Commentary on Today’s Market

My thoughts on commentary seen in the news today:

With rates rising, and prices significantly higher, the average borrower is paying about 38% more on the monthly payment now than they would have for the same home one year ago, according to Realtor.com.

JtR: This is crushing the move-up/move-down market, with very few existing homeowners needing to move bad enough to start over on a new 30-year mortgage at a higher rate (86% of mortgage holders have a rate under 5%).


Mortgage applications to purchase a home fell 3% for the week and were 14% lower than the same week one year ago. That annual decline is now beginning to grow, as housing becomes even more pricey.

“In a housing market facing affordability challenges and low inventory, higher rates are causing a pullback or delay in home purchase demand as well. Home purchase activity has been volatile in recent weeks and has yet to see the typical pickup for this time of the year,” added Kan.

March sales were 4.5% lower than the same period in 2021.

JtR: Sales are dropping due to lack of supply, yet the talking heads will blame it on the demand side.  There is no shortage of demand around San Diego County – plenty of buyers waiting.


A new study conducted by OJO Labs, an online real estate site and personal finance tool, found that the vast majority of recent home seekers are unwilling to relocate extreme distances, and are instead looking to buy much closer to their current homes.

It suggests that while buying a home in another state may have become a popular move for some during the pandemic—especially for high earners—most people looking for a new home right now are not venturing too far.

The OJO Labs study, published at the very end of March, surveyed more than 500 prospective homebuyers about their experience over that month. Of these, 41% were limiting their search to within six and 50 miles from their current home, while 36% were interested in buying a new house only if it was fewer than five miles away.

Only 11% of respondents were willing to move more than 500 miles away from their current address.

The findings push back on the pandemic-era narrative of New Yorkers and Californians moving to more livable cities in states like Arizona, Texas, and Florida.

JtR: Those who are only searching within a 50-mile radius of NSDCC probably won’t find anything that makes it worth moving – the prices aren’t low enough. There needs to be a bigger windfall to compensate for the capital-gains taxes, and feel like a big win. Nobody is going to move just for the heck of it. Thus, our supply is dependent upon those willing to move a long ways.


Daimler went on to say that Zillow does not believe that the “double dipping agent” — or in other words dual agency in which the same person represents both a buyer and a seller — is the future.

“We don’t believe in that philosophy and we don’t believe that’s where the industry is going,” she added.

JtR: She needs to spend a few days on the street to know what’s really going on – it’s never been so hard to be a buyer’s agent.  I finally succeeded with a set of buyers on their 12th offer, which was 40% higher in price than where we started six months ago. It will be a natural progression that buyer-agents get phased out altogether, and CoStar’s new search portal that directs the consumers back to the listing agent will be the last straw. It will debut in New York City this summer.

Bay Area Crazy

Sally’s former home in Los Altos closed yesterday for what seems to be the obligatory $500,000 over the list price (LP was $3,195,000):


The bump over the list price is so customary in the local area that the zestimate was raised by $763,480 about the time it was marked pending – the algorithms already had the expected increase baked in!


They are enjoying The 2022 Lucky Windfall of the First Quarter, and we’ll see how well it holds up. But as long as home sales in the Bay Area keep selling for much-higher pricing than in San Diego, one of our main feeder areas will keep sending happy buyers our way!

The list prices mentioned here all say that they sold for 100% of the LP, but it’s a typo – they all sold for well over. For example, Patrick Way sold for $1.1 million over, and William Henry sold for $800,000 over list:

Paying ~$2,000/sf for modest homes in Los Altos has been fairly routine lately!

Hopefully, those sellers keep coming our way. Even if their market were to dip 10% to 20% from these dizzy heights, they will still love what they can buy here for the money.

No Major Panic

You can’t spend too much time reading/watching the news recently without being well aware of the relatively unprecedented surge in mortgage rates seen so far in 2022.  In particular, the month of March was one the worst on record with one individual week in March tying a week in June 2013 as the worst in more than 25 years.  All that to say, rates are much higher!

The higher borrowing costs have had the same impact they always have when it comes to refinance applications.  In this week’s Mortgage Application Survey from the Mortgage Bankers Association (MBA), refis dropped another 10 percent, and are now 62 percent lower than the same week last year.

The purchase market remains a different story.

While purchase applications also declined last week, they are only 9 percent below the same week last year and still higher than most of the past decade before the Covid.  Keep in mind that the survey only tracks applications, so by the time all-cash demand is factored into the purchase market, housing demand has yet to show any major panic over the rising rate environment.


Tracking the Real Estate Frenzy

Now that we are grappling with 5% mortgage rates, people are wondering how it will affect the market.

The common perception is that there will be pullback.

What that means isn’t defined – it’s just a vague concept that the logical mind wants to believe.  But logic flew out the window long ago, so I’m not sure how useful it is today. Prices went up 30% in 2021 and it didn’t stop, or even slow the market in the first quarter of 2022.

Does it matter what the opinion is today?

Not really, and you can refer to the chart above to see how much opinions matter.

All that matters is that we track the trends over the next few months to see what actually happens!

Yesterday I said all we have to do is monitor the days-on-market, and the actives vs pendings to get advance notice on how the market is behaving. Let’s add a third metric, the SP:LP ratio.

Who are the home buyers that will determine our fate?  When out-of-towners from more affluent areas come here to see our prices, they think we are giving them away.  There have been estimates that as many as 70% of the coastal sales here have been bought by people from the Bay Area.

We should keep an eye on their market!

I’m watching one sale in progress there. My uncle has been a lifelong resident, and my mom, brother and sister all live there so I have opportunity to check in on their real estate market from time to time.

In December, we went to pay our respects to Sally, my uncle’s long-time girlfriend. They met later in life and had separate houses, and unfortunately Sally passed away from cancer just before Christmas.

We had a brief conversation with her sisters who were from outside California, and they expected that they would sell her home in early 2022.  The zestimate was in the mid-$2,000,000s, and they said they would be happy with a price in that range.

After painting and staging the relatively modest 1,763sf house built in 1953, they listed it for $3,195,000. It went pending within ten days – and since then the zestimate has zoomed to $3,800,000!


The house is five doors away from the Foothill Expressway, which isn’t a freeway but there is some road noise. The 9,975sf lot size is attractive, and the house is one-story.  But low-to-mid $3,000,000s?

Even more interesting was the house at 1051 Peninsular Ct.  When we were there, I saw the sign and drove by to confirm that it was literally right next to the Foothill Expressway.  It closed for $3,100,000!

The pricing in the Bay Area is subject to change, just like it is here – but it should be somewhat relative, and we will likely ride the same elevator.  The 1Q22 pricing spiked in Los Altos, and the sisters – who only expected a sales price in the mid-$2,000,000s – will pick up a lucky windfall.

The 2022 Lucky Windfall of the First Quarter doesn’t have to continue throughout the year for our market to thrive.  If pricing “crashes” downward 10% to 20% from today’s lofty heights, it means we’re only back to November pricing, which you would think wouldn’t bother sellers much.

But it will.

Do not underestimate the home seller’s ego.

It doesn’t mean you should, or shouldn’t, go buy a house today.  If you are a home buyer in the hunt, just be picky (or pickier) about what you will tolerate. The list prices will feel like TodayComps+5%, the sellers are doing less to condition them for sale, and the listing agents act like you owe them money.

There is one guarantee. The inventory later in the year will be worse than it is today.  It could feel like pricing is loosening up (it’s not yet), especially in the 4th quarter of 2022, but it won’t matter if there aren’t any homes for sale that you would buy. Be in the hunt for the right house!

I will keep track of the winners and losers. Help me if you can!

Here is today’s winner, who had 11 showings and three offers.  Tanya raised the list price to a range, which makes it look like it probably went over $3,000,000:

It may seem crazy to you, but those coming from Los Altos will think it looks like a steal!

The Future of Rates & Home Prices

From yesterday’s article, which also ran in the SDUT today:

“There are so many strange things going on right now,” said Edward Seiler, the associate vice president for housing economics at the Mortgage Bankers Association.

It has been 40 years since rates have risen like this alongside similar home price growth and high inflation. This time around, the United States also has a severe housing shortage. And then there’s a new and uncertain dynamic — the sudden rise of working from home, which has the potential to change what home buyers want and where they live.

“Nobody really knows what’s going to happen over the next year,” Mr. Seiler said. That makes it hard to predict when rates might start to act as a brake on rising prices.


I have to take a swing at that one!

There are many variables that could slow the increases in home prices, and higher rates are just the latest excuse. Prognosticators said that last year’s velocity was the reason the home prices would cool in 2022 – no one could imagine that they could go up as fast as they did in 2021 – yet NSDCC the median sales price has INCREASED 21% BETWEEN DECEMBER AND MARCH!

But will rising rates be the final blow, and home prices start to decelerate?

Let’s try to predict the path of mortgage rates in 2022. How much worse could it get?

Mortgage rates are loosely tied to the 10-year T-bill, which has risen 0.824% this year:

The Fed is expected to raise their benchmark rate 1.5% this year (6 x 0.25%), so the 10-year yield has another 0.676% to go to reflect the anticipated 1.5% increase in 2022.

Mortgage rates have mirrored the 10-year, plus 1.75%, for decades.

Today’s 30-year fixed mortgage rate is 4.84% so let’s add the additional 0.676% = 5.516%. Because mortgage lenders are like gas stations – quick to overshoot rates on the way up, and sluggish on the way down – we will probably see 6% mortgages this summer as lenders continue to get out in front.

Let’s note that today’s 10-yr yield is 2.452% plus 1.75% = 4.202% which means today’s mortgage rate is about 0.6% overshot too high.

To further demonstrate the current mortgage-rate overshoot, here was the rate on January 3rd:

The 10-year has gone up 0.824% YTD, and mortgage rates have risen 1.43% YTD.

We are due for pullback, but the mortgage lenders will more likely just let it ride, knowing that more Fed increases are coming.  They will panic (again) and mortgage rates will probably be touching 6% in a couple of months, but we should settle into a range of 4.75% to 5.5% by the end of the year – which isn’t much different than it is today. It coincides with the January’s 3.41% plus 1.5% = 4.91%.

Will higher rates than today affect home prices? It depends on the sellers – they get a vote.

If relatively nobody wants to sell at these prices, they sure won’t want to sell at lower prices! Rather than lowering the price, they will blame their realtor for their home not selling, and try again next year.

They’re not going to give it away!

There isn’t going to be a surge on inventory, because it would have happened by now.  But I’m sure there are buyers running to the sidelines in droves, wanting to believe it’s going to be different, later.  There will be fewer offers on homes for sale, and some may not get any! All we have to do is monitor the two metrics, the days-on-market, and the actives vs pendings, to know the trend.

But there are additional variables that will keep prices in this range:

  1. The affluent buyers who aren’t as affected by rates. As long as we don’t run out of them, home prices will stay right where they are, or keep trending upward.
  2. All buyers, affluent or otherwise, will buy the dips. There will be an occasional home priced under the comps (usually the dated estate sales) and buyers will jump to pay less. But they will get bid up to within 5% of retail and create the floor.
  3. Buyers who are affected by higher rates can get a 2.375% ARM, fixed for ten years.
  4. Realtors will keep pumping the seller’s market because it’s all they know.

We are pulling into Plateau City.

Even if the buyer psychology crashes, and only the desperate buyers stay in the game for the next few months, we can easily predict what will happen in the second half of 2022. Because both sellers and buyers who didn’t transact in the first half of 2022 will pack it in for the rest of the year, sales will plummet in the last half of 2022. It’s what happens in the early stage of a market shift, because sellers can’t believe they missed the peak and would rather wait, then lower. It will takes several failures before sellers re-consider their price accuracy – and some never will.

The NSDCC median sales price in December was $2,165,000. In March, it was $2,625,000.

I expect that the December, 2022 median sales price will be within 5% of $2,625,000 (plus or minus).

Then in 2023, the market will be flooded with lookers, who will be hoping for lower prices than what they remember from summer. But sellers will be packing a little extra on their price, just in case.

What do you think?

Before commenting, spend 15 seconds to watch this response to a ~$3 million off-market listing:

Rates & Home Prices

The mainstream media is taking their shots at explaining the current market.

Here is the attempt by the NYT – link should be unlocked:

Link to Article

Here’s a former realtor who says if it weren’t for the investors, we’d be back to normal:


Economists like to focus on demand, but as long as the supply is scarce, prices will hold or keep going up.

San Diego Overvalued?

Alternative headline: “Four areas so affluent that home prices and incomes are completely disconnected.”

Comparing the median sale price to house-buying power in all top 50 markets reveals that 4 markets are considered “overvalued”. “Overvalued” is defined by a market where the median sale price > house-buying power. Most markets still “undervalued.”

House-buying power is calculated by using a city’s annual median household income, assuming that a household spends one-third of their income on a mortgage, assuming a 5% down payment, and considering the current (Jan. 2022) 30-year, fixed-rate mortgage rate.

Spring Break

Real estate practices have been evolving with the frenzy.

The market used to be lively seven days a week, but that’s gone away.  Looking at homes during the week is futile now, because the new listings tend to hit the MLS on Thursday or Friday with NO SHOWINGS UNTIL OPEN HOUSES ON SATURDAY AND SUNDAY!

By Monday, the listing agents shut it down with NO MORE SHOWINGS, NO MORE OFFERS.

It makes you wonder how the market will react to spring break/tax day.

All the NSDCC schools except Carlsbad are taking spring break between April 4-8, which will limit the action on those weekends of April 2-3 and April 9-10.  Then income taxes are due the day after Easter, which is on April 17th. The Carlsbad spring break is April 18-22.

Will agents recognize the schedule, and alter their showing plans?

If not, will the lighter traffic cause those open houses attendees to think the market is getting soft?

The end of the frenzy might be forming right before our eyes!

Downside Sticky

Even though we are racing towards mortgage rates in the 5s (should be there by summer), there won’t be much adjustment by sellers because they aren’t going to give it away!

War and The Frenzy

Will the Ukraine war have an impact the real estate frenzy?

It’s likely to have the same effect as rising mortgage rates – it will make buyers want to hurry up and buy something so they can hunker down.

But the less-motivated buyers have to be getting to the point where they are looking for any reason not to buy, so the number of lookers should thin out.  But it shouldn’t change the outcome for sellers of well-located, well-conditioned, and well-priced homes.

Unless one of two things happens:

  1. America gets in the fight.
  2. There is a cyber-attack on us.

A cyber-attack would be devastating to the local real estate market.

Home buyers are utilizing the internet tools to help them with their decision-making.  Without them, the buyers’ comfort levels will drop quickly. An extended cyber-attack would likely to bring the frenzy to a halt.

This isn’t Iraq or Afghanistan – Russia could create havoc around the world.

Hopefully, the peaceful solutions will prevail, and we won’t have to worry about it for long.

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