Coronavirus and the Real Estate Market

Everyone is wondering how the coronavirus will affect housing, so Bloomberg News decided to whip up the hysteria with this article built on speculation and guesses. Mark Zandi has had one of the most negative opinions about housing, hoping that some day he might be right, and Yunnie has never left his ivory tower.

These are the only facts mentioned in the article:

The potential economic fallout still hadn’t completely registered this past weekend for homebuyers in Seattle, an epicenter of the U.S. outbreak. On Saturday, around four dozen groups filed through a four-bedroom Tudor in the Whittier neighborhood listed for just over $1 million. Many said they had hoped the virus would keep other would-be buyers away in a market where there’s little inventory and bidding wars are frequent.

At another open house nearby, handshakes were out, but plenty of home shoppers came for a look. Craig Rothlin, 34, and Kanako Nakarai, 31, were among them. Both work for tech companies, and have been hurt by the recent stock market rout.

“A good chunk of our down payment is caught up in that,” Rothlin said.

The couple had been waiting to see prices come down. But, so far, that hasn’t happened. The last home they bid on got multiple offers and sold for $180,000 over the asking price.

Seattle is an epicenter of the U.S. outbreak, and FOUR DOZEN GROUPS are looking at an open house?  Many said they hoped that the virus would keep other would-be buyers away?  There’s your takeaway!

Let’s focus on the facts.

In the area between La Jolla and Carlsbad, there are 121 houses for sale priced under $1,500,000, and 158 pending listings.  When there are more pendings than actives, it means the demand is outstripping the supply!  Even if some nervous nellies decided to wait it out, there will still be plenty who want to buy a home when rates are at all-time lows.

What about the high-end, Jim, aren’t the affluent more susceptible to stock market swings? Maybe, but they’re not going to give it away!  This scare will be over in less than a year, and rich people have a long history of waiting on price, rather than dumping.

What if we have a recession?  Then don’t make your payments – banks don’t mind!

It would take a flood of inventory to disrupt the market in a bad way.  But the COVID-19 is causing a hunker-down-and-do-nothing environment.  Homeowners aren’t going to panic and uproot their life just because of some stinking virus that will pass in 6-12 months.

NSDCC February Sales & Pricing

February sales have been fairly uniform as pricing marches higher – it’s almost as if pricing doesn’t matter:

NSDCC February Sales & Pricing

Year
# of Sales
Avg $$/sf
Median SP
Median $$/sf
2013
188
$399/sf
$887,500
$334/sf
2014
180
$487/sf
$927,500
$378/sf
2015
171
$519/sf
$1,100,000
$425/sf
2016
139
$560/sf
$1,150,000
$410/sf
2017
173
$508/sf
$1,265,000
$426/sf
2018
165
$572/sf
$1,293,010
$498/sf
2019
176
$536/sf
$1,275,000
$459/sf
2020
179
$640/sf
$1,375,000
$516/sf

Don’t we fondly remember 2013, when pricing was 40% to 50% lower? It’s seems like yesterday!

NSDCC January Listings and Sales

Our January sales count of detached-homes between La Jolla and Carlsbad was impressive, and comparable to the good old days!

NSDCC January Sales & Listings

Year
# of Sales
Median SP
Avg. Cost-per-sf
# of New Jan. Listings
2013
185
$845,000
$379/sf
410
2014
182
$1,072,500
$501/sf
413
2015
166
$1,221,500
$511/sf
405
2016
171
$1,092,000
$553/sf
471
2017
175
$1,180,000
$518/sf
394
2018
151
$1,320,000
$573/sf
426
2019
152
$1,300,000
$532/sf
419
2020
183
$1,430,000
$607/sf
339

In spite of all-time record pricing, the number of January listings really dried up, compared to previous Januarys – and 40% of last month’s listings are already pending or sold. How you feel about the inventory shortage depends somewhat on your price range too – here is the recent history:

NSDCC Number of January Listings by Price Range

Year
# Under-$1M
$1M – $2M
$2M – $3M
Over $3M
2013
186
123
50
56
2014
159
150
56
57
2015
138
162
50
62
2016
128
205
85
70
2017
101
163
71
71
2018
69
206
86
69
2019
74
201
66
85
2020
45
157
74
73

For those hoping to buy a house priced under a million, the dwindling number of listings is daunting. But the inventory over $1,000,000 has been relatively stable – no big surge there.

Median Sales Prices by Area

It’s been ten years since the bottom of the market.

Let’s see how the annual median-sales-prices of detached-homes have changed:

Town or Area
Zip Code
2009
2014
2019
10yr % chg
Cardiff
92007
$785,000
$1,180,000
$1,408,000
+79%
NW Carlsbad
92008
$587,000
$740,000
$999,500
+70%
SE Carlsbad
92009
$690,000
$825,000
$1,085,000
+56%
NE Carlsbad
92010
$528,750
$650,000
$830,000
+57%
SW Carlsbad
92011
$696,500
$850,000
$1,113,050
+60%
Carmel Valley
92130
$855,000
$1,090,000
$1,345,000
+57%
Del Mar
92014
$1,350,000
$1,625,000
$2,000,000
+48%
Encinitas
92024
$720,000
$955,000
$1,409,000
+96%
La Jolla
92037
$1,450,000
$1,640,000
$2,100,000
+45%
RSF
92067
$2,325,000
$2,476,596
$2,550,000
+10%
Solana Beach
92075
$1,075,000
$1,326,000
$1,462,500
+36%
NSDCC MSP
All Above
$815,000
$1,013,000
$1,325,000
+63%
NSDCC Sales
All Above
2,204
2,813
2,801
+27%

Takeaways?

  1. Everywhere’s a million!
  2. Most areas had their median sales price rise more in the second half (2014-2019).
  3. The number of sales is very impressive, given the run-up in pricing (we had 2,781 sales in 2018).
  4. Pricing in the Ranch has averaged +1% per year, which proves we can live with flat pricing for 5-10 years.
  5. Encinitas is less like Carlsbad and more like its ritzy neighbors to the south. Maybe it’s the culture?

https://encinitasca.gov/Home/City-Calendar/ctl/ViewEvent/mid/774/OccuranceId/3336

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!

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