NSDCC First Quarter Comparisons

The first quarter of 2024 is the only 1Q in recent history to have increases in BOTH the number of listings AND the median list price. Previously, increases in pricing had a corresponding dip in the number of listings available for buyers to consider.

If you are like me, you’ve seen a noticeable surge in seller optimism in 2024. It’s not just the median list price that is up 8%, doesn’t it seem like everything is $200,000 higher than last year?

NSDCC February Sales, Prelim

This month’s housing stats will benefit from an extra business day due to the leap year, but it will just be icing on the cake. The sales this month have already blown by last February, in spite of higher pricing.

I think we can say that we’re back to frenzy-like conditions:

Some agents insist on inputting their listings of attached homes in the SFR category. There has only been ONE house sale under $1,000,000 in the last three Februarys.

This month’s total will probably be around 160-170 sales, which is phenomenal when you consider that we had similar monthly sales counts when pricing was half of what it is today! Not only that, but the number of sales will be close to the total number of listings too – probably closer than during the peak frenzy years.

With declining sales across the country, there are complaints about how bad the market has been, and people are wondering when it will get ‘better’. Better? This is great, relatively, and this is what we’re going to have for the next few years because the boomers are still relatively young (half are still working).

It will take a surge of new listings, and/or a drop in demand, which you’d think would happen naturally as prices go higher. But not yet.

How’s the flow of new listings?

After a hot January that was +18% YoY, the February listings have cooled off – though there will be late-reporters that should get this year’s count up to 220-ish:

NSDCC Monthly Listings

Two months into the new year, I think we have found our groove. The inventory will stay low, and the special homes will keep blowing off the market – with the rest having to find their way.

Zillow Local Appreciation Guesses, 2024

If Zillow made their predictions based on traffic to their website, it would be impressive. I’m not sure how they figure these though.

Generally, they are expecting +3% to 4% in home values around here over the next 12 months:

Carlsbad 92008

Carlsbad 92009

Carlsbad 92010

Carlsbad 92011

Carmel Valley 92130

Del Mar 92014

Encinitas 92024

Rancho Santa Fe 92067

NSDCC January Sales & Pricing

January Detached-Home Sales & Pricing, La Jolla to Carlsbad

It was in June, 2022 that Fed Chair Jerome Powell told reporters that spiked mortgage rates would “reset” the “overheated” pandemic housing market.

Last month had the highest pricing metrics AND the highest January mortgage rate in recent history!

NSDCC Jan. Listings & Sales, Prelim

As of February 1st, the January sales count is 103, with the median sales price at $2,275,000, which is a nice pop over the 87 sales from last month. The graph above shows how any momentum was thwarted by rising rates in October, and some relief now is probably contributing to more sales and activity locally (though the mortgage purchase apps were down 11% nationwide today).

By Monday we’ll be able to crown Joe as the winner of the Padres tickets!

Slightly more inventory is the best-case scenario for a healthy selling season. Too many new listings might cause buyers to pause and see where it’s going, but we’re not close to a surge today. A bigger threat would be running out of affluent buyers.

217 – January 2024 Listings (205 in January, 2023)

103 – January Sales so far (median sales price = $2,275,000)

42 – January Sales Under $2,000,000

15 – January Sales Over $4,000,000

$1,100,000 – Lowest-priced sale in January (a detached condo)

$18,500,000 – Highest-priced sale in January (Oceanfront sold off-market)

20 – Median Days on Market

February should be incredible with momentum increasing rapidly. The selling season is here!

Mortgage tip: For those getting a loan under $1,000,000, you can get an FHA rate in the high-5s today!

NSDCC Annual Data

Obviously, this year isn’t over but it’s close – and we’ll be lucky to hit 1,800 sales this year (there have been 22 sales closed in December so far).

The identical Sales/Listings percentage over the last two years includes a blazing hot first half of 2022 so the demand has been steady-hot, but there just isn’t the inventory like we used to have.

Pricing?

The median LIST price in 2022 and 2023 was the same $2,199,000 each year. In 2022, people preferred to pay over list, and this year…..not so much!

No evidence yet of a possible surge in inventory next year:

Playground For The Wealthy

A former federal regulator who served when the 2006 housing bubble burst is concerned that today’s housing market is on an unsustainable path.

The housing market’s affordability is worse than it’s been in decades as mortgage rates toy with 8%. The median price of a U.S. home was $322,500 in the second quarter of 2019. Then the pandemic housing rush hit, and prices across the nation shot up. High mortgage rates sent sales spiraling, but home prices only experienced a minor correction before heading back up. In the second quarter of this year, the median price was $416,100, according to the Federal Reserve Bank of St. Louis.

“Talk about a bubble. That’s a classic supply-demand imbalance,” Sheila Bair recently told CNN.

Bair, who served as a federal regulator when the mid-2000s housing bubble popped, nearly taking down the entire financial system, said home prices today are “bubbly” following years of low mortgage rates.

A housing bubble can form when prices rise to unsustainable levels. This can be caused by speculative buying, as was the case during the sub-prime mortgage crisis when people who could not make the monthly payments on their mortgages were buying homes with very little money down. The bubble popped when home prices dropped and many people owed more on their home than it was worth.

A bubble can also be caused by irrational exuberance, in which a surge in prices leads to a buying frenzy.

“When rates were cheaper, a lot of people wanted to buy. You ended up with really frothy price increases. That was pretty predictable,” said Bair, who led the Federal Deposit Insurance Corp. from July 2006 until July 2011.

Although Bair said home prices need to correct downward, she’s not confident that will happen anytime soon because there’s still a shortage of homes on the market and she doesn’t expect the bubble to violently burst.

“If supply remains constrained, this could go on for some time,” said Bair, who last week released a new children’s book about bubbles called “Daisy Bubble: A Price Crash on Galapagos.”

There were just 1.1 million existing unsold homes on the market as of the end of August, down 14.1% from the year before, according to the NAR. “Letting that bubble deflate a bit would probably be a good thing,” said Bair. “People who already own their home – and I’m one of them – don’t want to hear that. But for those who want to own, I hope home prices do come down.”

Over the past year, the median home price has increased by 23.8% in Los Angeles, 18.2% in San Diego, 15% in Richmond and 14.6% in Cincinnati, according to Realtor.com.

The good news is Bair does not see a repeat of the bursting of the mid-2000s housing bubble, which set the stage for the Great Recession. That’s in part because a typical homeowner today has more equity in their homes than a homeowner during that time. Only 1.1 million homes, or 2% of all mortgaged properties, owed more on their mortgage than their home was worth in September, according to CoreLogic. That is a small number compared with the share of properties underwater during the sub-prime mortgage crisis, which topped out at 26% in the fourth quarter of 2009, according to CoreLogic’s equity analysis, which began in the third quarter of 2009.

In addition, mortgage lending standards are significantly tougher today, meaning fewer people are borrowing more than they can afford.

“I see much less speculation in the housing market today, thank goodness,” said Bair.

And unlike in the mid-2000s, homeowners today have built up a significant cushion of equity. That means they shouldn’t find themselves in a situation like during the subprime meltdown where many owed more than their homes were worth.

“Even if home prices adjust a bit, people should not be under water,” said Bair.

Legendary investor Jeremy Grantham shares Bair’s concern about a housing bubble. He has been warning of an eventual plunge in home prices around the world.

“Real estate is a global bubble,” Grantham said on The Compound and Friends podcast last month. “Home prices will come down…30% would be a pretty good guess.”

Yet others on Wall Street are confident home prices will continue rising.

Despite high mortgage rates, Goldman Sachs expects US home prices will increase by 1.8% this year and then accelerate to 3.5% growth in 2024. Similarly, CoreLogic forecasts that home prices will increase by 4.3% from June 2023 to June 2024.

Although UBS acknowledges home prices have spiked to “dizzying heights” in recent years, the bank only sees two cities around the world at risk of being in a bubble: Zurich and Tokyo. That’s down from nine cities a year ago. Miami, Los Angeles, Toronto and Vancouver are among the cities that UBS says are in “overvalued” territory.

Fannie Mae CEO Priscilla Almodovar said it’s “unusual” that home prices have not taken more of a hit from high mortgage rates. “What has surprised us the most is the stickiness of home prices,” Almodovar told CNN in a recent interview. “Supply is the issue. There is no place to go. There is a lack of inventory.”

That’s the main reason Lawrence Yun, chief economist at the National Association of Realtors, says homebuyers shouldn’t hold their breath waiting for a drop in home prices.

“There is not going to be a home price crash,” Yun told CNN. “When you have a housing shortage, home prices simply cannot decline in any measurable way.”

While a temporary dip in prices is possible, Yun said a “prolonged” drop of 10% to 15% “cannot happen in this tight supply market.”

Yun noted that many assumed London was in the midst of a housing bubble years ago – only to see prices continue to rise, albeit with fewer people participating.

“It became only a playground for the wealthy. I hope America doesn’t go in that direction,” he said.

In many ways, today’s housing market is the polar opposite of the one that preceded the Great Recession.

Back then, reckless mortgage lending helped create a situation where demand became artificially strong. Eventually, it collapsed and the market was left with way too many homes.

“Today, we have an imbalance the other way. Too much demand, not enough supply,” said Yun.

The NAR has estimated the supply of homes needs to basically double to moderate home prices.

“It’s creating social inequity. The only way out of this situation is we have to induce more supply,” said Yun.

https://www.cnn.com/2023/10/11/economy/housing-market-bubble-sheila-bair/index.html

November Graphs

Let’s look at the graphs that were updated with November’s data today:

About 50,000 people live in Carmel Valley, 92130, and only seven houses sold there last month?

The pricing is holding up for the few who do sell:

The wildest frenzy period was from Spring, 2021 to Summer, 2022 when the median DOM was really low for a year. Higher rates shook up this measurement, but it has since settled down in 2023:

This looks solid too – under 2 months is healthy:

The 92037 is La Jolla, which is higher-priced, but look at how similar the median sales price is around Carlsbad, Encinitas, and Carmel Valley now (graphs are interactive):

NSDCC November Sales, Prelim

The market is so much different now than it used to be that we should jettison all previous assumptions (paraphrased from a Rob Dawg comment years ago).

In the old days, prices would be coming down by now because the demand would have been severely impacted by higher prices and rates – but not today:

Is it just early? Maybe, but are sellers going to dump on price when there’s always next year? With virtually no foreclosures and unemployment, there aren’t the usual pressures on sellers, and most will wait it out, rather than lower their price in a panic.

The real impact will be on the number of sales. We’ve already experienced – and survived – around 100 sales per month in the off season, and if that happened every month of the year, we’d find a way to live with that too.

Sellers need to choose – do more to spruce up the house for sale, or be willing to take less. If the house is already dated and needing a full renovation, the discount will probably be getting larger, because buyers are putting up a fight.

Here are examples of the November discounts – only one sold over list:

The median sales price could levitate, or even rise, while more discounts off the aspirational list prices keep happening!

Pin It on Pinterest