San Diego Is Still #1

San Diego is the #1 area that homeowners don’t want to leave! Don’t you get the feeling that we are going to out-perform every other real estate market in America for a long time to come?

Today we have 2,293 active listings of attached and detached homes in the county – population 3.3 million!

Fed Chair Powell and Real Estate

Powell’s goal was to crush the real estate market…..

In June 2022, Powell told reporters that spiked mortgage rates would help to “reset” the U.S. housing market, and that “we need to get back to a place where supply and demand are back together and where inflation is down low again, and mortgage rates are low again.”

Then in September 2022, Powell told reporters that we had officially entered into a “difficult correction” that would restore “balance” to the housing market. At the end of November 2022, Powell went a step further, and said a “housing bubble” had formed during the Pandemic Housing Boom.

Last week, Powell said, “The housing market is bottoming and may already be improving.” He made the comment after the central bank kept benchmark rates steady but indicated more hikes may be needed later this year.

“Activity in the housing sector remains weak, largely reflecting higher mortgage rates,” Powell told reporters after the rate announcement. “Certainly, housing is very interest rate-sensitive, and it’s the first place, really, or one of the first places, that’s either helped by lower rates or is held back by higher rates. And we certainly saw that over the course of the last year. We now see housing putting in a bottom and maybe moving up a little bit. We’re watching that situation carefully.”

In his prepared statement yesterday, he said, “Although growth in consumer spending has picked up this year, activity in the housing sector remains weak, largely reflecting higher mortgage rates.”

Then he said,“We think housing inflation will be coming down significantly over the course of the rest of this year and next year. Consumer inflation has eased since last summer due mainly to falling energy and core good prices. In contrast, rents and other housing inflation has been moving higher.”

What he doesn’t see…..

Powell’s comments get turned into headlines, like this:

Potential home sellers take one glance and – even though they aren’t quite sure what he means – they decide the market is no good and that it’s smarter for them to wait for better times. It would take a flood of supply to effectively reset the real estate market, yet his policy is doing the opposite. Plus, his higher rates are pricing out the marginal buyers (the regular people), which creates less competition for those who can withstand higher rates – the affluent buyers.

The end result is affluent people chasing the few sellers who really need to move – just the type of buyer who can, and will, pay more to get what they want now….which will help to keep prices elevated.

What’s likely to happen:

The off-season will commence shortly and there will be fewer sales than ever, with an occasional deal here and there. The trendline will look softer than during the selling season, which will cause Powell and others to abandon the bottom talk and instead declare that their ‘housing inflation’ – code for rising prices – is coming down. Everyone will take it as a sign that the recession is finally here!

Then the 2024 selling season will get rolling in February, confounding the experts even more.

It might take a couple more years before they start believing that home sales are seasonal – if they ever do.

Frenzy Monitor

The number of active (unsold) listings has been on the rise, and is now 13% higher than it was a month ago – though I would still characterize the current market conditions as steady.

Compare your stats from this month to last June and July when higher rates had begun to take their toll. The rate-change was rather abrupt, and it was natural for buyers to wait-and-see about the impact which caused the active inventory to soar.

If your area looks similar to last June/July, it’s probably not a good thing.

The activity this year is more normal and typically what happens as the selling season closes out – sellers are too enthusiastic after a couple of hot months and don’t adjust their price expectations fast enough.

There have been 57 closings between La Jolla and Carlsbad this month, which is good. The monthly sales total should finish over 100, but it probably won’t get up to the 168 sales we had in May.

There will be a few more eye-popping sales, but generally the 2023 market is fading away.

Housing Market Predictions

Here are expert opinions on the market. I disagree with all of them:

The year started out with signs showing that the Federal Reserve’s inflation-fighting tactic was effective in cooling down the hot pandemic housing market.

For the first time in 11 years, home prices dropped year-over-year in February as mortgage rates more than doubled following the Fed’s consecutive interest rate hikes, curbing affordability.

However, the median price of a home increased month-over-month for the second consecutive month in March. The median home price is projected to increase for a third month in a row in April to $393,300, which is 2% lower than the previous April’s median price of $401,700, according to data released in May by the National Association of Realtors (NAR).

One big factor behind the strengthening home prices and the decrease in sales volume — down 23% in April from a year ago — is the lack of housing inventory.

“Home sales are bouncing back and forth but remain above recent cyclical lows,” says NAR Chief Economist Lawrence Yun. “The combination of job gains, limited inventory and fluctuating mortgage rates over the last several months have created an environment of push-pull housing demand.”

Where are home prices headed?

Generally speaking, high mortgage rates should prompt house prices to trend downward.

“Yet, housing supply remains so restricted, that any uptick in demand will put upward pressure on prices,” wrote First American Chief economist Mark Fleming in a blogpost. “This is the dynamic that played out in March, as the spring home-buying season ushered in more demand for homes, while insufficient supply prompted buyers to compete and bid up prices.”

No return to typical seasonality in the market

There will be a lot of uncertainty in the economy over the next few months and prospective home buyers are going to be more opportunistic, as opposed to following traditional seasonal market trends, says Bright MLS Chief Economist, Lisa Sturtevant.

“There will continue to be volatility in mortgage rates as we wait to see what the Fed will do at its upcoming meetings and as we watch economic data roll in over the summer,” says Sturtevant. “Prospective buyers are going to be watching rates closely, and many will try to make an offer on a home when they see rates dip. As a result, we should expect less seasonality this year than we had prior to the pandemic.”

More sellers returning to the market

While inventory will remain low this year, we should expect to see more sellers who had been on the sidelines list their home for sale this summer and into the fall, says Sturtevant.

Many existing homeowners have been “locked in” with super low mortgage rates, which has discouraged discretionary moves.

“However, some people have to move, and others will decide to move for a bigger or smaller home, or to change jobs or neighborhoods, despite rates remaining elevated,” says Sturtevant.

The uptick in new home construction has provided more opportunities for move-up buyers who may have been staying in place because they did not have anywhere to move to.

“One thing that could shut down new listings is if we see a sharp spike in mortgage rates to 8 or 9%, a situation that is still unlikely but not out of the realm of possibilities,” she says.

New home construction

Instability of regional banks is a concern for builder and land developer financing going forward, says Robert Dietz, chief economist for the National Association of Home Builders.

Lending conditions for builders have tightened, and the interest rate for development and construction loans is now well above 10%, which threatens housing supply.

Single-family spec home building loans had an effective rate of 13% in the first quarter of 2023 compared to 9% in the first quarter of 2018.

“Our expectation is that the rate of these loans will move lower as the Fed cuts the federal funds rate, but our forecast is that will not happen until later in 2024,” Dietz told USA TODAY. “As a result, land development would be suppressed, and we risk loaning low on lots during a home building rebound in 2024. Lot development can take three years in a typical market.”

https://www.usatoday.com/story/money/2023/06/05/where-are-home-prices-headed-housing-market-predictions/70260277007/

The Rest of 2023

The experts are saying that real estate has recovered and everything will be fine now, in spite of high rates. They are quick to add that nobody can predict the future!

Well, it looks fairly predictable to me.

The previous three years plotted above were the hottest frenzy markets of all-time, so we’re lucky just to be having a similar run of showings. But today those showings will be less fruitful, and even if the 2023 trend can stay close, we probably won’t be having as many actual sales.

If the rest of this year goes about the same as recently, we should have a couple of strong weeks in June, take off July 4th, and then a couple of decent weeks in July before drifting off for the rest of the year.

Mortgage rates would have to get into the 5s for it to go any better.

California Migration

As recently as last year there was concern about people leaving the state. But now we are begging you to leave….please! And we’ll shower you with money! The future migration trends – starting in 2023 – should show a remarkable pivot and either everyone who was going to leave has left, and/or California isn’t so bad after all.

An excerpt:

Perhaps most striking, California is now losing higher-income households as well as middle- and lower-income households.  During the pandemic, the number of higher-income households moving to California declined a bit, but the number leaving the state increased dramatically (from less than 150,000 in 2019 to almost 220,000 by 2021).

figure - California is losing households at all income levels

The losses of college graduates and higher-income households are likely related to the ability of many highly educated and highly paid workers to work from home. The Census Bureau’s Household Pulse surveys show that about two-thirds of the almost three million Californians who telework full-time (five or more days per week) have at least a bachelor’s degree. Among recent higher-income Californians leaving the state, over half (53%) report working from home.

figure - Remote work enabled high-income workers to leave California

However, while the migration of higher-income and more highly educated households is notable, these outflows are still relatively small in proportion to their shares in the state as a whole. For example, in 2021 California was home to 8.2 million adults (ages 20 to 64) with at least a bachelor’s degree; that year, the net outflow of this group amounted to 1.1% of the number of college graduates. Similarly, California was home to 9.0 million 18–64 year olds living in higher income households in 2021; the net outflow of this group was 1.1%.

Most people who move across state lines cite employment, housing, or family as the primary reason. Since 2015, California has experienced net losses of over 500,000 adults who cite housing as the primary reason, according to the Current Population Survey. About half of those who leave the state buy a house in their new state, whereas only one-third of those moving to California buy a house. Net losses among those who cite jobs as the primary reason totaled 309,000 and among those who cite family 307,000. The PPIC Statewide Survey finds that 34% of Californians have seriously considered leaving the state because of high housing costs. Political outlook might also play a role for some movers, as conservatives are more likely to contemplate leaving the state than liberals.

The picture painted by these trends illustrates the frustrations and economic challenges faced by many Californians. The state’s high cost of living, driven primarily by comparatively high housing costs, remains an ongoing public policy challenge—one that needs resolution if the state is to be a place of opportunity for all of its residents. Moreover—if these interstate migration patterns continue—California could experience sustained population losses for years to come.

https://www.ppic.org/blog/whos-leaving-california-and-whos-moving-in/

Pin It on Pinterest