Under A Million

Here’s a snapshot of how fast the local market has changed. It went from a relatively-modest suburban area where 3/4s of the houses sold for less than a million dollars in 2003……to a very affluent market!

NSDCC Detached-Homes Annual Sales

True, the inflation rate since 2003 was 70% and a dollar doesn’t buy what it used to back then. But the median sales price went up from $730,000 in 2003 to $2,344,000 this month – an increase of 320%!

NSDCC Listings, YTD

NSDCC Listings, Jan 1 – May 15

Can we use statistics to describe the market conditions today?

This chart above helps a little. Even though the number of listings is drastically lower than it used to be, apparently the market has been adjusting – mostly by price!

I mentioned that it seemed like everything is priced $200,000 more than it was last year, and the median list price reflects a similar number. Buyers aren’t taking the full plunge though, and the 85% SP:LP is a sign of normalizing (buyers having more negotiating power).

The frenzy that caused virtually everything to sell is long gone, and we’ll probably be back to having 30% to 40% of the listings not selling. This chart doesn’t show the number of refreshed listings where agents cancel and then re-input right away to “refresh” it – but be on the lookout. We will be seeing more of those this year.

Statistically, the market conditions look fairly healthy. Though different than the recent past!

All-Cash Market

How does our market keep trucking along with sky-high prices AND mortgage rates 2x higher than they were three years ago? How does pricing levitate when money is so much more expensive – shouldn’t prices adjust downward?

We know that the generational wealth transfer of $70 to $80 trillion dollars is underway, and this is where some of it is showing up – purchases of quality real estate.

There have been 115 closings between La Jolla and Carlsbad this month, and 47% of them were all-cash. It’s the highest percentage we’ve seen so far, and it’s likely to continue.

Those who aren’t paying all-cash have big down payments to help cushion the higher rates. Payment too high? Put more down!

For the downsizers, it’s the best way to justify giving up the 3% mortgage too – sell the long-time family estate and buy the next one all-cash.

Last month’s 200 sales will probably be the highest monthly count we’ll see in 2024, so the market will have to endure less volume, and more listings sitting around unsold.

It means that the percentage of all-cash buys will probably be increasing. I think it could get up to 66% by the end of the year!

NSDCC Monthly Sales History

How will the rest of 2024 play out?

Like last year, sales will probably fade away unless more sellers are so motivated that they adjust their price in time. The number of NSDCC active listings has stayed under 400 all year – until this week.

Today there are 421 active listings between La Jolla and Carlsbad. Last year the number of actives was only above 400 during a three-week stretch in July.

There have been 90 sales closed in May so far.

All Cash

The locked-in effect has been bandied about for the last couple of years as the reason why the inventory remains thin. But it’s not stopping those who want to pay cash and avoid a mortgage altogether – every area is showing increases in the all-cash purchases.

If you don’t want to leave your local neighborhood, then yes, you’re locked in – the higher prices and rates make it prohibitive to move. But for the homeowners who don’t mind leaving town, they can take their winnings and pay cash for their next house!

Don’t let higher rates stop you. Thirty-eight percent of the homes in America are paid in full – join the club!

Off-Market

This is the #1 reason I went to Compass, and I didn’t really feel like I had a choice.

When realtors get disrupted, this is the way the big brokerages can survive while the little guys die.

Hoard the listings in-house as ‘private exclusives’, like they do in the commercial real estate. The practice is legal (per the Clear Cooperation Policy) and is a choice for home sellers to make.

The big benefit for sellers is that they don’t get penalized by the days-on-market statistic, which buyers normally consider as the best way to know if the price is wrong after the first week on the market.

Compass has this option available for sellers, as do all the other brokerages, but nobody in management is pushing it around here. It’s used more like a Coming-Soon feature while homes are being prepared for open-market exposure. But there are deals being made.

If there was an organized, committed effort to use it as a survival tool, then I could see 30% of our sales happening off-market. But we’re not there yet.

Maybe next year?

Overly Optimistic

Pardon the casual presentation. I’m used to working with this same basic graph format but it’s limited to 50 datapoints – we’d really like to take these back a few years to see the long-term trends.

But in early 2023, the active listings in the $3M – $4M category were range bound between 1,170/sf and 1,342/sf, so there is some normal optimism in springtime. But not like this pop in 2024 (above). These two subsets are the meat of the market, and aren’t swayed by radical outliers that would tweak the averages.

Starting right after the Super Bowl, there was a huge swing from $1,252/sf to $1,515/sf in the $3M – $4M category, and it has stayed elevated until the last couple of weeks. The reason for pricing to relax a little?

The number of unsold listings are starting to stack up now:

There isn’t any reason for home buyers to think mortgage rates are going to drop significantly this year.  If there were one or two Fed cuts, it would only cause mortgage rates to get back into the 6s which isn’t enough to compensate for the sky-high prices that buyers are seeing today.

Then we have the changes from the commission lawsuit, which will have a clunky start over the next few months as buyers grapple with hiring a buyer-agent in writing just to tour a house. All we need is the Padres to go on a run this summer and we will have all the excuses we need for a very sluggish rest of the year.

San Diego is #180

From the U-T:

San Diego County has very little chance of a big housing downturn but also isn’t exactly the most secure market in the nation, according to a new report.

Out of 580 counties, San Diego County was the No. 180 most likely to experience a downturn, said a study from Irvine-based real estate researchers Attom. It used a variety of factors to determine the rankings, including foreclosures, percentage of homes underwater, income-to-cost ratio and local unemployment numbers.

The counties with the biggest chance of a downturn were in inland California and areas around Chicago and New York City. San Joaquin County, home to cities Stockton and Lodi, was considered the most likely spot in the nation for a downturn, Attom said. In that area of California at the end of 2023, it took 65 percent of income to pay for a home, unemployment was among the highest in the state at 6.4 percent, 7.5 percent of buyers were in homes that cost more than they were now worth and other factors.

Broken down by the 20 most-populated counties, San Diego County ranked 12th most likely for a downturn. Kings County, home to Brooklyn, was most likely and Miami-Dade County the least likely.

Here’s how San Diego County compared to the rest of the nation:

(more…)

NSDCC SP:LP Ratio

Another good way to anticipate the market trends is to check the direction of the SP:LP ratio:

NSDCC Monthly Sales and SP:LP Ratio

Month
# of Sales
Median LP
Median SP
SP:LP
Jan 2022
149
$2,099,999
$2,200,000
105%
Feb
169
$2,099,999
$2,300,000
110%
Mar
219
$2,384,000
$2,500,000
105%
Apr
239
$2,299,000
$2,450,000
107%
May
230
$2,300,000
$2,432,500
106%
Jun
203
$2,200,000
$2,330,000
105%
Jul
165
$2,199,000
$2,249,000
102%
Aug
177
$2,100,000
$2,100,000
100%
Sep
146
$2,037,499
$1,940,000
96%
Oct
124
$2,225,000
$2,125,000
96%
Nov
123
$1,925,000
$1,860,000
97%
Dec
110
$2,091,500
$1,892,500
90%
Jan 2023
105
$1,995,000
$2,000,000
100%
Feb
112
$2,150,000
$2,040,000
95%
Mar
191
$2,199,888
$2,200,000
100%
Apr
165
$2,199,000
$2,180,000
99%
May
178
$2,300,000
$2,362,500
103%
Jun
160
$2,199,500
$2,257,500
103%
Jul
170
$1,998,750
$1,961,250
99%
Aug
198
$2,224,500
$2,217,500
100%
Sep
154
$2,272,500
$2,201,250
97%
Oct
140
$2,250,000
$2,182,500
97%
Nov
117
$2,325,000
$2,200,000
95%
Dec
87
$2,100,000
$2,050,000
98%
Jan 2024
108
$2,200,000
$2,267,500
103%
Feb
97
$2,395,000
$2,500,000
104%

Pricing looks strong – similar to the March-May, 2022 era, which was the hottest frenzy ever!

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