Yesterday, the C.A.R. released the statewide January results, with more speculation from our so-called leaders:
California home sales fall to lowest level in more than 10 years
– Existing, single-family home sales totaled 357,730 in January on a seasonally adjusted annualized rate, down 3.9 percent from December and down 12.6 percent from January 2018.
– January’s statewide median home price was $538,690, down 3.4 percent from December and up 2.1 percent from January 2018.
– Statewide active listings rose for the 10th straight month, increasing 27 percent from the previous year.
– The statewide Unsold Inventory Index was 4.6 months in January, up from 3.5 months in December.
“California continued to move toward a more balanced market as we see buyers having greater negotiating power and sellers making concessions to get their homes sold as inventory grows,” said C.A.R. President Jared Martin. “While interest rates have dropped down to the lowest point in 10 months, potential buyers are putting their homeownership plans on hold as they wait out further price adjustments.”
The statewide median home price declined to $538,690 in January. The January statewide median price was down 3.4 percent from $557,600 in December and up 2.1 percent from a revised $527,780 in January 2018.
“While we expected the federal government shutdown during most of January to temporarily interrupt closings because of a delay in loan approvals and income verifications, the impact on January’s home sales was minimal,” said C.A.R. Senior Vice President and Chief Economist Leslie Appleton-Young. “The decline in sales was more indicative of demand side issues and was broad and across all price categories and regions of the state. Moreover, growing inventory over the past few months has not translated into more sales.”
Obviously, they haven’t done a survey of the North San Diego County’s coastal region! Between La Jolla and Carlsbad, we had about the same number of January sales last month as we did in January, 2018, so we’re faring much better than the -12.6% statewide. We are further into February so let’s pick up the sales from the first half, and break it down by price category too:
NSDCC Detached-Home Closed Sales, Jan 1 to Feb. 15th
$1M to $1.5M
$1.5 to $2.0M
The only two signs of trouble:
The Under-$1M market is disappearing.
If you want to buy a house priced over $2,000,000, you sure have plenty to consider! Those sellers are happy to wait it out too, so no rush.
Other than those, we have remarkable balance, and it doesn’t look like ‘potential buyers are putting their homeownership plans on hold’ around here!
With deductible mortgage interest now capped at $750,000 by the I.R.S., buyers who are concerned about write-offs will want to keep their new loan balance in the $700,000s.
The strict equation is $750,000/80% = $937,500.
If buyers find a house priced higher, they could come up with more cash to make up the difference, or they could get a jumbo loan at roughly the same interest rate and live with the non-deductible interest paid on the loan amount above $750,000.
It makes the ideal purchase price in the $1,000,000-$1,100,000 range.
If the tax reform is a big concern for buyers as some have suggested, the homes priced in the $1,100,000 – $1,500,000 might feel it. Buyers above that range weren’t expecting as much benefit anyway, and probably won’t be as impacted – but theoretically there are fewer buyers the higher we go.
Out of curiosity, let’s keep an eye on the NSDCC stats.
Today’s NSDCC Actives and Pendings:
$700,000-$1,100,000: 121/72 = 1.68
$1,100,000-$1,500,000: 157/75 = 2.09
$1,500,000-$2,500,000: 243/81 = 3.00
$2,500,000 and higher: 399/44 = 9.07
The market has been healthy up to $1,500,000 roughly, and like Rob Dawg said yesterday, potential buyers may not know the exact impact of the tax reform until they start on their 2018 tax returns in spring.
Let’s examine by zip code where the market might be slowing recently. These are the detached-home sales for the second quarter, plus the current number of pendings in each area:
If the numbers for 2Q18 are remarkably under the first two columns, and the number of pendings are so low that the 3Q18 doesn’t look promising either, then you can figure that the market is soft, and getting softer in that zip code (Cardiff, Carlsbad SW, & Encinitas).
Historically, we have considered our market to be relatively ‘healthy’ when the actives-to-pendings ratio is around 2.0 – but that thought originated when prices were about half of what they are today!
But all in all, we’re in pretty good shape today.
The active inventory hasn’t exploded, and as long as the supply stays in check, the sellers aren’t going to panic. Do the buyers have the willingness and ability to wait it out, with no assurance it will ever get better? Or will the lack of solid evidence keep the ball rolling, albeit at a slower pace?
Here are the stats for the NSDCC detached-home market (La Jolla to Carlsbad):
Oct 28, 2015
Feb 1, 2016
Mar 23, 2016
June 21, 2016
Aug 17, 2016
Dec 4, 2016
Apr 21, 2017
July 16, 2018
NSDCC Actives Median Price = $2,288,045
NSDCC Pendings Median Price = $1,395,000
Only 10% of the actives are under $1,000,000, and 35% are over $3,000,000 (which are the same ratios as the last reading in April, 2017).
Here are the Actives/Pendings ratios for each area:
These stats are going to bounce around, so there isn’t anything here that gets me overly concerned.
Del Mar has always been a smaller, expensive subset (just eight pendings today), La Jolla is in line with their recent past, and RSF is as good as it’s been in years. Everything else is around the regular 2.0 ratio for a normal market.
The pending counts have been dropping precipitously since June 11:
NSDCC All: -15%
While a lower number of pendings can be due to more closings from the fat part of the selling season, it not like we’re setting any sales records either. The NSDCC June sales are down 20%, year-over-year, just like they were in May.
I’m not sure how the C.A.R prognosticators can look at these Y-o-Y numbers and still forecast higher sales for next year – unless they think the supply will inflate with thousands of desperate realtors having to sell their own homes?
The data keeps pointing to a slowdown, and like a Yu Darvish hanging curveball, once it’s in flight, there’s not much you can do. Few sellers need to sell bad enough that a substantial price reduction will be considered – and there isn’t enough competition to cause any fear. For buyers who keep reading about the threat of rising rates, it can be very frustrating.
• Pending home sales have declined on an annual basis for eight of the last nine months so far this year. After a solid run-up of closed sales in May, June, and August, continued housing inventory issues and affordability constraints may have pushed the market to a tipping point, suggesting the pace of growth will begin to slow in the fall.
• C.A.R.’s Market Velocity Index – home sales relative to the number of new listings coming on line each month to replenish that sold inventory, or market indicator of future price appreciation – suggests that there continues to be upward pressure on home prices through the fall. Home sales continue to outstrip new listings coming online to restock sold units.
• The Market Velocity Index dipped from 53 to 52, implying that there were 52 percent more homes sold than new listings, meaning the supply of homes available for sale continued to drop.
However, fewer homes are coming to market, in spite of record pricing:
NSDCC # of Houses Listed Between August 1 – September 30th:
All SD County # of Houses Listed Between August 1 – September 30th:
NSDCC # of Houses Listed In September Only:
All SD County # of Houses Listed In September Only:
With fewer homes to sell, the percentages of pending and closed sales have nowhere to go but down – and we’re doing fine, considering the inventory. The declines in the pending and closed sales are in line with, or better than the decline in new listings.
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