We knew at the beginning of June that we wouldn’t get to 200 sales, just by the number of pendings:
NSDCC June Listings and Sales
Year
# of Listings
# of Sales
L/S
2015
527
340
1.55
2016
513
312
1.64
2017
416
360
1.56
2018
476
299
1.59
2019
435
282
1.54
2020
448
274
1.64
2021
386
357
1.08
2022
301
170
1.77
Our precipitous drop in the number of listings has to be considered when examining the current market conditions – and not only are there fewer listings than ever, but the quality of the homes coming to market is on the lower end. People are hanging on to the best homes!
After rates and prices have doubled, if you are going to buy a home now, you want to hold out for a good one! Yet we have fewer quality choices than ever before.
Let’s break down the active and pending listings by zip code is to give you a closer look at the neighborhood stats. We’re going to have more active listings simply because the the list prices were all based on red-hot frenzy conditions (comps + 5% or more), and we’re past the red-hot days.
NSDCC Actives and Pendings
Town/Area
Zip Code
Feb 27
Mar 16
May 5
Jun 20
Cardiff
92007
5/7
6/4
7/7
13/5
Carlsbad NW
92008
6/9
8/10
15/10
27/10
Carlsbad SE
92009
15/29
8/33
20/27
47/25
Carlsbad NE
92010
1/5
2/6
7/14
17/11
Carlsbad SW
92011
2/11
4/12
8/16
19/19
Carmel Valley
92130
10/31
10/30
22/25
50/18
Del Mar
92014
15/32
17/10
24/13
30/8
Encinitas
92024
15/32
17/28
24/32
46/26
La Jolla
92037
53/38
55/35
51/32
72/24
Rancho Santa Fe
92067
45/22
47/24
49/22
52/25
Rancho Santa Fe
92091
2/2
5/2
2/0
3/2
Solana Bch
92075
6/6
3/10
9/7
12/5
NSDCC
All Above
179/205
182/204
238/205
388/178
The selling season started early in 2022, and was cooking by the end of February. Let’s group the different areas based on how their pendings are holding up.
Frenzy-ish:
Carlsbad SW – A few houses finally went up for sale, and buyers responded.
Rancho Santa Fe – The active listings aren’t growing like in the other high-end areas of Del Mar and La Jolla, and the number of pendings are very impressive. It was once normal when the Ranch had a 10:1 ratio between actives and pendings!
Normal-ish:
Everyone else, except……
Crash Zone
Carmel Valley – which has always had more pendings than actives over the last two years – and sometimes twice as many pendings! While having 50 actives and 18 pendings anywhere else would be a win, in the CV it feels like a meltdown.
Here they are:
(I tried to sort those by price order, but all they have is sort by date added)
This nonsense about every buyer paying way over list price has to stop. If the SP:LP was around 100% we’d be elated, yet it was 111%, 109%, and 109% in the February-April stretch.
So far in June, the SP:LP is 107% for the 104 detached-home sales between Carlsbad and La Jolla!
We can also track the average market times too. Any upward trends here would indicate market slowing – it’s early so nothing too startling yet:
The hottest of the red-hot was in 2020, when we had 400+ pendings from June 22nd to November 30th – with a peak of 491 pendings on 9/7/2020. Today we have 178 pendings.
Buyers thought this was a holiday weekend, and sellers didn’t!
It was the week that the actives-to-pendings ratio between La Jolla and Carlsbad crossed back over the ideal 2:1 range, which is what we have observed to be the sign of a healthy market in the past.
Last week: 354/202, or 1.75
This week: 388/177, or 2.19
Here is the breakdown by price range:
NSDCC Actives and Pendings
Price Range
Active Listings
Pending Listings
A/P
0-$1.5M
46
22
2.1
$1.5-$2.0M
57
41
1.4
$2.0-$3.0M
91
59
1.5
$3.0-$4.0M
52
26
2.0
$4.0M+
148
35
4.2
The high-end firmly believes that it takes longer to sell the uber-expensive homes, so they are happy to wait for their magic moment – and typically have the resources to do so.
I wrote offers for buyers around the $2,000,000 range, and both listing agents claimed to have multiple offers. It may take longer to reach an accepted offer these days as listing agents wait for better deals to arrive, so let’s check back on the pendings in a couple of days.
This is what Plateau City looks like – plenty of unsolds preferring to sit, than reduce.
The California Association of Realtors said that the number of pendings has been falling.
They don’t give any other details or interpretations, so what will casual readers conclude?
The market must be coming apart!
Thanks C.A.R.!
But because pendings and sales are directly related to inventory, we must consider the impact of having fewer homes for sale. Look how dramatically the inventory has dropped recently, and yet we still had a good amount of sales, relatively:
NSDCC Detached-Homes
Year
Total Listings, Jan 1 to May 31
Total Sales, Jan 1 to May 31
Sales/Listings
2018
2,222
1,112
50%
2019
2,273
1,099
48%
2020
1,855
871
47%
2021
1,780
1,322
74%
2022
1,349
946
70%
In 2021, the frenzy was so hot that every house was selling, and the lower inventory wasn’t as obvious because the sales count was tremendous. But now that the number of homes for sale has really dried up, the impact on pendings and sales is more noticeable – at least for those who are willing to look that far.
This year has been really great! The rest of the year will probably be less great. It might even get back to 2018-2019 levels, which is fine – that’s the way it always was. We could handle worse if we had to.
Coming off the initial covid months, everyone thought the red-hot market was an acceptable reaction to the way our world had changed. But it’s gone too far, and somebody had to do something – and the Fed is going to do it again tomorrow, which will continue the rise in mortgage rates.
It means sales are going to tumble, which is nothing we can’t handle.
Here’s how it looks so far:
NSDCC June Sales
2017: 360
2018: 299
2019: 282
2020: 274
2021: 357
2022: 61
Currently there are 198 homes in escrow, and 68 of those were marked pending this month.
Of those that went pending prior to June 1st, let’s guess that 100 of them will close in June – and there might be a few others that are just coming together this week with a quick close date in June too.
It will make for around 180-200 NSDCC sales this month! It’s quite a bit lower than usual, but we’ll survive.
We’ll have more unsold listings, longer market times, price reductions, and fewer sales – it’s all part of the recalibration! Additional price reductions are an unreliable indicator because you don’t know how crazy the recent list prices were in the beginning, and they have never been so optimistic, even for the frenzy.
The closed-sales pricing will be the last thing to change, if at all.
I’m sticking with my +/- 5% for NSDCC pricing here in Plateau City.
The drastic drop in inventory seems devastating, but check out the closed sales:
NSDCC Number of Listings & Sales, First Quarter
Year
NSDCC Total 1Q Listings
Median List Price
1Q Closings
Median Sales Price
2018
1,230
$1,592,500
569
$1,323,000
2019
1,277
$1,575,000
536
$1,290,000
2020
1,082
$1,712,500
572
$1,420,500
2021
985
$1,899,000
663
$1,800,000
2022
704
$2,595,000
504
$2,418,000
Last year was an exceptional frenzy with 663 sales in the first quarter, but look how this year compares to previous years. The 1Q sales in 2022 are fairly close to those in 2018-2020, in spite of fewer choices!
Let’s take a look at the covid history of one of our frenzy measuring sticks:
NSDCC Sales-Price-to-List-Price Ratio:
Month
# of Sales
Median List Price
Median Sales Price
SP:LP Ratio
March 2020
206
$1,492,500
$1,445,000
96.8%
Apr
156
$1,424,499
$1,390,000
97.6%
May
143
$1,399,900
$1,395,000
99.6%
Jun
274
$1,362,500
$1,363,700
100%
Jul
351
$1,450,000
$1,423,350
98.2%
Aug
350
$1,450,000
$1,419,812
97.9%
Sep
360
$1,500,000
$1,498,750
99.9%
Oct
382
$1,696,500
$1,674,100
98.7%
Nov
305
$1,599,000
$1,599,900
100%
Dec
290
$1,633,500
$1,624,391
99.4%
Jan
187
$1,716,690
$1,725,000
100.5%
Feb
224
$1,719,500
$1,758,000
102.2%
March 2021
252
$1,800,000
$1,825,000
101.4%
Apr
359
$1,799,900
$1,825,829
101.4%
May
300
$1,900,000
$1,979,500
104.2%
Jun
357
$1,900,000
$1,960,000
103.2%
Jul
312
$1,792,500
$1,852,500
103.3%
Aug
268
$1,897,000
$1,950,000
102.8%
Sep
283
$1,899,000
$2,000,000
105.3%
Oct
251
$1,899,000
$1,899,000
100%
Nov
200
$1,998,500
$2,100,000
105.1%
Dec
183
$1,995,000
$2,165,000
108.5%
Jan
140
$2,234,944
$2,240,000
100.2%
Feb
158
$2,149,500
$2,386,500
111.0%
March 2022
206
$2,425,000
$2,625,000
108.2%
The chatter increases with the lower volume, plus there are going to be months when the offerings just aren’t that tasty. But in 2022, when buyers see a home they like, they over bid substantially!
All we have to do is watch the trend over the next few months to know the direction of the market.
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.
Nobody?
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:
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.
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.
Buyers who are affected by higher rates can get a 2.375% ARM, fixed for ten years.
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:
Everyone is worried about rising rates, and their impact on the future of the market. The combination of higher rates AND higher prices is dramatic when compared to just a year ago.
Here is a comparison between the NSDCC closed sales between Feb. 1st and March 29th:
Year
Median List Price
Median Sales Price
30-Yr Fixed Rate
Monthly Pmt on 80% of MSP
2021
$1,795,000
$1,800,000
3.0%
$6,071/mo.
2022
$2,250,000
$2,500,000
4.75%
$10,433/mo.
Let’s set aside that the 2022 median sales price is $250,000 higher than the median list price.
The monthly payment is 72% higher than last year!
It means that the market will be increasingly determined by the affluent. Those buyers who are payment sensitive can stay in the game by opting for an adjustable-rate mortgage and start at 2.375% for ten years, or wait it out – which will be a long time, and maybe forever.
What could slow/stop the market is a change of psychology in the affluent buyers.
They can use a bigger down payment or pay all-cash to offset higher prices and rates, unless they decide to wait-and-see themselves. But if they don’t own a house here yet, their desire to move here will be the determining factor.
The market will be made by the affluent out-of-towners!
New post (Remote Work Caused 1/2 Of Price Surge) has been published on http://bubbleinfo.com - https://www.bubbleinfo.com/2022/07/05/remote-work-caused-1-2-of-price-surge/
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