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The Slow Unwind – The Pricing Gap

The new market conditions will bear some resemblance to the past, but to believe that real estate sales will be ‘getting back to normal’ some day would be full of false hope.  Rob Dawg said it long ago – we need to abandon all previous assumptions.

Let’s start with the two things most likely to change:

  1. Buyers are going to stop paying over the list price.
  2. Buyers are going to stop making offers the minute a house hits the market.

The frenzy conditions that sellers have enjoyed over the last two years will now be in question, and take some finesse to navigate. If buyers are reluctant to pay over the list price, it means that they may even want to pay less than the list price. Then for some listings, there might not be any buyers – at least none willing to pay close to list.

What’s worse is that buyers and their agents won’t be comfortable making low offers, so they just won’t offer at all. Sellers who get no offers will only know that their price is wrong – they won’t know how wrong. Plus, they might not even get any showings, let alone offers.

What variables will make the difference between selling, and not selling?

Comps aren’t going to matter much. Just because there are high sales nearby doesn’t mean that tomorrow’s sellers are going to automatically get the same money or more – especially if the new listing has a defect or unusual feature.

The differences between schools is getting fuzzy.  We have become a little too reliant on the online school reviews, and there are going to be parents who spread negative stuff around – and unfortunately, there might be some truth to it.  No school is perfect, and the best education is a good upbringing at home.  If that’s the case, then why pay larger-than-ever premiums to be in the ‘best’ school district?  Some buyers will be attracted to the better home values further out in the suburbs.

Work-From-Home is here to stay. If you WFH and already considering private schools or taking a chance on the lesser-known public schools, then the need to pay a big premium to be closer to downtown won’t be as urgent and the outskirts will benefit. Plus, there is a new car-pool lane on the I-5! The homes that have multiple spaces to accommodate the work-from-home buyers will benefit.

The easy cure for higher prices & rates is buying a smaller house. Before buyers think about sacrificing on location, they will consider buying a smaller home – and most people can find a way to live with 3,000sf to 4,000sf. As a result, the big bombers aren’t going to get the same $/sf for square footage over 4,000sf unless they have larger yards with a pool. It means we should see 4,500sf and 5,500sf homes selling for about the same price – which is different than it’s been.

Smaller yards should get penalized. While a smaller house might work, those with tiny yards won’t be as appealing post-frenzy.  At these prices, buyers will be reluctant to compromise on the most-important stuff, and having a decent yard is high on the list.

The homes that have everything going for them should continue to be popular and sell for a premium.

The rest? The price gap between the dogs and the creampuffs should widen, and market times extend dramatically as sellers and agents will be slow to react.

Sellers will be smart to spruce up their home more than they had planned, make sure their price is attractive, and hire a great realtor!

Get Good Help!

Inventory Surging?

This is an example of the hysteria being whipped up by the pseudo-experts. They tend to grab fake data, jump to conclusions, and then spread it everywhere.

Here is the tweet with comments – he says the +31% is the change between March and April:

https://twitter.com/housereports/status/1521952871490621440

I don’t know where he gets his information, but it isn’t from the MLS:

Listings & Sales, Monthly

Location
March Listings
April Listings
% Chg
March Sales
April Sales
% Chg
SD County
3,916
3,780
-3%
3,233
3,053
-6%
NSDCC Detached
281
269
-4%
207
222
+7%

He says the San Diego Listing Inventory surged +31% between March and April, when it actually dropped on the MLS. Why would he say that? I don’t know, but he sells his data now so that may have something to do with it.

I don’t know how he is measuring ‘demand’, but the San Diego County sales did decline 6% between March and April.  But look how close the sales count is to the listing count – we are selling practically everything that comes to market, for pete’s sake.  If the listings decline, so will sales.

Is he talking about the active listings?

This is how it looks on InfoSparks.  The M-o-M change is +7% (last year was +5%), and the actual count of 2,616 active listings in April is bleak compared to previous years (12,652 in April, 2019!):

None of the facts are suggesting an inventory surge in San Diego County.  We would welcome one!

NSDCC Sales & Pricing, April

Last year’s frenzy was crazy because of the volume – there were enough listings to drive sales higher than usual.  This year we don’t have as many listings, and it is driving the pricing to astonishing heights:

NSDCC Sales and Pricing, April

Year
NSDCC Detached-Home Sales
Median LP
Median SP
SP:LP Ratio
2015
284
$1,100,000
$1,077,500
98%
2016
303
$1,157,075
$1,125,000
97%
2017
276
$1,332,500
$1,281,065
96%
2018
270
$1,304,450
$1,285,225
99%
2019
265
$1,399,000
$1,375,000
98%
2020
156
$1,424,499
$1,390,000
98%
2021
359
$1,799,900
$1,825,829
101%
2022
221
$2,395,000
$2,600,000
109%

The median sales price is 42% higher than it was last April.

If listings dry up further, prices could keep rising!

NSDCC 1Q Listings & Sales

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!

NSDCC March Sales & Pricing

What a wild ride lately! It’s safe to say we’ll never see a March like this again:

NSDCC March Sales & Pricing

Year
March Closings
Median List Price
Median Sales Price
Median Days-On-Market
2015
300
$1,195,000
$1,115,000
48
2016
252
$1,162,500
$1,143,665
50
2017
258
$1,096,500
$1,074,000
45
2018
258
$1,399,000
$1,396,250
16
2019
211
$1,345,000
$1,299,999
17
2020
206
$1,492,500
$1,445,000
12
2021
252
$1,810,000
$1,825,000
10
2022
206
$2,425,000
$2,625,000
9

The median sales price went from $1,445,000 to $2,625,000 in two years – an increase of 82%!

Last month’s median sales price was $200,000 ABOVE the median list price (108%), and it was 10% higher than it was in the previous month.

We are going to have to live with fewer sales from now on.

2022 Stats, La Jolla to Carlsbad

The NSDCC detached-home stats in the Jan 1st-to-March 15th period are remarkable:

Year
New Listings
# of Sales
Median List Price
Median Sales Price
Median DOM
2016
1,194
436
$1,146,450
$1,102,792
58
2017
1,040
459
$1,239,500
$1,200,000
53
2018
1,102
420
$1,327,000
$1,297,000
20
2019
1,056
430
$1,299,499
$1,282,500
29
2020
934
456
$1,467,500
$1,430,000
30
2021
801
534
$1,749,000
$1,775,000
14
2022
546
400
$2,250,000
$2,372,500
10

The 2022 median sales price is 34% higher than in the same period last year (which was +24% above 2020!)

The median sales price is 5.4% higher than the median list price.

Sales are holding their own, in spite of having around half of the ‘normal’ inventory!

San Diego Home Pricing, Tiered

This guy has been drunk on the doom juice for so long that he must never get out of his bunker!

If he did, he would see the overwhelming demand for every new listing, even though underwriting standards are strict and rates are going up. Of the 140 NSDCC sales last month, 36% were all-cash.

https://journal.firsttuesday.us/san-diego-housing-indicators-2/29246/

Here’s what he said in July when the YoY changes were lower:

https://www.bubbleinfo.com/2021/07/08/san-diego-home-pricing-by-tier/

National Price Forecast

Casual observers might think this graph is saying that home prices will drop, but instead it is just the YoY change that is moderating. The MoM changes will become more interesting than the YoY changes over the next 12 months.

Home prices averaged year-over-year gains of 15 percent over the 12 months of 2021 compared to an average gain of 6.0 percent in 2020. CoreLogic’s Home Price Index (HPI) ended the year up 18.5 percent compared to the prior December. Despite indications earlier in the year that price gains were beginning to decelerate, they rose 1.3 percent in December, identical to the monthly gains reported in each of the previous three months. The annual growth is up from 18 percent in September and October.

CoreLogic says, “Consumer desire for homeownership against persistently low supply of for-sale homes created one of the hottest housing markets in decades in 2021 – and spurred record-breaking home price growth. Home price growth in 2021 started off at 10 percent in the first quarter, steadily increasing and ending the year with an increase of 18 percent for the fourth quarter.”

CoreLogic’s price forecast for this year anticipates that appreciation will exceed 10 percent for the first months of the year but will fall steadily to 3.5 percent by December 2022. The annual increases will average 9.6 percent.

The company dismisses questions about whether the nation is currently in a housing bubble. The report says its Market Risk Indicators suggest only a small probability of a nationwide price decline, pointing instead to the larger likelihood that falling prices will be limited to specific, at-risk markets. Those locations with a high probability, over 70 percent, include Prescott and Lake Havasu City-Kingman, Arizona; Merced, California; and Worcester, MA.

“Much of what we’ve seen in the run-up of home prices over the last year has been the result of a perfect storm of supply and demand pressures,” said Dr. Frank Nothaft, chief economist at CoreLogic. “As we move further into 2022, economic factors – such as new home building and a rise in mortgage rates – are in motion to help relieve some of this pressure and steadily temper the rapid home price acceleration seen in 2021.”

Prices of detached residential properties posted an annual increase of 19.7 percent in December. This was 5.5 percent higher than the appreciation of attached properties at 14.2 percent.

The state with the greatest increase continues to be Arizona at 28.4 percent, It is followed by Florida at 27.1 percent and Utah at 25.2 percent. Two Florida cities, Naples, and Punta Gorda, posted the largest gains among metro areas at 37.6 and 35.7 percent, respectively.

https://www.mortgagenewsdaily.com/news/02012022-corelogic-hpi

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