NSDCC December Sales

Mortgage rates were the best they’ve been in December since 2012. How were sales?

We had a nice pop in sales compared to 2018, but that’s about it:

NSDCC December Sales

Year
# of Sales
Median SP
Avg. Cost-per-sf
2015
258
$1,094,500
$477/sf
2016
240
$1,150,000
$502/sf
2017
225
$1,215,000
$573/sf
2018
199
$1,460,000
$560/sf
2019
224
$1,405,000
$586/sf

How much momentum are we carrying into the new year from the last couple of months?

The market has felt very active, but looking at the stats, we’ve only beat last year’s count by 13%…..which isn’t saying much, given how much lower rates have been (-20% YoY):

NSDCC November + December Sales

Year
# of Sales
Median SP
Avg. Cost-per-sf
2015
454
$1,107,500
$495/sf
2016
484
$1,199,995
$517/sf
2017
445
$1,215,000
$549/sf
2018
397
$1,375,000
$563/sf
2019
429
$1,350,000
$577/sf

Hopefully, the 2020 sellers are noticing that there haven’t been the big gains in pricing recently – but those who are willing to sell for about the same as what the last guy got should do fine!

NSDCC November Sales

We’ve never had a soft landing before, but this is how I imagine one would look – mortgage rates drop just enough to have sales and pricing level out:

Year
# of Sales
Median SP
Avg. Cost-per-sf
Median DOM
2014
173
$985,000
$489/sf
34
2015
196
$1,173,750
$518/sf
38
2016
244
$1,235,908
$531/sf
28
2017
220
$1,208,487
$524/sf
27
2018
197
$1,300,000
$566/sf
29
2019
201
$1,345,000
$569/sf
28

We could have done better (see 2016), but it could have been much worse too. In 2014, when pricing was substantially lower, we only had 173 sales – which goes to show you that pricing isn’t the only component.

Speaking of pricing, the median sales price has rebounded over the last two months instead of tapering off, like it usually does. It’s over $100,000 higher than last November! (Coastal North includes Oceanside):

It looks like an early surge is likely in 2020, after that….who knows?

2020 Predictions

Last year, I guessed that our NSDCC sales would drop 20% due to high mortgage rates, and pricing would stay about the same.  Rates dropped instead, and both sales and pricing stayed about the same as the previous year.

In 2020, I think we will see sales drop 10%, just because we’re overdue, and guessing that the NSDCC median sales price might go up 2% to 3%.

We’ve entered the World Of Concierge, where all participants – flippers, ibuyers, and realtors/brokerages – are rehabbing, improving, decorating, and staging most homes for sale.  The movement has been building for years, and in 2020 we should see full implementation.

It takes some of the sting out of paying full retail, and buyers really don’t mind paying all the money if they get a turn-key home.  Because sellers and agents will be going further to satisfy the retail buyer, we should see more of the softer landing that we saw this year that was caused by dropping rates.

Here’s what Rob Dawg said last year:

Here goes.

Median +4%. Late year inflation and demand for even negative cash flow rental properties. Volume down only 12%. Lots of deck chair shuffling will look like volume. Reported volume -10% from 2018.

$2m+ volume will increase. Lots of quality properties aging out and none of the kids or grandkids can afford to take possession out of the communal estate. Add to this the “too many houses” crowd both casual investors and the very rich who have made their money and ready to throw off the carrying costs.

Almost nothing sub $550k will show up on the sales sheets.

Interest rates will range between 4.4% (early, briefly) and eventually 5.6% (in Q4). Inflation and banking regulations conspire.

There may be a technical recession that will be over before it is confirmed. People will argue whether there was a recession.

Here is a metric we haven’t followed. Total dollar volume of sales will be flat to slightly down.

But what do I know?

We both thoughts rates would be a problem in 2019, but what do we know?  It’s hard to believe rates could drop lower in 2020, but if they did get into the low-3s it would ignite the market.  Those who have been wanting to move up or down but had a mortgage rate in the mid-3s or higher could now justify moving and getting a lower rate.  If California residents pass the referendum to enable seniors to take their old tax basis with them when they buy up in price, it could also ignite sales (if you believe the California Association of Realtors).

What’s Your Guess?  The closest guesser will get four tickets to a Padres game!

Mr. and Mrs. Dawg did join us for a Padres game this year (vs. the Red Sox).

More 2020 Forecast

Above you can see how our market compares to others, and below is the history of our ‘months of supply’.  I said in the video yesterday that I thought the NSDCC sales in 2020 will be down 10% year-over-year mostly because there aren’t enough reasonably-priced homes to sell (or conversely, there aren’t enough buyers who can/will overpay for the multi-million-dollar homes).

I think you can see some of the price resistance lately as the orange line got into the 3s the last two years. We’ve seen how the velocity of the price increases has slowed considerably and when that happens, the natural next step for the market is fewer sales.

The orange line hit 3.0 in April of this year, when the previous April it was only 2.4, which means the inventory grew quicker at the start of the selling season. Expect the same in 2020, and when buyers see a rapidly growing inventory, it’s natural for them to be cautious and picky.

Liquidation Event Or Soft Landing?

Ty said yesterday,

The thing I think you miss most or maybe overlook is how overleveraged the average person is. I do commercial real estate and routinely have access to small business owners financials. Equity rich in their homes but cash poor with credit card debt and car loans up the wazoo. Any bump in the road will send them into disarray. Selling the house may be the only way they can survive. I think rocky times ahead.

We can speculate about what might be or what could happen, but in the end we’re all just guessing.  Blog reader ‘Another Investor’ believes the opposite – that boomers are flush and not moving until they go feet first…..so we have balance here at bubbleinfo.com!

Let’s use statistics to help guide us.

If there were trouble brewing, then more people would be trying to sell.

Not everyone would sell, because their motivation might not be strong enough to take what the market would bear.  So let’s just consider the number of listings – and also consider that there are probably more re-lists now than ever:

NSDCC Total Number of Listings Between Jan-Oct:

Year
# of Listings
2014
4,278
2015
4,583
2016
4,698
2017
4,248
2018
4,389
2019
4,327

Boomers or others aren’t trying to sell any more than they used to – so no obvious surge yet.

But the number of cash-out refinances was somewhat alarming yesterday.  But everyone has to qualify for those mortgages, so even if more people are tapping their equity, they must be able to afford it.

But like Eddie89 said, the rules have changed, so all previous assumptions don’t apply.

I think any distressed homeowners will wait until the very end before deciding to sell because they really don’t want to move.  It will drag out the inevitable, but it might just cause a softer landing because each homeowners ability to last longer will vary.

Let’s keep an eye on the number of new listings – that’s where you’ll see it first!

Inventory Watch

At first glance you would think that the lower mortgage rates of 2019 have made NO difference in the market this year, compared to 2018.

But if we didn’t have rates in the 3s for most of this year, where would we be?  We would have had a lot tougher time getting sellers and buyers together on price.  It’s already been a challenge:

NSDCC Detached-Home Sales & Median Sales Price, Jan-Oct

2018: 2,418 $1,325,000

2019: 2,393 $1,325,000

Will sellers capitulate in 2020? No, because there isn’t enough evidence that they need to.

Will buyers pay more in 2020? Probably not, especially if there’s anything that makes them think that waiting longer is a good idea.

Get Good Help!

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NSDCC Sales, October

Our market was slumping towards the end of 2018, so no surprise that the numbers this year look so good.  But the pace since 2013 is remarkable, and for last month’s sales to only be down 10% vs. 2013 is incredible, given how strong our market was then:

NSDCC Detached-Home Sales, October:

Year
# Sales
Avg $/sf
Med $/sf
Med SP
Med DOM
2013
266
$495/sf
$383/sf
$957,500
32
2014
244
$467/sf
$387/sf
$978,754
39
2015
223
$473/sf
$406/sf
$1,075,000
25
2016
275
$524/sf
$424/sf
$1,100,000
30
2017
259
$533/sf
$439/sf
$1,194,500
29
2018
238
$568/sf
$484/sf
$1,384,634
37
2019
239
$602/sf
$490/sf
$1,425,000
32
Diff since 2013
-10%
+22%
+28%
+49%
0

The statistics should remain solid for the rest of the year, though the local Case-Shiller Index will probably be slightly negative.  It’s 2020 that will be less predictable!

4Q Uptick?

A positive forecast from our friends at JBREC:

Our proprietary model using Google search trends shows a bottoming & re-acceleration in resale and new home sales growth YOY into year end. Lower mortgage rates, better affordability, and an easy comp vs. last year’s dreary 4Q help these YOY stats.

You would think that the sales slump at the end of 2018 would make this year’s comparison look rosy, but it looks like we’ll be lucky just to match the 2018 sales around Coastal North SD County. We need 62 more sales reported for October, 2019 just to match last year – which had been 5% lower than the year before:

NSDCC End of Selling Season

I was talking to Nick yesterday about the current market conditions, and how home sale have been affected by the low mortgage rates recently.

You can see in the graph above that over the last five years we’ve been accustomed to rates in the threes, so it seemed obvious that when rates almost hit 5% that a market slowdown was in order.

Likewise, wouldn’t sales pick up as rates came back down?

But interestingly, in another statistical quirk, sales this year are the same as last year:

NSDCC Detached-Home Sales, August 15th – October 15th

Year
# of Sales
Avg $$/sf
Median SP
Median DOM
Sept 30yr Rate
2016
579
$517/sf
$1,199,000
28
3.46%
2017
528
$542/sf
$1,225,000
26
3.81%
2018
484
$570/sf
$1,330,000
26
4.63%
2019
484
$604/sf
$1,387,500
27
3.61%

Last year when sales were plunging 8% (again), it was easy to blame it on the higher rates. But as rates settled down this year, the best we can say is that sales have flattened out.

Reasons:

  1. Higher pricing is offsetting the lower rates.
  2. Buyers expect rates in the threes. Rates would have to get into the 2s to create a surge now.
  3. Not many homes for sale provide a compelling value to buyers (either the house or price is wrong).

The lower rates this year have provided that mythical soft landing that no one thought was possible. It is giving sellers and agents a sense of security that higher prices are supportable. But wouldn’t rates have to keep going down further for prices to go any higher?

If rates and pricing stayed about the same, the market should plateau along.

But can sellers resist adding that extra 5% on top of the last sale comp?  Probably not.

We’ll need an Election Year Miracle for prices to keep rising in 2020!

NSDCC Open Houses This Weekend

I went through the NSDCC open-house list and these are my favorites based on price, location, DOM, and agent. They start in La Jolla (four on the oceanfront!) and go north up the coast as you scroll down.

Let me know if you’d like me to create a personal collection for your search!

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