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

Slowdown?

This collection of opinions has more reach – and more influence – than those of any part-time blogger.  Thankfully, these experts are split on whether the alleged slowdown is temporary, so readers will just be on their merry way in hopes that it will all work out.

It’s what happens when the ivory-tower group chimes in – they attempt to apply the vague old theories to what is happening today, but we don’t know if their principles are still valid.

Gina is the only one who mentioned a specific data point, so let’s put the actual number on it:

First-half sales of detached-homes in San Diego County between $1,000,000 and $2,000,000 were nearly identical year-over-year (1,551 in 2018, and 1,546 in 2019), while sales over $2,000,000 dropped 10% YoY.

Gary probably has the best take on it above, and his day-to-day focus is advising builders.

My thought:

We have a low supply of quality homes mixed with a very affluent demand which is causing every aspect of selling homes via the MLS to be under attack.  Rather than championing (and improving) the traditional system of selling homes, the industry is going to allow off-market sales, ibuyers, commission lawsuits, and Wall Street to sway the outcome.

It will take away some of the free-market influence, which could keep us at an artificially-inflated plateau.

But then again, I’ll stick with what Yogi Berra said,

“It’s tough to make predictions, especially about the future.”

Link to UT Article

NSDCC Sales, First Half

NSDCC Detached-Home Sales Jan 1 to June 30:

Year
Number of Closed Sales
Median Sales Price
Median Days on Market
2013
1,670
$919,950
21
2014
1,430
$1,020,000
24
2015
1,560
$1,120,000
23
2016
1,526
$1,150,000
24
2017
1,595
$1,225,000
19
2018
1,420
$1,325,000
17
2019
1,371
$1,301,000
22

We saw yesterday that the number of new listings has remained steady, but it seems that buyers keep getting pickier.  First-half sales are down 4% year-over-year, and pricing is a little soft too.

But last year’s sales were down too, and if we consider the 2016 count to be the median in the group above, then this year’s first-half sales are 10% under that.

Yunnie is optimistic though:

Yun said consumer confidence about home buying has risen, and he expects more activity in the coming months. “The Federal Reserve may cut interest rates one more time this year, but there is no guarantee mortgage rates will fall from these already historically low points,” he said. “Job creation and a rise in inventory will nonetheless drive more buyers to enter the market.”

We’ll see!

Boomers Helping Kids

We were talking with some friends last night about how much financial support is going towards kids, and how it will affect real estate in the future.

On one hand, it’s the Bank of Mom and Dad, and helping to keep the market afloat when funding home purchases at these lofty prices for those kids with regular jobs.

However, for those kids who never get to the point of financial stabilization, the selling of the parents home will become the lottery ticket to solve their money issues.

I suggested that this is where the ibuyers could do the most harm by taking advantage of people who want and need a quick sale and who aren’t that familiar with the values.

When we were in Las Vegas for that one-day vacation, I saw more than one ibuyer ad on TV, and they were very enticing.  The kids who have been strapped for years and then inherit their parents’ house might jump at the chance to get their hands on quick money – and likely leave some on the table.

Will anyone step up to protect the unsuspecting?  A new challenge/opportunity for realtors!

Link to Article

Homebody Era

Is he saying to get off the couch and move?

“Since last year, several forces have helped increase the market potential for existing-home sales,” said Fleming. “House-buying power, driven by falling mortgage rates and rising household income, contributed to a gain of 183,000 potential home sales compared with one year ago. Compared with May 2018, rising house prices also contributed positively, increasing the market potential for home sales by 41,000.

“Additionally, loosening credit standards boosted the marketing potential for home sales by more than 60,000 sales over the last year. Some modest growth in new-home construction also added 1,000 potential home sales,” said Fleming. “Finally, the growth in household formation, as millennials continue to form households, contributed nearly 81,000 potential home sales compared with a year ago. Despite all the positives, the market potential for home sales remains nearly 80,000 units below the level of a year ago.”

Unprecedented Homebody Era is Here

“Collectively, the aforementioned market forces contributed to a positive gain of 366,000 potential home sales, but it was not enough to offset the loss of 446,000 potential sales due to the impact of rising tenure. The average tenure length, the amount of time a typical homeowner lives in their home, has increased dramatically in the last year,” said Fleming. “Since existing homeowners supply the majority of the homes for sale and increasing tenure length indicates homeowners are not selling, the housing market faces an ongoing supply shortage – you can’t buy what’s not for sale.

“Before the housing market crash in 2007, the average length of time someone lived in their home was approximately five years. Average tenure length jumped to seven years during the aftermath of the housing market crisis between 2008 and 2016,” said Fleming. “The most recent data shows that the average length of time someone lives in their home reached 11.3 years in May 2019, a 10 percent increase compared with a year ago.

“Two trends are driving the increase in tenure length. The majority of existing homeowners have mortgages with historically low rates, so there is limited incentive to sell if it will cost them more each month to borrow the same amount of money from the bank,” said Fleming. “While mortgage rates have come down compared with last year, they are still below the 3.5 percent mortgage rates of 2016.

“The second trend influencing tenure is seniors aging in place. A recent study from Freddie Mac shows that if seniors and adults born between 1931-1959 behaved like earlier generations, nearly 1.6 million housing units would have come to market by 2018,” said Fleming. “Improvements in health care and technology have made aging in place easier, which has meant fewer homes on the market.

“So far in 2019, the market potential for existing-home sales has benefited from lower mortgage rates and rising household income, all contributing to stronger house-buying power,” said Fleming. “Surging consumer house-buying power coupled with rising household formation has resulted in strong demand for homes.

“Yet, today, we are in an unprecedented homebody era as many existing homeowners continue to feel rate-locked into their homes and seniors continue to age in place. Looking ahead, more than half of all existing-homes are owned by baby boomers and the silent generation and they will eventually age out of homeownership,” said Fleming. “But right now, housing supply remains tight – you can’t buy what’s not sale — and market potential is lower because of it.”

Link to Article

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

Graduation Season

The market usually feels some impact this time of year from the graduation season, and it’s understandable. People who have kids, or anybody who is related to people with kids in eighth grade, twelfth grade or seniors in college will be distracted for a few days.  And if you count those graduating from pre-school too, then about 24% of the population (4/17) will have a graduation ceremony get in the way of homes selling.

Realtors are in that group too, so there are fewer agents on the ground working those sales.

But it should also mean the next few weeks will be fruitful with rates back in the 3s, and if the Fed lowers next week (unlikely but possible), we could have one heck of a summer!

Who Is Looking To Buy?

Buyers are engaged – it looks like about 6% of adults are looking for a home, which is the same as last year. Glad to see the seniors on the move too:

Many people start thinking about a home purchase well in advance of actually engaging in the process of finding a home. In a national poll in the first quarter of 2019, 13% of adults reported planning a home purchase within the next year.  Of those prospective buyers, 46% are already actively involved in trying to find a home to buy.  The latter finding is not different from a year earlier, when 17% of poll participants were planning a home purchase and 46% of them were actively engaged in the search process.

Senior (56%) and Millennial (50%) buyers are the most likely to have moved beyond just planning to actually start the search process, compared to 41% of Boomers. Geographically, 53% of prospective buyers in the Northeast are actively engaged, compared to 42% in the Midwest.

Link to Article

Peak Selling Season

Here’s a visual comparison of last year’s counts of NSDCC weekly active and pending listings, and how we are doing this year.

Mortgage rates had bumped up from 4.47% in April to 4.83% in October, but the inventory kept growing too, which didn’t help.  The pendings are a better gauge than sales for showing when the buying decisions were being made, and you can see that last year, buyers started losing interest after mid-June.

The bulging inventory in the second half of 2018 also left us with an inventory hangover.  We started the year with 35% more homes on the market than the previous year, which led to a slower start in 2019.

But the weekly pendings have strengthened lately, and have been tracking about the same counts as we had in 2018 – probably due to lower rates.  Last month, the Freddie Mac average 30-year rate was 4.14%.

If rates stay the same as they are today, we really should see the season extend past June – because it got whacked last year.  But high pricing and more inventory could spoil the momentum too.

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