Heading for Flatsville?

Appreciation is slowing down, and though it looks like San Diego slammed the brakes on between February and December last year, it’s nothing compared to San Jose where sellers went through the windshield, figuratively.

The year-over-year increase in our December Case-Shiller Index was +2.3%, and with Black Knight’s at 1.7%, let’s average and predict 2% appreciation for San Diego in 2019. It means 1/2% per quarter, which sounds pretty flat.

Earlier this week CoreLogic reported that the annual rate of appreciation in January, 4.2 percent, was exactly two-thirds the rate in January 2018.  The Black Knight Mortgage Monitor essentially confirms that deceleration, reporting price increases dropping from 6.8 percent last February to 4.6 percent at year end.

Ben Graboske, president of Black Knight’s Data & Analytics division, explained that while home prices are still up year-over-year in all 50 states and the nation’s 100 largest markets, slowing is noticeable nationwide and – combined with recent interest rate reductions – is helping to improve the overall affordability outlook.

“At the end of December, home prices at the national level had fallen 0.3 percent from November for their fourth consecutive monthly decline,” he said.  “As a result, the average home has lost more than $2,400 in value since the summer of 2018. And while home prices are still up on an annual basis, the slowdown continues nationwide and, importantly, is not being driven by seasonal effects. December marked the 10th straight month of slowing annual home price appreciation.”

He added, “With more than 50 percent of areas reporting, early numbers for January suggest we’re likely to see more of the same. That said, it’s important to keep in mind that annual growth is still outpacing the 25-year average of 3.9 percent – although the gap is closing quickly. Also, it’s yet to be seen what impact the recent pullback in interest rates may have on the national home price growth rate.

The slowdown has been especially apparent in the West.  While some interior states are still seeing large gains – Nevada, Idaho, and Utah saw the greatest increases in the nation with Nevada still in the double digits – large metro areas on the coast have seen appreciation rates plummet.

Black Knight looked at the 10 largest markets in California and at Seattle and found that eight of them had seen their appreciation rate cut in half over the previous 10 months and by 70 percent in five of them.  While prices in Washington State as a whole are still increasing by 5.7 percent, Seattle’s several year double digit run has evaporated. The annual rate is now 3.1 percent.


Millennials in Parents’ Basements

Can we expect young adults to be tomorrow’s home buyers?

A report from the Urban Institute:

The share of young adults ages 25 to 34 living with their parents increased from 11.9 percent in 2000 to 22.0 percent in 2017. This translates to more than 5.6 million additional young adults under their parents’ roofs between the two years. This trend matches the decline in young adults’ marital rate (from 55.3 percent to 40.0 percent) during this period.

Increases in rents and student debt plays an important role in young adults’ decisions to stay with their parents. Metropolitan statistical areas with higher unemployment rates experienced a greater increase in the share of young adults living under their parents’ roofs.

This early life choice could have long-term consequences. Young adults who stayed with their parents between ages 25 and 34 were less likely to form independent households and become homeowners 10 years later than those who made an earlier departure. Even if they did ultimately buy a home, young adults who stayed with their parents longer did not buy more expensive homes or have lower mortgage debts than did young adults who moved out earlier, suggesting that living with parents does not better position young adults for homeownership, a critical source of future wealth, and may have negative long-term consequences for independent household formation.

Link to 39-page report

Slowdown? Not So Fast

Just yesterday we see news that the housing inventory is already way higher than it was last year, and certain doom must be ahead.

But we can live with more houses laying around unsold, as long as at least some are selling to help give direction to all.

We can probably break it down to two categories:

  1. Is nothing selling, and doom is on the way?
  2. Or are just the creampuffs selling?

Here’s our first sales count of 2019.

NSDCC Detached-home Sales, January:

2014: 182

2015: 165

2016: 171

2017: 175

2018: 150

2019: 145

(as of 11am on 2/3)

Whoa now – I’ve been talking a 20% decline, and December sales were pointing that way. But by the time all of the sales get recorded onto the MLS, we should match last year’s January count, and probably do better!

It ain’t over ’til it’s over!

More Tidbits

More tidbits, mostly from Leonard’s daily Compass email:

Here are some interesting Los Angeles-area market stats:

  • There were 580 closed sales of $5 million+ in 2018, versus 602 in 2017.
  • There were 157 closed sales of $10 million+ in 2018, versus 185 in 2017, (down 15%).
  • 43 of these were $20 million+ in 2018, versus 52 in 2017, (down 17%).
  • 19 of the sales were $30 million+ in 2018, versus 23 in 2017, (down 17%).  Both years had 9 sales of $40 million+.
  • Of the 43 sales of $20 million+ this year, 34 of the buyers were American, (79%).  The other 9 buyers were from Monaco, China, Australia, Saudi Arabia, Switzerland, Japan,
  • The majority of the 43 sales were in Beverly Hills with 12, followed by Malibu with 9,  There were 5 in Bel Air, 5 in the Sunset Strip, 3 each in BHPO, Palisades, Brentwood and Holmby Hills.
  • 21 of the 43 sales of $20 million+ sales were not officially listed when sold.



Shiller on Today’s Market

When it comes to real estate quotes, this guy is gold:

“I describe the current boom in U.S. home prices as the third largest boom since 1890. And so it’s big, and people are starting to think that housing is expensive, and that could lead to a turnaround and a drop in home prices,” Shiller said in an interview with Yahoo Finance at the World Economic Forum in Davos, Switzerland. “But I’m not ready to forecast that yet.”

“The housing market, when it starts to slow, that’s a leading indicator that it could turn down,” Shiller said.

Shiller described the housing market as “remarkably trendy,” having gone up smoothly for about the past 50 years. Housing isn’t as easily tradable as equities or other financial assets, Shiller pointed out.

“You don’t have the smart money going in and out from day to day,” Shiller said. “[The housing market] shows momentum, and that momentum is slowing down a bit. There could be a reversal in home prices and a recession. But I’m not giving it a probability of greater than 50% for this year.”

The key factor leading to a contraction are changes in confidence, Shiller said. And on that front, President Donald Trump has delivered a bump to the housing market.

“I think Trump does have a psychological boost for the housing market because of who he is. He kind of exemplifies lavish living. He writes books about success. He’s our first motivational speaker president,” Shiller said. “His motivation will tell you that you have to live the life of a successful person.”

“That’s an important reason why people buy homes,” Shiller added. “They want to be part of the successful people in the country.”

Watch his 10-minute interview with more nuggets here:

Link to Full Article

“Picking Up”

We were due for a surge in market activity with rates coming down, and the Chargers and rain both being done.  Several agents are reporting increased activity over the last few days, and it seems like buyers are engaging.

We should see heightened activity for the next week, then a break for a few days around the Super Bowl as everyone grabs their guacamole, with the Spring Selling Season beginning in earnest on February 4th.

The weekend of February 9th and 10th should be huge!

It’s nice that we have somebody to talk to now, but what does it mean?  It means people are looking around – that’s it.  Those who find an incredibly-good fit might pounce, but most are going to wait-and-see how the season develops.

So far, we’re having about the same number of new NSDCC listings come to market as we did last year, so no panic among potential sellers.  Their main focus is only on how high they can push their price – it’s the buyers who are paying close attention to the real market activity, and what they see is determined by their mindset.

Here are some examples:

Was There Some Panic in 4Q?

We’re going to start a contest for Padres tickets in the new year, so let’s get a read on how things wrapped up in 2018.

We know that NSDCC sales were down 10%, and the median SP was up 8%.  Sales of detached homes in San Diego County were down 11%, and the median sales price was up 7%.

If sellers were feeling a sense of panic about the market – and prices – we would be seeing more new listings hit the market.

Have there been more listings than usual lately?

NSDCC Listings, 4th Quarter

4th Qtr Listings
Median List Price
Dec. Listings
Median List Price

The other comparisons we’ve done have shown that the 2018 stats have mostly been similar to previous years. But once we have the complete total for new listings, it looks like the 4Q18 number is likely to be at, or above, all of the recent years.  It’s already 12% above last year, and the MLP is actually lower.

There were fewer December listings, but that means the October/November count was higher than ever.  With soggy conditions in place already, did potential sellers this month decide to wait for a 2019 launch?

Will we see a surge of new listings in early 2019?

Residential Instead of Golf?

They should ditch the Park Hyatt Motor Lodge, bring back the Four Seasons, and have lunch today with Toll Brothers (who built 672 homes at the 200-acre Robertson Ranch).  If they can build 500 homes on the roughly 200 acres of golf course, the dirt would be worth close to what the new owners paid for the whole package.  They will have picked up a 327-room luxury resort with average room rate of $250-$300 per night….for practically nothing.  

Hat tip just some guy. An excerpt from the U-T story:

The upscale Park Hyatt Aviara resort, which was taken over by its lender more than a year ago following missed payments, is now under new ownership.

Xenia Hotels & Resorts, a Florida-based real estate investment trust that owns 41 hotels across 17 states, including the Andaz in downtown San Diego, announced last week that it paid $170 million for the 327-room resort and golf course.

The selling price is considerably below the $251 million paid by former owner Broadreach Capital Partners in 2007 to acquire a controlling interest.

Xenia CEO Marcel Verbaas acknowledged the price’s appeal in a news release.

“Our ability to purchase the resort at a price substantially below replacement cost and well below those of comparable resorts in the region provides a significant value creation opportunity for the company,” Verbaas said.

Xenia executives declined to discuss the sale or their plans for upgrading the 222-acre resort but hinted in the news release that there will be upcoming improvements.

“We see substantial opportunities to enhance financial performance at the resort through our asset management initiatives as well as a comprehensive capital plan to elevate the resort above its prior competitive positioning,” Verbaas said. “We look forward to working with Hyatt to improve the asset physically and operationally which we believe will improve the resort’s regional and national appeal and result in strong growth in revenues and profitability.”

Although it’s been almost 1 ½ years since the Park Hyatt was taken over by its lender, CW Capital Asset Management, a sale probably took longer because the property includes a golf course, speculates broker Alan Reay.

Increasingly, more and more golf courses are closing, and in California they can be expensive to operate given the dry conditions and the cost of water, said Reay, CEO of Atlas Hospitality.

“Most properties in San Diego are back at the peak levels of 2007 or above so it’s interesting that this property did not get back to that level, and one of the main reasons for that is the golf course,” he said. “Whenever we’re working on a hotel with a golf course associated with it, most buyers are not interested. It’s not what it used to be.”

“I think they’ll definitely get room rates up if they make improvements, but the big question is what do you do with the golf course,” Reay said. “In many instances, we’re seeing golf courses sold off and then people do residential or a different development on that.”


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