Double-digit increases can’t last forever – but could home prices plateau for years? It will probably depend on mortgage rates, and having enough reasonable sellers who are willing to take the same $ as what the last guy got.
From our friends at JBREC:
Price appreciation has slowed across every major housing market, in what we are coining the Great Price Deceleration.
The biggest deceleration occurred in San Jose: Last year, resale prices in San Jose were up 20% YOY! Today, prices are down 6% YOY—a deceleration of 26%. Last year, San Jose was frenzied with less than one month of supply and very strong job growth. Builders were selling homes faster than they could build them. In the second half of 2018, the San Jose market slowed substantially due to affordability issues, but conditions have stabilized this year.
Top California markets, Seattle, and Las Vegas have experienced the most price deceleration. Home buyer affordability remains weak, even with historically low 4% mortgage rates, and homes are sitting on the market longer (especially higher-priced homes). We are seeing more buyer demand in markets such as Seattle, where home builders have adjusted prices.
Markets in the Southeast, Midwest, and Northeast have been far less frenzied this cycle and have had much steadier prices. These markets are typically lower risk in their fundamentals (more affordable, less risk of oversupply, and steady job growth). Raleigh-Durham has experienced the least deceleration in price from last year. Resale prices gained 7% YOY last year, and today they are up 6%, a 1% price deceleration.
Nationally, we expect resale prices to gain 2% through 2022, cumulatively, but there are huge disparities by region and metro.
We explore all top housing markets each month in our Regional Analysis and Forecast report for our paying research clients. If you are interested in becoming a research client, please reach out to our team of expert analysts.
This collection of opinions has more reach – and more influence – than those of any part-time blogger. Thankfully, these experts are split on whether the alleged slowdown is temporary, so readers will just be on their merry way in hopes that it will all work out.
It’s what happens when the ivory-tower group chimes in – they attempt to apply the vague old theories to what is happening today, but we don’t know if their principles are still valid.
Gina is the only one who mentioned a specific data point, so let’s put the actual number on it:
First-half sales of detached-homes in San Diego County between $1,000,000 and $2,000,000 were nearly identical year-over-year (1,551 in 2018, and 1,546 in 2019), while sales over $2,000,000 dropped 10% YoY.
Gary probably has the best take on it above, and his day-to-day focus is advising builders.
We have a low supply of quality homes mixed with a very affluent demand which is causing every aspect of selling homes via the MLS to be under attack. Rather than championing (and improving) the traditional system of selling homes, the industry is going to allow off-market sales, ibuyers, commission lawsuits, and Wall Street to sway the outcome.
It will take away some of the free-market influence, which could keep us at an artificially-inflated plateau.
But then again, I’ll stick with what Yogi Berra said,
“It’s tough to make predictions, especially about the future.”
We saw yesterday that we had 5% fewer January listings year-over-year, giving the impression that sellers aren’t rushing their homes to market.
But we came into 2019 with more leftover listings from last year – and they are already starting to pile up:
Active Listings, First Week of February
Last year we were overdue for some slowdown, but were able to survive lower January sales because the inventory heading into the selling season was so thin that urgency was higher among buyers, which kept the party going.
This year we had fewer sales even with higher inventory, which means the selling-success rate is dropping steadily. Once more unsold listings start stacking up, the urgency among buyers will diminish.
This is the same data as yesterday, but over three years instead of five, and shows how the 2018 selling season didn’t pop like in previous years:
Click to enlarge
Mortgage rates went over 4.5% in May which helped to discourage sales, but you can see how the initial surge barely got past March. Even if rates stay where they are today, we could have a muted sales season just because we are already loaded with listings.
When it comes to real estate quotes, this guy is gold:
“I describe the current boom in U.S. home prices as the third largest boom since 1890. And so it’s big, and people are starting to think that housing is expensive, and that could lead to a turnaround and a drop in home prices,” Shiller said in an interview with Yahoo Finance at the World Economic Forum in Davos, Switzerland. “But I’m not ready to forecast that yet.”
“The housing market, when it starts to slow, that’s a leading indicator that it could turn down,” Shiller said.
Shiller described the housing market as “remarkably trendy,” having gone up smoothly for about the past 50 years. Housing isn’t as easily tradable as equities or other financial assets, Shiller pointed out.
“You don’t have the smart money going in and out from day to day,” Shiller said. “[The housing market] shows momentum, and that momentum is slowing down a bit. There could be a reversal in home prices and a recession. But I’m not giving it a probability of greater than 50% for this year.”
The key factor leading to a contraction are changes in confidence, Shiller said. And on that front, President Donald Trump has delivered a bump to the housing market.
“I think Trump does have a psychological boost for the housing market because of who he is. He kind of exemplifies lavish living. He writes books about success. He’s our first motivational speaker president,” Shiller said. “His motivation will tell you that you have to live the life of a successful person.”
“That’s an important reason why people buy homes,” Shiller added. “They want to be part of the successful people in the country.”
Watch his 10-minute interview with more nuggets here:
Ryan posted the history of real estate cycles in Sacramento County, so here are the same years for North San Diego County’s coastal region for comparison. Human nature tends to flow in the same direction everywhere, and as a result, our history looks a little like his:
Number of Sales
Median Sales Price, Annual
At the time it seemed like sky was caving in, but looking back we only had two bad years (2008 and 2009) in the last twenty. There was some scuffling around as we found our way in 2006-2007, and 2010-2012, but given that our market had been injected with the most exotic financing ever known to man, and then tanked by foreclosures and short sales, I think we did pretty good to survive it as well as we did.
With 90% of the NSDCC active listings priced over $1M, all we need is wealthy people to keep coming here to buy their forever home. We’re still cheaper than the LA/OC and Bay Area, so we look attractive to downsizers.
Our pricing may bounce around, but without brainless bank clerks dumping properties for any price, who else is going to cause a collapse? We could run low on the number of buyers – and if we did, all it would do is cause a protracted descent; re: soft landing over years.
Here’s a conversation I had yesterday with a guy who is 80+ years old and who has lived in his house since the 1960s:
Him: Convince me why I should sell my house.
Me: How are you getting around?
Him: I ride my bike to the store.
Me: Do you need the money?
Me: Have you ever dreamed about buying a house on the lake and fishing the rest of your life?
Me: Are you married?
Me: Did you know that if you did sell, you’d have to pay six-figures in taxes? How would that make you feel?
Him: What? I only paid $19,500! I’d never pay that much in taxes!
Me: What happens upon your demise?
Him: My daughter will inherit – she grew up here, and will likely move back in. But I told her if she doesn’t move in, it’s ok with me to sell it.
Me: Do you have a family trust?
Me: Did you know that if she sells the house, she will pay no tax?
Him: You’re kidding? If I sell it, I have to pay the tax man six-figures, but if she sells it, she pays nothing? Jim, I think we have the answer!
There will be occasional sales where sellers hire bad agents and get taken advantage of, but there won’t be an avalanche of desperate sellers dumping for any price. It would take a tsunami, earthquake, or terrorist event at the border to cause a drastic shift in housing – which could happen!
Here’s the latest photo of the nuclear waste being stored right on the surf at San Onofre. All we need is one crack in a storage cask…..
Without a catastrophic event, what’s the worst we can expect?
Maybe 5% drop in pricing in the short-term?
Any more than that, and sellers will just wait it out.
The slowdown started during the summer, so there was some evidence of it by the beginning of August – and it has been in the news non-stop ever since.
Are sellers getting the message?
Maybe, but they must think it applies to someone else:
NSDCC Average List-Price-Per-SF:
$1.0M to $1.5M
$1.5M to $2.0M
Lower their price? They’d rather not sell – and this is December, when you’d think the sellers who are on the open market must be motivated.
Don’t get your hopes up about seeing a big dump on price in Spring, 2019. If it were to happen, it will happen quietly, and you’ll only see it after the fact in late summer, once sellers have exhausted their optimism.
We are, once again, experiencing one of the greatest housing booms in United States history.
How long this will last and where it is heading next are impossible to know now.
But it is time to take notice: My data shows that this is the United States’ third biggest housing boom in the modern era.
Since February 2012, when the price declines associated with the last financial crisis ended, prices for existing homes in the United States have been rising steadily and enormously. According to the S&P/CoreLogic/Case-Shiller National Home Price Index (which I helped to create) as of September, the prices were 53 percent higher than they were at the bottom of the market in 2012.
That means, on average, a house that sold for, say, $200,000 in 2012 would bring over $300,000 in September.
Even after factoring in Consumer Price Index inflation, real existing home prices were up almost 40 percent during that period. That is a substantial increase in less than seven years.
October sales in San Diego County were down 12% year-over-year, and the freefall should continue. While the experts will keep pointing to housing being not as affordable now that rates and prices are up (this article states that the median-priced San Diego home in October costs an additional $321 per month this year), the plummeting sales can also be attributed to sellers being comfortable waiting for that perfect couple with 2.2 kids to come along.
This article also mentions that the current inventory is 46% higher than it was last year, but on the MLS the total number of 2018 listings for the county is only up 8% YoY, which demonstrates more standoff conditions – sellers are waiting and listings are stacking up.
Add the buyers’ unaffordability to lowly-motivated sellers and we have the perfect ingredients for standoff stew.
In October, the median home price was $558,000, down by $25,000 from the all-time peak reached in August, but still up 5.4 percent for the year. Sales were down 12 percent compared to the same time last year and at their lowest level since 2011. There were 3,162 home sales in October, down from 3,592 in 2017, 3,597 in 2016 and 3,356 in 2015.
Kayla returned from Manhattan for the long Thanksgiving weekend, and we were talking about the sluggishness in New York City market, which has been going on for 2+ years. By now agents have learned that there’s no use fighting it – you have to learn to adapt.
It was in the year of her birth, 1991, when I experienced my first market slowdown. All I knew was that there wasn’t a buyer for miles, and with a newborn child, I need to hurry up and figure this out!
This is my third time around the block, so I offered her a few ideas.
First let’s acknowledge how it works in a seller’s market. Buyers find a house that is a good fit, and they buy it. Agents might offer up a strategy to get a discount, but for the most part, buyers pay the sellers’ price. It’s binary – it is yes or no, is this the right house? If it is, then pay the price.
Now it’s different, and if you can get a buyer to look at homes, their answer will be the same everywhere – ‘no’. Because they are looking for any reason not to buy – and every house has one – once they find it then it’s game over. But rather than just saying no to every house and never buying anything, let’s take it a step further.
At what price would you be a buyer?
Price will fix anything, and the price itself is usually the problem – it’s too high.
If the buyer would be interested at a lower price, then all you have to do is present a powerful case to the seller and listing agent to see if there is enough motivation to at least listen, and hopefully make a deal.
If you just make a lower offer without justification, I can already tell you what the answer will be: “No, and get off my lawn”.
To get something, you have to give a little. Here are ideas:
Make an clean offer with quick close date. These work best on vacant properties where sellers might be eating an extra payment.
Make an offer using older comps, and point out that the Case-Shiller pricing (or other) has retreated back where it was X months ago.
Make an offer based on the cost of the needed improvements, and include contractor quotes when possible.
In all cases, include a photo of the family and pets, and an introduction that explains the offer. Usually the listing agent will just forward the explanation right to the sellers, so it’s a way to have influence over the outcome. Without an introduction and explanation, the listing agent has to justify the low price himself, and he won’t try too hard and risk looking bad.
We need price discovery!
The only way to find out what the seller might take is to put an offer on the table. It may seem risky to be among the first to take the plunge, but by April/May we should see more people finding a way to make a deal. Those will probably be with the sellers who have been trying to sell for 90+ days, and are tired of the process. Let’s give it a shot!
This isn’t a sign that the bottom is falling out of the market. Instead, after years of rapid price increases, experts say the market is becoming more stable and for the first time in quite a long time, it is shifting in favor of buyers.
That shift is most evident when you look at the number of times sellers have reduced prices. The share of home listings with a price cut grew to its highest level in at least eight years, says a recent analysis from Trulia.San Diego had the most reductions — 20.5 percent — of the 100 biggest metro areas in the United States so far this year. (It tied with Tampa, which also saw 20.5 percent of homes with a price cut.)
7171 Terra Cotta Road — $545,000. The four-bedroom house (1,804 square feet) in the Bay Terraces area has had four price reductions, starting at $569,000 at the beginning of November.
4225 Florida St., Unit 4 — $395,000. The two-bedroom condo (794 square feet) in University Heights has had three price reductions, starting at $425,000 in mid-October.
3655 Ash St., Unit 2 — $322,100. The two-bedroom condo (824 square feet) in Fairmount Park has had six price reductions, starting at $330,000 in mid-September.
Listing agent April Khamphasouk said the tough thing about selling the house at 2873 Upas St. is that it is basically two homes in one (the property is 1,698-square-feet and has a guest suite above the garage).
She first listed the home for $1.1 million in early October. By mid-October, the price was lowered by $19,000. There were three more price reductions and by Nov.12, the asking price for the home had decreased by $55,900. It is still on the market.
Khamphasouk said the recent price reduction seemed to be greatly increasing interest. Still, she said a lot of the issues in the past month have been related to rising mortgage interest rates.
No mention was made about the Upas property selling for $775,000 in May. The Terra Cotta house just had a model-match sell for $415,000 nearby, and the Florida St. condo is on the corner of El Cajon Blvd. and next to a paint store. If these homes represent the types of properties that need to lower their price, then the shock is that only 20% needed a price reduction.
The real news was that nearly 80% of the listings didn’t lower their price!
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