We saw yesterday that the number of new listings has remained steady, but it seems that buyers keep getting pickier. First-half sales are down 4% year-over-year, and pricing is a little soft too.
But last year’s sales were down too, and if we consider the 2016 count to be the median in the group above, then this year’s first-half sales are 10% under that.
Yunnie is optimistic though:
Yun said consumer confidence about home buying has risen, and he expects more activity in the coming months. “The Federal Reserve may cut interest rates one more time this year, but there is no guarantee mortgage rates will fall from these already historically low points,” he said. “Job creation and a rise in inventory will nonetheless drive more buyers to enter the market.”
We were talking with some friends last night about how much financial support is going towards kids, and how it will affect real estate in the future.
On one hand, it’s the Bank of Mom and Dad, and helping to keep the market afloat when funding home purchases at these lofty prices for those kids with regular jobs.
However, for those kids who never get to the point of financial stabilization, the selling of the parents home will become the lottery ticket to solve their money issues.
I suggested that this is where the ibuyers could do the most harm by taking advantage of people who want and need a quick sale and who aren’t that familiar with the values.
When we were in Las Vegas for that one-day vacation, I saw more than one ibuyer ad on TV, and they were very enticing. The kids who have been strapped for years and then inherit their parents’ house might jump at the chance to get their hands on quick money – and likely leave some on the table.
Will anyone step up to protect the unsuspecting? A new challenge/opportunity for realtors!
“Since last year, several forces have helped increase the market potential for existing-home sales,” said Fleming. “House-buying power, driven by falling mortgage rates and rising household income, contributed to a gain of 183,000 potential home sales compared with one year ago. Compared with May 2018, rising house prices also contributed positively, increasing the market potential for home sales by 41,000.
“Additionally, loosening credit standards boosted the marketing potential for home sales by more than 60,000 sales over the last year. Some modest growth in new-home construction also added 1,000 potential home sales,” said Fleming. “Finally, the growth in household formation, as millennials continue to form households, contributed nearly 81,000 potential home sales compared with a year ago. Despite all the positives, the market potential for home sales remains nearly 80,000 units below the level of a year ago.”
Unprecedented Homebody Era is Here
“Collectively, the aforementioned market forces contributed to a positive gain of 366,000 potential home sales, but it was not enough to offset the loss of 446,000 potential sales due to the impact of rising tenure. The average tenure length, the amount of time a typical homeowner lives in their home, has increased dramatically in the last year,” said Fleming. “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 – you can’t buy what’s not for sale.
“Before the housing market crash in 2007, the average length of time someone lived in their home was approximately five years. Average tenure length jumped to seven years during the aftermath of the housing market crisis between 2008 and 2016,” said Fleming. “The most recent data shows that the average length of time someone lives in their home reached 11.3 years in May 2019, a 10 percent increase compared with a year ago.
“Two trends are driving the increase in tenure length. The majority of existing homeowners have mortgages with historically low rates, so there is limited incentive to sell if it will cost them more each month to borrow the same amount of money from the bank,” said Fleming. “While mortgage rates have come down compared with last year, they are still below the 3.5 percent mortgage rates of 2016.
“The second trend influencing tenure is seniors aging in place. A recent study from Freddie Mac shows that if seniors and adults born between 1931-1959 behaved like earlier generations, nearly 1.6 million housing units would have come to market by 2018,” said Fleming. “Improvements in health care and technology have made aging in place easier, which has meant fewer homes on the market.
“So far in 2019, the market potential for existing-home sales has benefited from lower mortgage rates and rising household income, all contributing to stronger house-buying power,” said Fleming. “Surging consumer house-buying power coupled with rising household formation has resulted in strong demand for homes.
“Yet, today, we are in an unprecedented homebody era as many existing homeowners continue to feel rate-locked into their homes and seniors continue to age in place. Looking ahead, more than half of all existing-homes are owned by baby boomers and the silent generation and they will eventually age out of homeownership,” said Fleming. “But right now, housing supply remains tight – you can’t buy what’s not sale — and market potential is lower because of it.”
There are growing signs that U.S. home prices are no longer rising. If this is indeed the case, now is the time for sellers or prospective sellers to take a good look at the state of housing markets around the country. To make smart decisions, home sellers as well as buyers need to find out whether home price gains are simply slowing or whether housing markets are actually topping out.
An excellent publication,U.S. Home Sales Report, published by real-estate data firm Attom Data Solutions, gives a detailed look at conditions in major U.S. housing markets. This quarterly report provides data on the actual gross profit that sellers pocketed in 124 housing markets nationwide. It tracks every home sold in that metro and compares the price to what the seller previously paid for the house. An average is then taken for all the homes sold in that quarter. The result is the average gross profit in each metro before commissions are deducted.
The market usually feels some impact this time of year from the graduation season, and it’s understandable. People who have kids, or anybody who is related to people with kids in eighth grade, twelfth grade or seniors in college will be distracted for a few days. And if you count those graduating from pre-school too, then about 24% of the population (4/17) will have a graduation ceremony get in the way of homes selling.
Realtors are in that group too, so there are fewer agents on the ground working those sales.
But it should also mean the next few weeks will be fruitful with rates back in the 3s, and if the Fed lowers next week (unlikely but possible), we could have one heck of a summer!
Buyers are engaged – it looks like about 6% of adults are looking for a home, which is the same as last year. Glad to see the seniors on the move too:
Many people start thinking about a home purchase well in advance of actually engaging in the process of finding a home. In a national poll in the first quarter of 2019, 13% of adults reported planning a home purchase within the next year. Of those prospective buyers, 46% are already actively involved in trying to find a home to buy. The latter finding is not different from a year earlier, when 17% of poll participants were planning a home purchase and 46% of them were actively engaged in the search process.
Senior (56%) and Millennial (50%) buyers are the most likely to have moved beyond just planning to actually start the search process, compared to 41% of Boomers. Geographically, 53% of prospective buyers in the Northeast are actively engaged, compared to 42% in the Midwest.
Here’s a visual comparison of last year’s counts of NSDCC weekly active and pending listings, and how we are doing this year.
Mortgage rates had bumped up from 4.47% in April to 4.83% in October, but the inventory kept growing too, which didn’t help. The pendings are a better gauge than sales for showing when the buying decisions were being made, and you can see that last year, buyers started losing interest after mid-June.
The bulging inventory in the second half of 2018 also left us with an inventory hangover. We started the year with 35% more homes on the market than the previous year, which led to a slower start in 2019.
But the weekly pendings have strengthened lately, and have been tracking about the same counts as we had in 2018 – probably due to lower rates. Last month, the Freddie Mac average 30-year rate was 4.14%.
If rates stay the same as they are today, we really should see the season extend past June – because it got whacked last year. But high pricing and more inventory could spoil the momentum too.
Home prices have been on a tear for ten years straight, and are at their highest levels ever.
Is this bubble going to pop too?
Let’s look at the statistics first. I took the most recent 45 days to get the latest scoop, plus the MLS prefers to calculate the smaller sample sizes.
NSDCC Detached-Home Listings and Sales, April 1 – May 15 (La Jolla to Carlsbad)
# of Listings
# of Sales
It is remarkable that all-time-high prices aren’t causing more people to sell!
In previous markets, once prices started reaching new highs, homeowners would jump at the chance to move. The inventory would grow and cool things off, and/or we’d hit an economic downturn and foreclosure sales would direct the market. But not today!
We are a mid-level luxury market. The more-expensive areas like Los Angeles, Orange County, and the Bay Area feed us downsizers who think we are giving it away.
Homebuying has de-coupled from jobs. We do have substantial employers like Qualcomm, bio-tech, etc. but not near enough to justify these lofty prices. How do we keep afloat? It’s the big down payments; either from previous home sales, successful business ventures, or the Bank of Mom & Dad.
They changed the rules. Banks have to give defaulters a chance to qualify for a loan modification before they can foreclose. With everyone enjoying their equity position, they will find a way to hang onto their house or sell it for a profit, instead of lose it.
Reverse mortgages are an alternative for those who need money. They might crank down the amount of money you can tap, but as long as homeowners are flush with equity, they will be able to get their hands on some of it via reverse mortgages or the typical equity line.
Buyers have been full of money, and willing to blow it. I’ve seen sales close for 10% to 25% above the comps this year, so it doesn’t seem like people are worried about a bubble. Those sales could be creating unsustainable comps, and be short-lived values, but will the next buyer question them enough?
Coming Soon vs. ibuyer. We need a gimmick to transition us to the ibuyer era, and the ‘Coming Soon’ off-market sales will be the sexy distraction. The price of an off-market sale isn’t necessarily lower than retail, and in some cases they can be higher when the buyers get jacked up about the opportunity.
The ibuyer era could be the last hurrah for open-market real estate. If the big-money corporate buyers can build enough credibility and begin to dominate the space, they will be able to dictate the prices paid for their flips, and control the marketplace. If so, they will make sure we won’t have another down market!
In the meantime, we might see prices start to bounce around, instead of the constant trend higher. But if it gets harder to sell, then many will just sit tight instead.
If you think a bubble pop will happen, ponder this question. Who is going to give away their home now?
We can probably say that affluent people are coming, and those who are priced out, or cashing out, are leaving. There were 31,354 houses and condos sold in San Diego County in the last 12 months, so those migrating are only part of our real estate market.
Millennials are leaving San Diego in the thousands, according to a new report by Brookings.
The new Census Bureau migration data reveal a post-recession shift in the migration of young adults and seniors.
From 2007 to 2012, San Diego lost more than 7,000 people between the ages of 25 to 34 annually. From 2012 to 2017, the number nearly doubled to more than 13,000.
The report points out that millennials have the tendency to move to “educated places” such as Denver and Seattle. Millennials also prefer more affordable areas such as Kansas City and Minneapolis.
While San Diego is losing young people, several Texas cities appear to be gaining a good chunk of millennials. Cities like Houston, Dallas, Austin, Denver and Seattle gained tens of thousands of people between the ages of 25 to 34 between 2012 and 2017.
As for those 55 and older, more than 18,000 migrated to Phoenix per year from 2012 to 2017. Cities like Tampa, Riverside and Jacksonville also saw their fair share of people ages 55 and older.
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