More on the Silver Tsunami

Homes that are walking distance to excellent schools and/or a retail center (with a Starbucks) will probably do fine – even if they need a little work.  Homes out in the boondocks will have more of a struggle.

From the UT:

In a recent column by the Union-Tribune’s Michael Smolens, he discussed the idea of a “silver tsunami” of baby boomers leaving their homes in the coming years. He said this could raise questions about proposals to increase housing production, even imagining an over supply of housing.

Q: Does the “Silver Tsunami” of baby boomer homes mean concerns of a California housing shortage have been overblown?

Bob Rauch, R.A. Rauch & Associates

NO: The concerns are not overblown! The average baby boomer is just over 60 years old and not moving out so quickly. San Diego is not likely to be impacted anytime soon as it was recently ranked No. 8 in the nation for start-ups by Inc. magazine. There is a real need for affordable, detached housing for working adults who are millennials or Generation Z.

Norm Miller, University of San Diego

NO: The exodus of baby boomers from housing in the middle, Florida and northern states will help soften those markets for the next generation, but these markets are already affordable. East coast markets won’t appreciate as fast, but California markets will be immune to such benefits, as Prop 13 keeps many of our residents cemented in place. California tax rates and SALT (state and local tax) limits will have more impact on possible softening of our appreciation rates as negative migration continues.

Jamie Moraga, IntelliSolutions

NO: It may provide some relief to areas of the country where retirees are most concentrated (think Florida or Arizona) or cities where there is a predominant number of older citizens (for example, Pittsburgh or Cleveland). The Silver Tsunami will not be immediate but will be more gradual over a long period of time. While coastal cities in California continue to appeal to potential homeowners of all ages, housing costs should remain a high barrier to entry for the foreseeable future.

Lynn Reaser, Point Loma Nazarene University

NO: While the release of homes by baby boomers may help ease the affordability problem, the process will be gradual. Although some baby boomers may leave the state, most will probably stay. There could be a problem in terms of the mix of housing as some baby boomers downsize and compete for the same smaller housing millennials are seeking. In the short-term, however, builders, not boomers, will be the answer to the state’s housing crisis.

Chris Van Gorder, Scripps Health

NO: The housing shortage in California is real. While there certainly will be many homes up for sale by baby boomers over the next decade, that does not mean the prices will drop nor the supply increase. Most baby boomers will merely be replacing one home for another. So, unless there is a significant decline in the state’s population, the housing shortage will continue. And the shortage will continue to be exacerbated by over-regulation and high taxes — neither of which appears to be going away anytime soon.

Kelly Cunningham, San Diego Institute for Economic Research

NO: There is always significant turnover in housing as residents continuously change homes. The gamut of reasons to change include relocating to better housing, downsizing, moving away or dying. Even as California’s growth dwindles, the population continues to increase. An even larger “tsunami” of the millennial population’s pent-up demand, as well as foreign immigration, will continue to emerge. California’s housing supply still far lags housing demand of an expanding population, although desired optimal home types may vary.

Gary London, London Moeder Advisors

NO: Boomers are not likely to make way for millennials. Many cannot move because the housing shortage presents few alternative choices in San Diego to either downsize or change lifestyles. Many will opt to age in place. The housing shortage is real and affects everyone. In fact, rising home values, which are fueled by the housing shortage, contribute to this inertia, because moving often triggers financial disincentives including capital gains taxes and higher property taxes.

Austin Neudecker, Rev

NO: Retirees selling their homes may help alleviate the housing shortage but far from resolves the problem. We should continue to take action to address the climbing prices rather than rely on unproven predictions. The reported effect will be felt harshest in regions with negative migration. San Diego continues to be a desirable and growing region that must proactively confront housing affordability, homelessness, and cost-of-living increases.

James Hamilton, UC San Diego

NO: Demographics and the number of people wanting homes are ultimately the main driver of house prices. But the aging population is a trend that is going to evolve very slowly. The reality right now is that housing is quite expensive in California generally and in San Diego in particular. I think it is likely to stay that way for some time.

David Ely, San Diego State University

NO: Boomers selling their homes over the next two decades will do little to address the near-term shortage. Given the financial incentives in California for boomers to age in place rather than downsize, it may be years before enough homes are put up for sale to make a dent in the housing shortage. Moreover, the population will continue to grow and young buyers may not even want the types of homes that boomers now own.

Phil Blair, Manpower

NO: My son Trevor and his wife Megan are perfect examples of millennials who are now house hunting in areas of San Diego, while currently loving living in Little Italy. They want a walkable community with good schools for their children. While boomers have historically enjoyed suburban living, they are missing the urban vibes that many young buyers are looking for.

Alan Gin, University of San Diego

NO: The “silver tsunami” will increase the supply of homes in states and regions with large retiree populations. California, in general, and coastal California, in particular, do not fit into that category. More supply will probably be generated by people moving out of the state to retire in less expensive areas. But people who are retiring likely have bigger and more expensive homes that don’t fit the needs of first time home buyers, so that won’t help much either.

Link to Article

‘January is the new April’

The severe shortage of homes for sale is upending the sales calendar for the whole housing market. Spring has historically been the busiest buying season, but as competition for homes heats up across the country, January is the new April. Spring starts now.

The numbers are telling. From 2015 through 2018, the peak month for average views per listing on Realtor.com was April. January lagged by a full 16%. In 2019, however, January was the busiest month on the site in 20 of the largest 100 metropolitan markets.

Those markets included New York City, Los Angeles, Chicago, Dallas, Houston, Seattle, San Francisco, Atlanta, Denver and San Jose, California. In 2018, January was the busiest month in just three of the largest 100 markets. This year, the expectation is that January will be the strongest month in even more markets.

“As shoppers modify their strategies for navigating a housing market that has become more competitive due to rising prices and low inventory, the search for a home is beginning earlier and earlier,” said George Ratiu, senior economist at realtor.com. “With housing inventory across the U.S. expected to reach record lows in 2020, we expect to see this trend continue into the new year.”

https://www.cnbc.com/2020/01/02/competition-for-housing-is-so-high-the-spring-market-is-starting-now.html

Bubbleinfo Decade Wrap-Up

I just had the best decade of my life!

It didn’t start out that way, though.  We trudged into 2010 trying to survive a dreary, depressed real estate market.  But thanks to Ben Bernanke, who engineered the greatest soft landing in history, the rules were changed and the market responded – quickly turning into a wicked sellers’ market.

Reader LM commented on what Ben Bernanke said towards the end of a live press conference:

“We have told the banks to handle their REOs…..long pause....in an economy-supportive way”.

Oops.  What he was GOING to say – ‘we have told the banks not to flood the market with REOs’.

(Link to Ben’s quote: https://youtu.be/SC2wYdZjh1E?t=2982)

Bernanke’s remarks are from June, 2011, and you can see that foreclosures were already declining:

The housing market started to recover, and in 2012, the north-county coastal sales took off:

Here at the blog, we were left to figure out a real estate market without foreclosures. I appreciate those of you who have endured the investigation here!  The conclusion?

The FED learned that it’s better to change the rules, rather than endure the natural market forces.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

How we sell real estate has changed too.  The physical hand-writing (and explaining) of contracts has morphed into a slick bunch of clicks on an electronic form that the buyers will never read while committing themselves to being hundreds of thousands (if not millions) of dollars in debt. The realtor teams have emerged to usher clients to the finish line, which means most buyers are rushed through a home inspection, then beg for a few bucks from the seller instead of repairs, and pick up their keys usually within 30 days – all so you can leave 5-star reviews!

It looks so easy that just about anyone can make it in real estate sales now – and it’s become the career of last resort for many.  The best example is the blogger Casey Serin, who became famous for losing five properties to foreclosure that he had he bought on ninja loans.  He got divorced, changed his name, went offline, and then resurfaced as a realtor. He now has his own brokerage in the Sacramento area, and he made about $60,000 this year – which is a decent living for a guy like him:

Heck, if he can do it, anyone can!

Biggest surprises of the decade?  The no-doc mortgages haven’t returned (yet), Google & Amazon haven’t entered the fray (yet), and the district attorney hasn’t prosecuted more than a handful of realtors for doing shady deals (I could name hundreds).  I did have two encounters with the FBI where I laid out the evidence, but they weren’t interested, so I guess it’s ok.

Our move to Compass in 2018 was a result of it becoming obvious that outsiders would disrupt our industry without a fight, and being on the right team was going to be critical to success.  In-house sales are the future of the residential resale market, and who you know will make all the difference (just like in commercial real estate sales).

Over the last ten years, I’ve had 7,711 blog posts, Donna and I helped 300+ families buy and/or sell a property, we got two kids though college, and we appeared in a documentary film – wow, what a decade!

I appreciate you being here – let’s make the next one, the best one!



2020 Predictions

Last year, I guessed that our NSDCC sales would drop 20% due to high mortgage rates, and pricing would stay about the same.  Rates dropped instead, and both sales and pricing stayed about the same as the previous year.

In 2020, I think we will see sales drop 10%, just because we’re overdue, and guessing that the NSDCC median sales price might go up 2% to 3%.

We’ve entered the World Of Concierge, where all participants – flippers, ibuyers, and realtors/brokerages – are rehabbing, improving, decorating, and staging most homes for sale.  The movement has been building for years, and in 2020 we should see full implementation.

It takes some of the sting out of paying full retail, and buyers really don’t mind paying all the money if they get a turn-key home.  Because sellers and agents will be going further to satisfy the retail buyer, we should see more of the softer landing that we saw this year that was caused by dropping rates.

Here’s what Rob Dawg said last year:

Here goes.

Median +4%. Late year inflation and demand for even negative cash flow rental properties. Volume down only 12%. Lots of deck chair shuffling will look like volume. Reported volume -10% from 2018.

$2m+ volume will increase. Lots of quality properties aging out and none of the kids or grandkids can afford to take possession out of the communal estate. Add to this the “too many houses” crowd both casual investors and the very rich who have made their money and ready to throw off the carrying costs.

Almost nothing sub $550k will show up on the sales sheets.

Interest rates will range between 4.4% (early, briefly) and eventually 5.6% (in Q4). Inflation and banking regulations conspire.

There may be a technical recession that will be over before it is confirmed. People will argue whether there was a recession.

Here is a metric we haven’t followed. Total dollar volume of sales will be flat to slightly down.

But what do I know?

We both thoughts rates would be a problem in 2019, but what do we know?  It’s hard to believe rates could drop lower in 2020, but if they did get into the low-3s it would ignite the market.  Those who have been wanting to move up or down but had a mortgage rate in the mid-3s or higher could now justify moving and getting a lower rate.  If California residents pass the referendum to enable seniors to take their old tax basis with them when they buy up in price, it could also ignite sales (if you believe the California Association of Realtors).

What’s Your Guess?  The closest guesser will get four tickets to a Padres game!

Mr. and Mrs. Dawg did join us for a Padres game this year (vs. the Red Sox).

More 2020 Forecast

Above you can see how our market compares to others, and below is the history of our ‘months of supply’.  I said in the video yesterday that I thought the NSDCC sales in 2020 will be down 10% year-over-year mostly because there aren’t enough reasonably-priced homes to sell (or conversely, there aren’t enough buyers who can/will overpay for the multi-million-dollar homes).

I think you can see some of the price resistance lately as the orange line got into the 3s the last two years. We’ve seen how the velocity of the price increases has slowed considerably and when that happens, the natural next step for the market is fewer sales.

The orange line hit 3.0 in April of this year, when the previous April it was only 2.4, which means the inventory grew quicker at the start of the selling season. Expect the same in 2020, and when buyers see a rapidly growing inventory, it’s natural for them to be cautious and picky.

More Wrap-Up & Forecast

These guys don’t release their local forecasts:

Home prices increased on an annual basis by 3.5 percent in October according to CoreLogic’s Home Price Index (HPI).  The index rose 0.2 percent from the previous month.

The rate of increase in home prices appears to have stabilized for the moment.  After trending higher for several years, the HPI hit a recent peak of 6.62 percent in April 2018, then decelerated to 3.53 percent by the following March.  Since then it has moved back and forth over a narrow range, 3.3 to 3.6 percent.

Frank Nothaft, CoreLogic’s chief economist, said “Local home-price growth can deviate widely from the change in our U.S. index. While we saw prices up 3.5 percent nationally last year, home prices also declined in 22 metropolitan areas. Price softness occurred in some high-cost urban areas and in metros with weak employment growth during the past year.”

The CoreLogic HPI Forecast indicates that home prices will increase by 5.4 percent on a year-over-year basis from October  2019 to October 2020. They are expected to increase by 0.2 percent from October to November of this year.  The CoreLogic HPI Forecast is a projection of home prices using the CoreLogic HPI and other economic variables.

CoreLogic’s current Market Conditions Indicators (MCI) show 35 of the country’s 100 largest metropolitan areas based on housing stock were overvalued as of October.  The MCI analysis categorizes home prices in individual markets as undervalued, at value or overvalued by comparing home prices to their long-run, sustainable levels, which are supported by local market fundamentals such as disposable income.  Those markets where home values are 10 percent higher than those long-term levels are considered overvalued and those 10 percent below are considered undervalued.  The MCI placed 27 areas in the undervalued category and 38 at value as of October.

During the second quarter of 2019, CoreLogic, together with RTi Research of Norwalk, Connecticut, surveyed Millennials about their housing sentiments. Three out of four told researchers they are confident they would qualify for a loan with their current financial situation. Still, despite this confidence, more than half of the cohort cites buying a home as a stressful experience, noting spending the majority of their savings as one of the leading stressors.

http://www.mortgagenewsdaily.com/12032019_corelogic_hpi.asp

Have & Havenots

Nearly 80% of those homeowners with a mortgage are spending less than 35% of their income on housing costs?  That sounds like a solid, secure market. Renters should talk to their parents or grandparents about early distribution of their estate:

American homeowners aren’t feeling the pinch from housing costs like they used to — but that’s not necessarily reason to celebrate.

Only 20.9% of homeowners with a mortgage were cost-burdened as of 2018, meaning that they spent at least 35% of their monthly household income on housing costs, according to new data from the U.S. Census Bureau’s American Community Survey. That’s down from 28.8% a decade earlier, just as the financial crisis was reaching its fever point.

And the number of cities where a significant share of homeowners are cost-burdened has dwindled. In 2008, at least 40% of homeowners with a mortgage were burdened across 43 metro areas nationwide. Today, there are no cities where that’s the case.

While homeowners may be less burdened by housing costs, fewer people actually own their homes. Ten years ago, the home-ownership rate was 67.9%, but now it’s 64.8%.

Many of those people who are no longer homeowners have been pushed into the rental market. The country’s rental population has also grown to its largest size ever for as rising home prices and student-loan debt have forced young adults to delay homeownership.

And housing costs remain a major burden for renters, unlike homeowners. The Census Bureau estimated that 40.6% of renters spent 35% or more of their monthly household income on rent and utility bills in 2018. That’s roughly the same share of people as in 2008 (40.8%), but represents more people due to the growth of the country’s rental population.

Households that are forced to pay so much on rent have a harder time saving money to put towards the down payment for a home purchase, making it more difficult to make the transition from renter to homeowner.

Link to Article

Fewer Price Reductions

Another indicator that the local market is holding up and sellers aren’t desperate – an excerpt:

Nahjla Wehbe Dipp, a Pacific Sotheby’s International Realty agent, said buyers seem more receptive to not overpricing their homes than a year ago. She said another reason sellers might not want to reduce their asking price could be declining numbers of homes for sale.

Home inventory increased as sales started to slow last year around August, but any extra houses on the market seem to have already sold. There were 6,491 homes for sale in September, said the Greater San Diego Association of Realtors, down from 7,824 at the same time last year.

“There’s just less for buyers to pick from,” Dipp said.

The number of price reductions in a given month can correlate with a hot market. For instance, in San Diego County just 12.1 percent of listed homes had a reduction in 2016, and an average of 11.6 percent in 2017.

Even when a market is red hot, there are reductions. A selling tactic, not usually recommended by most real estate agents, is to price a home higher and then come down so the buyer feels like they are getting a deal.

San Diego still had the most reductions of any of California’s large home markets. Riverside metro area had 16.5 percent of homes with a price reduction in September, followed by 16 percent in Los Angeles and 15.3 percent in San Francisco.

The median home price in San Diego County in September was $570,000, said CoreLogic data provided by DQNews, down from $575,000 at the same time last year.

Link to UT article

Liquidation Event Or Soft Landing?

Ty said yesterday,

The thing I think you miss most or maybe overlook is how overleveraged the average person is. I do commercial real estate and routinely have access to small business owners financials. Equity rich in their homes but cash poor with credit card debt and car loans up the wazoo. Any bump in the road will send them into disarray. Selling the house may be the only way they can survive. I think rocky times ahead.

We can speculate about what might be or what could happen, but in the end we’re all just guessing.  Blog reader ‘Another Investor’ believes the opposite – that boomers are flush and not moving until they go feet first…..so we have balance here at bubbleinfo.com!

Let’s use statistics to help guide us.

If there were trouble brewing, then more people would be trying to sell.

Not everyone would sell, because their motivation might not be strong enough to take what the market would bear.  So let’s just consider the number of listings – and also consider that there are probably more re-lists now than ever:

NSDCC Total Number of Listings Between Jan-Oct:

Year
# of Listings
2014
4,278
2015
4,583
2016
4,698
2017
4,248
2018
4,389
2019
4,327

Boomers or others aren’t trying to sell any more than they used to – so no obvious surge yet.

But the number of cash-out refinances was somewhat alarming yesterday.  But everyone has to qualify for those mortgages, so even if more people are tapping their equity, they must be able to afford it.

But like Eddie89 said, the rules have changed, so all previous assumptions don’t apply.

I think any distressed homeowners will wait until the very end before deciding to sell because they really don’t want to move.  It will drag out the inevitable, but it might just cause a softer landing because each homeowners ability to last longer will vary.

Let’s keep an eye on the number of new listings – that’s where you’ll see it first!

Pin It on Pinterest