$1,150,876
2006
3,547
$1,120,000
2007
3,120
$1,182,500

But still no surge here locally in 2019.

Our inventory count this year is looking normal – and 24% under the 2006 count:

NSDCC Detached-Home Listings Jan 1 to June 30:

Year
Number of Listings
Median List Price
2013
2,790
$1,179,000
2014
2,713
$1,120,000
2015
2,871
$1,182,500
2016
2,999
$1,425,000
2017
2,712
$1,425,000
2018
2,700
$1,499,000
2019
2,705
$1,569,000

In the first half of 2005, we had 400 sales close under $750,000, and this year we had 55.

We had 560 homes list for $2,000,000+ in the first half of 2005, and 238 closings.  This year, we had 901 listings over $2,000,000, and 298 closings!

Redlining in San Diego

The history of housing discrimination is getting a lot of attention these days, and rightfully so.  If you, or someone you know, wants to contribute, KPBS is looking for stories:

KPBS is doing an investigation into the legacy of “redlining” in San Diego.

This is the historic practice of excluding minorities from certain neighborhoods through regulations on mortgages, leases and home purchases. We’re looking into the impact this practice has had on the economic prosperity of different neighborhoods in San Diego.

 Some families in San Diego may have benefitted from this history, through no fault of their own. Others may have been hurt by it.

 If you or your family has any connection to this history, or if you know someone who does, please reply to this email or send an email to sources@kpbs.org with “Redlining” in the subject line.

 Thank you for sharing your knowledge and becoming a trusted KPBS source!

There was actually a red zone in La Jolla around the Taco Stand on Pearl!

San Diego ZHV Index Mostly Flat

The San Diego ZHVI has been mostly flat for almost two years!

The price exceptions are the superior homes and locations, particularly the one-story and newer homes, which tend to sell for more than ever before.  But those cases are dwindling.

What’s saving us is how inventory has remained in check – no panic among sellers in 2019, which is quite a bit different than it was last year:

https://www.zillow.com/research/housing-market-cooling-may-2019-24552/

Top 20 Cities

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At this rate, the median price in 2039 will be $2,988,000! Hat tip to Richard!

San Diego County residents who bought homes in the 90s are reaping the benefits of a hot housing market.

Homebuyers who purchased their properties 20 years ago are “sitting pretty” in 2019, according to a study by GOBankingRates.

The study ranked 15 California cities by property appreciation rates. Six of the top 10 increases were in the San Francisco area. Two Los Angeles-area cities, Santa Monica and Newport Beach, finished first and second on the list, respectively.

The only San Diego County city on the list of top 20 locations for home appreciation was Encinitas.

In 1999, the median home value in Encinitas was $343,500. The figure now stands at $1,198,000, marking a 248.8 percent increase in value over 20 years, the study reports.

The five-year rental income on an Encinitas home is $229,688, according to the study.

See our interactive map of top California housing markets for home value increases:

Google Commits to Housing

I’m glad to see a major corporation doing something for housing, though they take a beating on Twitter – many of the comments are negative.  FYI – their net income was almost $9 billion in 4Q18.

An excerpt from their press release:

Today, Google is one of the Bay Area’s largest employers. Across the region, one issue stands out as particularly urgent and complex: housing. The lack of new supply, combined with the rising cost of living, has resulted in a severe shortage of affordable housing options for long-time middle and low income residents. As Google grows throughout the Bay Area—whether it’s in our home town of Mountain View, in San Francisco, or in our future developments in San Jose and Sunnyvale—we’ve invested in developing housing that meets the needs of these communities. But there’s more to do.

Today we’re announcing an additional $1 billion investment in housing across the Bay Area.

First, over the next 10 years, we’ll repurpose at least $750 million of Google’s land, most of which is currently zoned for office or commercial space, as residential housing. This will enable us to support the development of at least 15,000 new homes at all income levels in the Bay Area, including housing options for middle and low-income families. (By way of comparison, 3,000 total homes were built in the South Bay in 2018). We hope this plays a role in addressing the chronic shortage of affordable housing options for long-time middle and low income residents.

Second, we’ll establish a $250 million investment fund so that we can provide incentives to enable developers to build at least 5,000 affordable housing units across the market.

In addition to the increased supply of affordable housing these investments will help create, we will give $50 million in grants through Google.org to nonprofits focused on the issues of homelessness and displacement. This builds on the $18 million in grants we’ve given to help address homelessness over the last five years, including $3 million we gave to the newly opened SF Navigation Center and $1.5 million to affordable housing for low income veterans and households in Mountain View.

Doom, 2019 Style

One of the more vocal doomers is at it again. 

Here’s a link to an article from 2014 when he thought the sky was falling:

https://www.marketwatch.com/story/this-house-market-is-falling-apart-2014-08-26

Today’s version – an excerpt:

There are growing signs that U.S. home prices are no longer rising. If this is indeed the case, now is the time for sellers or prospective sellers to take a good look at the state of housing markets around the country.  To make smart decisions, home sellers as well as buyers need to find out whether home price gains are simply slowing or whether housing markets are actually topping out.

An excellent publication,U.S. Home Sales Report, published by real-estate data firm Attom Data Solutions, gives a detailed look at conditions in major U.S. housing markets. This quarterly report provides data on the actual gross profit that sellers pocketed in 124 housing markets nationwide.  It tracks every home sold in that metro and compares the price to what the seller previously paid for the house. An average is then taken for all the homes sold in that quarter. The result is the average gross profit in each metro before commissions are deducted.

https://www.marketwatch.com/story/5-signs-that-home-prices-could-be-rolling-over-again-2019-06-17

Oversupply of White Boxes

Today, there are 42 homes for sale in SD County listed over $10,000,000, and we’ve had two sales this year. Hat tip to GW for sending in this article excerpted here:

Real-estate experts estimate that there are about 50 ultra high-end spec houses under construction in the area, from Beverly Hills to Bel-Air and Brentwood.

The unprecedented wave of development has its roots in the heady days of 2014 and 2015, when foreign buyers poured into Los Angeles and luxury markets across the country logged record sales. A couple of local megawatt deals—including the $70 million sale of a Beverly Hills compound to billionaire Minecraft creator Markus Persson in 2014—inspired the construction of bigger and pricier homes, most of which were built as contemporary cubes. Some were built by inexperienced developers; many had price tags north of $20 million.

Now, there are simply too many, and not enough buyers to go around. “It’s created its own monster,” says Stephen Shapiro of Westside Estate Agency. “We have an enormous oversupply of these white boxes. There’s years of inventory out there.”

In this environment, and amid signs that prices are falling, developers and their agents are going to extraordinary lengths to differentiate their listings from the pack. They are throwing themed bashes in lieu of traditional open houses, thinking up gimmicky new amenities and hiring marketing experts to reimagine homes as individual brands with their own names, logos and stories. Some developers are relisting plots of land, hoping to get their money out without sinking more money into construction.

In February, Mr. Niami threw an elaborate party inspired by Dutch artist Hieronymus Bosch’s painting “The Garden of Earthly Delights” in a home he is listing for $39.995 million. Its three levels were organized into heaven, earth and hell, and models in colorful tulle dresses swam in the property’s glass bottomed pool, said Mr. Ali, who organized the party.

There were actors posing as Adam and Eve while hosting a virtual reality game that allowed guests to enter a rendition of the Bosch painting. People drank whiskey infused with the body of a dead cobra, and dancing women dressed in leather, whips and chains. A camel stood at the entrance to greet guests.

In Bel-Air, real-estate brokerage firm the Agency recently threw a “Great Gatsby” themed event to launch a $35.5 million spec house. A female performer in a bedazzled costume hung upside down from a trapeze to pour champagne for guests, while another floated on the pool in a transparent bubble.

Mr. Ali says developers will pay anywhere from $20,000 to hundreds of thousands to throw such events.

In addition to the parties, developers are always on the hunt for creative new amenities. “It’s about the wow factor,” says spec home developer Ramtin Ray Nosrati, whose under-construction mansion in Brentwood includes a secret room for growing and smoking marijuana.

The ventilated room, accessed by hitting a button hidden inside a living room bookcase, will have tinted windows that darken for privacy. The house, slated to ask between $30 million and $40 million, will also come with a budget for an employee to supervise growing and harvesting. Mr. Nosrati compared the amenity to “having your own vineyard.”

Despite all this, price cuts are the order of the day. Bruce Makowsky, a handbag designer-turned-developer who sold the Minecraft property, lowered the price of his latest project, a lavish Bel-Air house with a candy room and a helipad, to $150 million, down from its original $250 million asking price. Mr. Niami slashed the price of a sprawling 20,500-square-foot house known as Opus to $59.995 million, down from $100 million.

Developer Ario Fakheri has chopped the asking price for his Hollywood Hills home with a roughly 300-gallon indoor shark tank to $26.995 million from $35 million.

Sales are still happening: Approximately 11 deals have closed for more than $20 million in Los Angeles so far this year, and a Saudi buyer recently paid $45 million for a spec home built by diamond manufacturer Rafael Zakaria. But buyers know they have the upper hand. “People are making lowball offers,” says Mr. Shapiro of Westside Estate Agency. “They’re not being shy.”

Doug Barnes, the founder of Eyemart Express, sold a contemporary home in Beverly Hills for $34.65 million in April, or nearly 40% off its original $55 million asking price, records show. British restaurateur and Soho House co-owner Richard Caring is listing a home he bought in Beverly Hills for $29.995 million; he paid $33 million for it in 2016, records show.

As for “The One,” the $500 million property was originally slated to come on the market in 2017 but has yet to be listed. The developer blamed construction delays.

Link to Full WSJ Article

A sample:

Rates Under 4%

If you are thinking about selling your house this year, call me tonight!

Rates are idyllic, and so is the weather which makes for a great combo!

Mortgage rates fell again today, just barely inching to the lowest levels since early 2018.  Keep in mind, that factoid is based on an average of multiple lenders.  Some of them aren’t quite back to the low rates seen at the end of March.  Others had crossed that line several days ago.  Either way, the actual NOTE RATE at the top of the average rate quote would be the same then and now.  The EFFECTIVE RATE would be just slightly lower due to a small advantage in upfront lender costs.

Relative to market sentiment at the beginning of May, the last 3 weeks have been unexpected.  In other words, there was no obvious reason to expect or fear the sort of slide in stocks and yields that we’ve seen since then.  But of course, that’s just the sort of thing financial markets like to do!  If there’s one overarching reason for the move, it’s the trade war between the US and China.  Just when it seems the issue is put to bed, more drama unfolds.  In general, trade war drama damages the economic outlook and a weaker economy is generally good for rates.

http://www.mortgagenewsdaily.com/consumer_rates/911637.aspx

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