Our assistant Brittnie is a licensed realtor, and for months she has been working with a couple in search of the right entry-level home. Buyers at the low-end of every market have had no negotiating power for the last ten years, but some of the softness in our soft landing can be attributed to pilot error – the listing agents are still (too) cocky.
They made an offer that was 8% below the list price on a home that had been on the market for 3 months with no price adjustment. It was easy to figure out why it wasn’t selling – it hadn’t been remodeled (the type of homes that might have gotten lucky before, but now are struggling to sell).
The sellers counter back at 2% under list, and the agent tells Brittnie on the phone, “Don’t even think about countering the price”.
But that’s not all.
He also included the usual terms left over from the high-flying days:
1. Sold as-is, no repairs.
2. No termite.
3. No home warranty.
The buyers walked.
Previously, all buyers who were frustrated enough by bidding-war losses and rapidly-rising prices would succumb to the demands of the listing agent just to get it over with.
And it’s not just the terms, it is the attitude of the listing agents that is a turn-off too. Buyers aren’t going to put up with it when they see houses languishing on the market these days.
Another favorite is for listing agents to crank down the contingency period from 17 to 10 days. I had one do that to me yesterday on a house that we already confirmed had no permits on record at the city (it’s an older house).
I asked him if he was going to cancel the deal if we didn’t release contingencies after 10 days. His answer? “Hmm, well, I don’t know.”
Is it worth it to put the screws to the buyer in the middle of November on a house with no permits just so you have the option to go back on the market around Thanksgiving?
If the market sluggishness continues, some of it will be self-inflicted.
Our proprietary model using Google search trends shows a bottoming & re-acceleration in resale and new home sales growth YOY into year end. Lower mortgage rates, better affordability, and an easy comp vs. last year’s dreary 4Q help these YOY stats.
You would think that the sales slump at the end of 2018 would make this year’s comparison look rosy, but it looks like we’ll be lucky just to match the 2018 sales around Coastal North SD County. We need 62 more sales reported for October, 2019 just to match last year – which had been 5% lower than the year before:
I was talking to Nick yesterday about the current market conditions, and how home sale have been affected by the low mortgage rates recently.
You can see in the graph above that over the last five years we’ve been accustomed to rates in the threes, so it seemed obvious that when rates almost hit 5% that a market slowdown was in order.
Likewise, wouldn’t sales pick up as rates came back down?
But interestingly, in another statistical quirk, sales this year are the same as last year:
NSDCC Detached-Home Sales, August 15th – October 15th
# of Sales
Sept 30yr Rate
Last year when sales were plunging 8% (again), it was easy to blame it on the higher rates. But as rates settled down this year, the best we can say is that sales have flattened out.
Higher pricing is offsetting the lower rates.
Buyers expect rates in the threes. Rates would have to get into the 2s to create a surge now.
Not many homes for sale provide a compelling value to buyers (either the house or price is wrong).
The lower rates this year have provided that mythical soft landing that no one thought was possible. It is giving sellers and agents a sense of security that higher prices are supportable. But wouldn’t rates have to keep going down further for prices to go any higher?
If rates and pricing stayed about the same, the market should plateau along.
But can sellers resist adding that extra 5% on top of the last sale comp? Probably not.
We’ll need an Election Year Miracle for prices to keep rising in 2020!
For those who didn’t see this in our newsletter, here are my guesses on market conditions:
A little better than usual for the rest of the year due to low mortgage rates.
A little worse than usual next year due to political/election distractions.
Would you like to receive our monthly newsletter? It is primarily written by Donna, so it has that going for it, and it also has Jim’s Hot Buys which is an on-going list of the best homes for sale by price and area!
The C.A.R. is forecasting +0.8% in sales, and +2.5% in median sales price for 2020, which is about as safe as it gets. Here is a comparison of how their forecasts have compared to the actual numbers recently:
SFH Resales #
% off forecast
SFH Median SP
% off forecast
From the C.A.R.
LOS ANGELES (Sept. 26) – Low mortgage interest rates will support California’s housing market in 2020 but economic uncertainty and affordability issues will mute sales growth, according to a housing and economic forecast released today by the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.).
C.A.R.’s “2020 California Housing Market Forecast” sees a small uptick in existing single-family home sales of 0.8 percent next year to reach 393,500 units, up from the projected 2019 sales figure of 390,200. The 2019 figure is 3.1 percent lower compared with the pace of 402,800 homes sold in 2018.
The California median home price is forecast to increase 2.5 percent to $607,900 in 2020, following a projected 4.1 percent increase from last year to $593,200 in 2019.
“With interest rates expected to remain near three-year lows, buyers have more purchasing power than in years past, but they may be reluctant to get off the sidelines because of economic and market uncertainties,” said C.A.R. President Jared Martin. “Additionally, an affordability crunch will cut into demand in some regions such as the Bay Area, where affordability is significantly below state and national levels. These factors together will subdue sales growth next year.”
C.A.R.’s forecast projects growth in the U.S. gross domestic product of 1.6 percent in 2020, after a projected gain of 2.2 percent in 2019. With California’s 2020 nonfarm job growth rate at 1.0 percent, down from a projected 1.5 percent in 2019, the state’s unemployment rate will tick up to 4.5 percent in 2020 from 2019’s 4.3 projected figure.
The average for 30-year, fixed mortgage interest rates will dip to 3.7 percent in 2020, down from 3.9 percent in 2019 and 4.5 percent in 2018 and will remain low by historical standards.
“California’s housing market will be challenged by changing migration patterns as buyers search for more affordable housing markets, particularly by first-time buyers, who are the hardest hit, moving out of state,” said C.A.R. Senior Vice President and Chief Economist Leslie Appleton-Young. “With California’s job and population growth rates tapering, the state’s affordability crisis is having a negative impact on the state economically as we lose the workers we need most such as service and construction workers, and teachers.”
In fact, according to C.A.R.’s 2019 State of the Housing Market Study, nearly a third (30 percent) of those sellers who planned on repurchasing said that they will buy their next home in another state outside of California — the highest level since 2005. Older generations were more likely to buy outside of California as 37 percent of baby boomers and silent generation planned on repurchasing in another state, but only 30 percent of Millennial sellers planned to do the same.
I noted on Instagram today that a couple of new listings in Carlsbad went pending before they got to broker preview today. While the sales and pricing statistics may look flat, sellers shouldn’t give up on selling when rates are still in the 3s.
These are the listings from the last seven days that already found a buyer – these aren’t giveaways:
The big bidding war in Leucadia also closed…..at a whopping 30% over list price – in this market!
Yesterday, Yunnie said that he sees no sign of buyer optimism fading, to which I said ‘just wait for the Case-Shiller Index (which should be the strongest of the year)’.
CNBC posted the click bait above, which is shocking because they are usually so negative about real estate – then published the key points below:
Mortgage rates dropped back into the threes at the end of May, yet the national index didn’t change between June and July? Every other time buyers could get a mortgage rate that started with a 3, they’ve come running. But not this time – home prices are stalled year-over-year, and existing home sales in the West declined 3.4% in August.
But never fear, our head cheerleader won’t let that get in the way:
Lawrence Yun, NAR’s chief economist said, “As expected, buyers are finding it hard to resist the current rates,” he said. “The desire to take advantage of these promising conditions is leading more buyers to the market.”
What he should say is that sellers should be sharpening their price. You’re on our side Yunnie, help us out!
San Diego Non-Seasonally-Adjusted CSI changes:
The index is a three-month weighted average, so July closings should reflect the environment where mortgage rates were 3-something for the buyers. But they aren’t willing to pay 1% more than in June?
I describe the strategy for sellers here, because buyers need to be on alert 12 months out of the year. Why? Because you only care about buying the right house at the right price – which isn’t affected by the general market conditions. You are looking for the one-off.
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