The last time we had a big surge in pricing, the median sales price went up 100% in five years. But that was twenty years ago when the boomers were all young enough to move frequently, causing plenty of homes to be for sale.
By now, most (if not all) of those boomers are settled in and just watching the show.
Average tenure length jumped nearly 4 percent from one year ago, and 0.4 percent compared with last month. The monthly gain was the largest since August 2020. The monthly increase in average tenure length contributed to a loss of over 17,000 potential home sales. 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.
Before the housing market crash in 2007, the average length of time someone lived in their home was approximately five years. Average tenure length grew to approximately eight years during the aftermath of the housing market crisis between 2008 and 2016. The most recent data shows that the average length of time someone lives in their home reached 10.6 years in May 2021, an historic high.
Two trends are locking homebodies in place and driving the increase in tenure length.
First, for homeowners with rock-bottom rates, modestly higher rates in an historically low inventory environment may disincentivize some from selling their homes, thus preventing more supply from reaching the market. Second, seniors are choosing to age in place. Analysis of the 2020 ASEC data reveals that the homeownership rate actually increased for baby boomers in 2020. While a 2019 study from Freddie Mac shows that if seniors and adults born between 1931-1959 behaved like earlier generations, they would have released nearly 1.6 million additional housing units to the market by 2018. As seniors continue to choose to age in place, there will be fewer existing homes available for sale.
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!
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:
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.
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!
I already guessed that the runaway frenzy will start to temper in June. Here are reasons:
Some of the craziest demand has been satisfied.
Other buyers will take a break and go on vacation.
Overly-optimistic pricing by some sellers.
It’s been red-hot for 10-12 months.
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!
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.
This morning we have more homes in escrow than we have for sale!
NSDCC Detached-Home Listings
# of Listings
Median List Price
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!
"Jim the Realtor is legit - I interviewed three brokers; he said list price should be $100,000 higher than the other two brokers; listed it with him and had all cash (no financing) offer in two days, five day contingency period, closing in two weeks - and it closed at his recommended list price. I could not recommend anyone more than I recommend Jim the Realtor. more "
by gary t moyer
"When we moved to San Diego in 2005 we rented a big house on Mt. Soledad (La Jolla) with 180 degree ocean views for the same payment as a mortgage on a dump in Chula Vista. Clearly something was wrong. Yet, the media was full of the usual happy-talk nonsense, so I was glad to find Jim's blog. I've followed his honest assessments and data since. more "
"Where do we begin..2020 has been a year for everyone. When COVID hit and shut down both my husband and my businesses, we were left with a mortgage and very little income coming in. We were stressed, scared and felt stuck. We made the hard decision to sell our home and move out of state. We contacted the Klinges' and spent a good hour going over what we hoped we could accomplish. Jim and Donna came over with comps in hand and suggestions on improvements to get our house ready for the market. It was overwhelming to think about, but Donna was there and one step ahead in every scenario. more "
"Jim and Donna Klinge made the sale of our condo extraordinarily easy. They know the market and gave us sound advice backed by details and very considerable experience, reflected both in the initial pricing and subsequent negotiations. They work together as a team and are always available to talk. more "
"I cannot believe there are no reviews of Donna yet, ugh!! She is the secret sauce of the Jim Klinge/Donna Klinge combo! I will touch on Jim here, but Donna is why I'm so totally loyal to these two (no offense to Jim :)).
I consider myself a rather savvy buyer/seller. I've bought/sold 7 times in more "
"Jim and Donna Klinge are by far the most professional, personable and responsive realtors I have ever worked with. They provide VIP concierge level service in every area of the process of selling your home. My home was marketed so successfully that we received an offer the day after our first and only open house. Thanks to Jim's pricing and negotiating, our house is now the highest sold in our community... more "
by Ann Romanello
"Jim educated us, helped us find the perfect house, and then negotiated us a great deal. I would hate to be sitting across the negotiating table from ... more "
"Jim is thorough and will be brutally honest about the homes he shows you. He provides great service and follows through until the very end and even ... more "
"I highly recommend Jim as a buyer’s agent. Working with Jim, we closed this week on a San Diego condo. Jim prepared a list of comparable sales to ... more "