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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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Low Inventory, More Sales

The NYT has another article lamenting the drop in the number of homes for sale, and offered some reasons, like covid reluctance, sellers skittish about finding their next home, forbearance relief, the lack of building new homes, and people keeping their old home as an investment property when they buy a new one.

But who cares about inventory when we’re having MORE SALES THAN EVER.

It’s true that the number of new listings this year is about 23% behind where it was last year at this time.

The other day I compared just to 2020, but here’s a look at the last ten years:

NSDCC Closed Sales Jan 1 – Feb 15

Year
# of Sales
Median Sales Price
2011
158
$810,500
2012
153
$749,000
2013
197
$845,000
2014
261
$1,007,500
2015
252
$1,200,000
2016
253
$1,125,000
2017
260
$1,200,000
2018
231
$1,300,000
2019
242
$1,288,000
2020
254
$1,394,775
2021
299
$1,695,000
% Change, YoY
+18%
+22%

We haven’t had this big of a jump in number of sales AND median sales price to start the year since the Frenzy of 2013 bled into early 2014 when we had a 32% increase in sales and +19% in median sales price. Back in 2004, we had a 26% increase in the median sales price (from $635,000 to $799,000), but the number of sales dropped from 253 to 209.

This is the new reality – more people chasing fewer homes for sale.

Buyers who might think we’re going to get a pullback because rates have gone up are going to get a good lesson on who’s in charge here. Sellers don’t care about rate hikes, lack of inventory, or your lease expiring. They just want their money, and if they don’t get it today, they will wait until they do.

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NSDCC Pendings Overtake Actives

This morning we have more homes in escrow than we have for sale!

NSDCC Detached-Home Listings

Listing Status
# of Listings
Median List Price
Active
352
$3,950,000
Pending
353
$1,925,000

Once upon a time I was discussing the actives/pendings relationship with local agent Peter B.  He agreed that a 2:1 ratio of actives to pendings was a sign of a healthy market.  If 2:1 was healthy, what is 1:1?

One thing that’s happening is that the action is rising into the upper price ranges. Today we have 94 homes in escrow that are priced over $3,000,000, which I doubt we’ve ever had before.

If we don’t see a surge of more listings, the pendings could extend its lead in the coming days/weeks!

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Actives & Pendings By Area

Historically the market has felt healthy and balanced when we’ve had a 2:1 ratio of actives vs. pendings.

Remember when the Ranch was 10:1 for years? Now look at the market – especially on the lower-end:

NSDCC Actives and Pendings

Town or Area
Zip Code
Actives
Pendings
Cardiff
92007
11
16
NW Carlsbad
92008
17
19
SE Carlsbad
92009
9
38
NE Carlsbad
92010
1
12
SW Carlsbad
92011
2
17
Carmel Valley
92130
26
43
Del Mar
92014
43
13
Encinitas
92024
39
45
La Jolla
92037
101
46
RSF
92067
96
35
Solana Beach
92075
11
10
NSDCC
All Above
356
294

Carlsbad, a town of 110,000+ people, has 29 houses for sale?

It’s probably going to get crazier too as the traditional selling season opens up and we see a few more listings trickle out. It would take a flood of new listings to cause the market to slow down now.

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