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Rising Home Prices Are Slowing

Mike thinks this year’s price explosion was unusual, and is working its way back to a more-normal pace.  I agree with Mike, and think the market will split, with those products that have been the hottest (one-story homes, family homes with yards and pools, etc.) will stay red hot, while those on the fringes (inferior locations, condition, age, etc.) will struggle to keep up and their appreciation rate will flatten faster.

Here is his Twitter thread, and webinar – thanks Mike!

https://twitter.com/mikesimonsen/status/1403085966424698884

Different This Time

In last Saturday’s blog post, I mentioned three reasons why San Diego real estate was undervalued, and pondered that there are new market forces in play that we haven’t seen before.

While people will scoff at the idea that it could be different this time and insist that the market will always revert to the mean, there are new factors to consider that will have impact on the eventual outcome:

LESS SUPPLY

No foreclosures

Ultra-low rates locking in homeowners to their forever home.

Boomers are older than ever, and are aging-in-place (too old to move).

Holding real estate has never been so sexy.

Longest expected length of ownership ever.

MORE DEMAND

Population is more affluent than ever (SD County has 100,000+ millionaires, fifth in USA).

Work From Home has expanded the choices for buyers, increasing the demand in desirable areas.

Hoarding real estate is cool (high rents, kids to inherit).

Current homeowners have more equity than ever to use when buying again.

There are more people than ever in the homebuying ages.

We probably only needed supply OR demand to change by 5% or 10% to make a difference. But it seems like BOTH have changed more than that….in opposite directions, which has really stirred it up.

It used to be that when home prices were hitting new highs, sellers would come out of the woodwork to take advantage. But not this time – which is different!

Low-Inventory Conditions to Persist

I already guessed that the runaway frenzy will start to temper in June. Here are reasons:

  1. Some of the craziest demand has been satisfied.
  2. Other buyers will take a break and go on vacation.
  3. Overly-optimistic pricing by some sellers.
  4. It’s been red-hot for 10-12 months.
  5. Newsom says the state will be 100% open by June 15.

Covid-19 has been blamed for why many potential sellers have delayed their plans to sell. But now that the pandemic is wrapping up and sellers have had a +20% gift of appeciation dropped in their lap, you’d think they would be flooding the streets with inventory.

But there’s no flood yet.  In May, 2019 we had 502 NSDCC homes come to market, but so far this month we’ve only had 119 new listings.

Could more inventory be coming?

Prop 19 was heralded as the solution to get seniors moving again – but we’re still waiting.  They should stop discriminating against younger people and let everyone take their old property-tax basis with them to their next home.

Owners of investment properties should be expediting their plans to trade for newer/better homes before they change the 1031 rules. This article says that investors will still be able to defer taxes on the first $500,000 profit, but Uncle Joe wants to tax the rest.  Americans hate the idea of paying taxes, so they will just keep their old property, rather than selling – which means less inventory.

Any potential seller who wants to stay local doesn’t see many homes that would make it worth the hassle of moving. Sure, selling their home sounds great, but we’re to the point where you need to leave town to really cash in – but who wants to do that?

Sellers have the most ideal market conditions of all-time to sell their home, yet they are holding back.

If we do see a slowdown this summer, it won’t be because of a flood of inventory.  It will be due to prices having gone completely bonkers – price will fix anything!

Ten More Years?

The author first explored this topic in 2015, and this follow-up article was published in February:

Welcome to the Brave New Housing Cycle: Factors indicate that an extended housing boom is underway.

A new long-term housing boom is upon us. And COVID-19 is the main reason why.

Both housing and economic cycles used to last five to seven years, but the economy has shifted to longer cycles, due to factors such as technology and monetary policy. The housing market has followed suit and the result is what I have defined as the Brave New Housing Cycle, which is poised to last seven to 10 years.

The current Brave New Housing Cycle actually started last year.

Read full article here:

https://www.forbes.com/sites/joshuapollard/2021/02/03/the-housing-market-just-began-a-new-10-year-upward-move/

“Everything is Hot”

Highlights from the CB CEO:

20% of all homeowners are considering selling in the next 12 months.

40% are thinking of upsizing.

30% want to cash out (probably the downsizers).

30% would move because they can work from home, and 40% to 60% would leave their city or state.

I think we can say that virtually every homeowner has considered selling – all we need is about 10% to 15% to do it over the next two years!

NSDCC Actives & Pendings

Previously we experienced a healthy market when actives outnumbered pendings 2:1. Then as the market heated up, we got used to the 1:1 ratio. Now we have areas where the ratio is more than 1:2!

NSDCC Detached-Home Active and Pending Listings

Town or Area
Zip Code
Actives
Pendings
Cardiff
92007
10
14
NW Carlsbad
92008
15
24
SE Carlsbad
92009
20
48
NE Carlsbad
92010
4
11
SW Carlsbad
92011
4
19
Carmel Valley
92130
25
38
Del Mar
92014
32
25
Encinitas
92024
36
48
La Jolla
92037
95
45
RSF
67+91
87
50
Solana Beach
92075
8
9
NSDCC
All Above
336
331
West RB
92127
24
63
Scripps Ranch
92131
6
25

What can buyers do?

Going inland doesn’t help – the 92127 and 92131 are hotter than ever.

Just go up in price – La Jolla is nice this time of year!

We will re-visit these numbers in the coming months.

NSDCC Pendings Overtake Actives

This morning we have more homes in escrow than we have for sale!

NSDCC Detached-Home Listings

Listing Status
# of Listings
Median List Price
Active
352
$3,950,000
Pending
353
$1,925,000

Once upon a time I was discussing the actives/pendings relationship with local agent Peter B.  He agreed that a 2:1 ratio of actives to pendings was a sign of a healthy market.  If 2:1 was healthy, what is 1:1?

One thing that’s happening is that the action is rising into the upper price ranges. Today we have 94 homes in escrow that are priced over $3,000,000, which I doubt we’ve ever had before.

If we don’t see a surge of more listings, the pendings could extend its lead in the coming days/weeks!

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