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Market Conditions As Seen By Realtors

Of course the current conditions look worse when comparing to the hottest real estate market ever. Having bidding wars on 21% of homes for sale sounds great to me.

The discouraging part about Bill’s post today is how the realtors have bought into the negativity.

This is the first downturn to be affected by amateurs on social media, and realtors can either price ’em high and repeat these same negative talking points seen everywhere now, or they can get better at their craft, price their listings attractively, and be part of the solution:

#Houston, TX: “Home prices have most first-time home buyers priced out of home ownership. It’s even worse with the higher interest rates decreasing what the buyers can qualify for.”

#Denver, CO: “Cost of living [and] interest rate [increases] are keeping most buyers from buying.”

#Baltimore, MD: “The market is transitioning. Inventory is still low and the number of buyers looking is less due to rising interest rates. Buyers are qualifying for less, so they are pulling back. [I am] seeing less as-is sales, more home inspections, and negotiations overall.”

#Sarasota, FL: “I’ve had numerous buyers looking but the prices are much higher than they want to spend. Many pulled back waiting for the market to go down.

#LosAngeles, CA: “Skyrocketing interest rates are pushing buyers out of the market (they can no longer afford homes that were in their price range just a few months ago) and making homes more difficult to sell for sellers and their agents.”

#Phoenix, AZ: “Buyers are very nervous about making a decision.”

#NewYork: “Open house attendance is weaker than usual, and sales take longer.”

#Minnesota, MN: “Still seeing a fair number of cash sales as competition to financed sales.”

#StLouis, MO: “Things are slowing down slightly, but I have found that the good properties are still moving quickly with multiple offers and going above ask.”

#Barre, VT: “Our local market in Lamoille County is very flat and challenging. Local working families are outpriced by the prices and interest rates. The neighboring resort town has slowed but there are still cash buyers for the million plus market.”

#OrangeCounty, CA: “Interest rates have put the brakes on the market.”

I did sign up to be on their realtor-comments list!

https://open.substack.com/pub/calculatedrisk/p/interest-rates-have-put-the-brakes

Bay Area Dependent

The biggest fear for the North San Diego County coastal region is a meltdown in Bay Area prices.

It’s been estimated that 50% or more of the buyers who were bidding up homes here during the frenzy are from the Bay Area, and Silicon Valley in particular. If prices were to drop 23% to 30% there, it would impact how much they would be willing to spend on replacement homes here.

This is only one example but we can say that this sold at the peak of the market, or close.

This was my uncle’s girlfriend’s house, and when I was there in November to pay my last respects, I told them that my guess at the current value was high-$2,000,000s.

They hired a good agent who spruced it up and staged it, and they listed for $3,195,000 on March 2nd.

A month later, it closed for $3,710,000 for 1,763sf.

How does it look today?

Today’s zestimate is within 1% of the sales price in April, which had been bid up $515,000 over the list price at the time.  What are the comps that Zillow says they used to determine the value?

Four recent closings:

It is only one example, and certainly, not everyone from Los Altos is moving here.  But just looking at those four recent sales, it seems like that area is holding up pretty good.

https://www.zillow.com/homedetails/1200-Brucito-Ave-Los-Altos-CA-94024/19620416_zpid/

Recent Sales By Zip Code

For those who are willing to investigate the sales data in our local areas, here are the detached-home sales from the last 90 days. Poke around a little, and I doubt you’ll believe that we’re getting ‘creamed’.

NW Carlsbad 92008 sales – last 90 days

SE Carlsbad 92009 sales – last 90 days

NE Carlsbad 92010 sales – last 90 days

SW Carlsbad 92011 sales – last 90 days

Encinitas 92024 sales – last 90 days

La Jolla 92037 sales – last 90 days

Rancho Santa Fe 92067 sales – last 90 days

Del Mar 92014 sales – last 90 days

Solana Beach 92075 sales – last 90 days

Carmel Valley 92130 sales – last 90 days

The highlights: three RSF sales over $10 million in the last 90 days; nine sales above $5,000,000 in La Jolla (and 60 sales overall!), 81 sales in Encinitas – more than one every business day; and of the 182 sales in Carlsbad, 46 of them were $2,000,000 and higher.

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.

Time to Sell?

I don’t care what color he’s seeing, if he sells his tony golf-course estate today and thinks he will buy it back later for less, he will be in for a rude awakening. Without foreclosures (now mostly outlawed in California) causing banks to give away homes, there won’t be any more downturns or cycles. But for those who agree with him, yes – please sell!

Bond manager Mark Kiesel sold his California home in 2006, when he presciently predicted the housing bubble would pop. He bought again in 2012, after U.S. prices fell more than 30% and found a floor.

Now, after a record surge in prices, Kiesel says the time to sell is once again at hand.

Sky-high values, soaring interest rates and other costs of homeownership — maintenance, property taxes and utilities — dampen prospects for future appreciation, according to Kiesel, chief investment officer for global credit at Pacific Investment Management Co. He’s weighing putting his Orange County house on the market and becoming a renter rather than an owner.

“I can look at my long-term 25-year charts and they tell me when to buy and sell and they’re flashing orange right now,” Kiesel, 52, said during an interview at Pimco’s Newport Beach, California, headquarters. “I think we’re in the final innings.”

Home prices soared almost 20% in the 12 months through February, according to the S&P CoreLogic Case-Shiller Index, as pandemic moves, low borrowing costs and a dearth of inventory spurred heated competition for housing. But the market is now facing the fastest rise in mortgage rates in decades as the Federal Reserve works to tamp down inflation. The average 30-year rate is now 5.1%, close to a 12-year high, Freddie Mac data show.

Home sales contracts, a leading indicator, fell for the fifth consecutive month in March as rising borrowing costs added to affordability pressures, the National Association of Realtors reported on Wednesday.

Kiesel’s possible sale is a personal move and not a forecast of a crash by Pimco, which in March put out a note predicting “No Bust After the Boom” following years of housing undersupply. “Estimates of this secular shortage range from two to five million houses,” according to the authors.

But Kiesel’s past personal decisions have proved prophetic.

He sold his Newport Beach house in May 2006, calling housing “the next Nasdaq bubble.” Home prices peaked that year before going on to plunge, triggering the global financial crisis.

“It’s not just houses that will be for sale,” Kiesel said in a June 2006 interview. “You’re going to see financial assets for sale over time, and ultimately corporate bonds.”

Then in May 2012, Kiesel decided it was time to own again, buying a golf course-adjacent home.

“For those of you renting or on the sidelines, I recommend you at least consider getting ‘back in’ and buying a house,” he wrote in a credit market note. “The future is hard to predict, but U.S. housing is healing and is probably close to a bottom.”

U.S. housing prices have more than doubled in the past decade and the house Kiesel bought for $2.9 million in 2012 now has an estimated value of $5.5 million, according to Redfin Corp.

Buying a home in today’s market would likely yield about a 2% return, Kiesel said. He considers his home as an investment, refusing to form an emotional attachment to his property.

“It’s only a good investment if you buy it the right time,” he said. “If I were to buy a house today, I would probably get max 2% return on it. And I can find other things I can make money on other than a house.”

https://finance.yahoo.com/news/pimco-kiesel-called-housing-top-160339396.html

Home Buyers Not Deterred

When people are looking for the perfect ‘forever’ home that will last them for a lifetime, any additional cost isn’t going to phase them – or at least it won’t affect the affluent folks.  Most are making it up elsewhere when they sell their previous home or rental properties, inherit big money or receive a gift, and/or sell their businesses/stocks or other assets and just want a trophy property.

If they weren’t bothered by home prices rising 60% to 80% over the last two years, a measly 2% increase in the mortgage rate isn’t going to stop them.

https://eyeonhousing.org/2022/04/high-home-prices-are-leading-more-buyers-to-give-up-home-search/

Rates & Home Prices

The mainstream media is taking their shots at explaining the current market.

Here is the attempt by the NYT – link should be unlocked:

Link to Article

Here’s a former realtor who says if it weren’t for the investors, we’d be back to normal:

https://www.forbes.com/sites/johnwake/2022/04/01/the-real-reason-house-prices-are-skyrocketing-what-the-real-estate-industry-wont-tell-you/

Economists like to focus on demand, but as long as the supply is scarce, prices will hold or keep going up.

Two-Year Appreciation Rankings

Sure all the California-feeder towns have risen 40% to 50%, but look at those price points!  You don’t see any other city on this list with home prices as high as ours.

Of all the areas in the country, San Diego has to be one of the best places to live – and the affluent who can live anywhere have to be considering San Diego as one of their top choices.

But nobody wants to leave!  We are currently offering millions of dollars to long-time homeowners to get them to move, and it’s not working! The supply and demand has never been so out of balance.

Eventually, we could have the highest home prices in the country!

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.

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