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Frenzy Monitor

When comparing to the last reading there hasn’t been much change, but the May 12th numbers were quite different – the number of actives today is now 15% higher, and pendings are 16% lower.

But it had to go in that direction. The March-May period has to be the hottest stretch ever recorded:

NSDCC Actives and Pendings

Town or Area
Zip Code
Feb 2nd
May 12
May 26
Jun 9
Jun 23
Jul 14
Cardiff
92007
11/16
9/12
10/11
8/14
10/11
14/7
Carlsbad NW
92008
17/19
19/30
19/23
20/24
21/23
18/24
Carlsbad SE
92009
9/38
19/60
13/57
19/49
21/44
27/42
Carlsbad NE
92010
1/12
5/13
6/13
8/14
7/15
8/19
Carlsbad SW
92011
2/17
8/16
4/17
4/19
11/16
12/24
Carmel Valley
92130
26/43
20/65
23/63
23/65
30/65
27/60
Del Mar
92014
43/13
34/26
34/26
32/20
37/19
42/12
Encinitas
92024
39/45
33/54
32/56
33/61
36/65
42/50
La Jolla
92037
101/46
82/40
87/47
88/48
88/41
89/38
RSF
92067
96/35
83/54
72/53
80/38
79/42
72/42
RSF
92091
3/7
1/6
3/6
1/3
1/2
Solana Beach
92075
11/10
6/9
7/8
12/6
14/10
17/12
NSDCC
All Above
356/294
321/386
308/380
330/364
355/354
369/332

We can also track the average market times too.  Any upward trends here would indicate market slowing:

We could get a nice flare-up of activity as the summer closes out, and it probably won’t be that obvious in these stats as the frenzy simmers down slowly over the next few weeks.

Low-Inventory Conditions to Persist

I already guessed that the runaway frenzy will start to temper in June. Here are reasons:

  1. Some of the craziest demand has been satisfied.
  2. Other buyers will take a break and go on vacation.
  3. Overly-optimistic pricing by some sellers.
  4. It’s been red-hot for 10-12 months.
  5. Newsom says the state will be 100% open by June 15.

Covid-19 has been blamed for why many potential sellers have delayed their plans to sell. But now that the pandemic is wrapping up and sellers have had a +20% gift of appeciation dropped in their lap, you’d think they would be flooding the streets with inventory.

But there’s no flood yet.  In May, 2019 we had 502 NSDCC homes come to market, but so far this month we’ve only had 119 new listings.

Could more inventory be coming?

Prop 19 was heralded as the solution to get seniors moving again – but we’re still waiting.  They should stop discriminating against younger people and let everyone take their old property-tax basis with them to their next home.

Owners of investment properties should be expediting their plans to trade for newer/better homes before they change the 1031 rules. This article says that investors will still be able to defer taxes on the first $500,000 profit, but Uncle Joe wants to tax the rest.  Americans hate the idea of paying taxes, so they will just keep their old property, rather than selling – which means less inventory.

Any potential seller who wants to stay local doesn’t see many homes that would make it worth the hassle of moving. Sure, selling their home sounds great, but we’re to the point where you need to leave town to really cash in – but who wants to do that?

Sellers have the most ideal market conditions of all-time to sell their home, yet they are holding back.

If we do see a slowdown this summer, it won’t be because of a flood of inventory.  It will be due to prices having gone completely bonkers – price will fix anything!

When Will the Frenzy End?

Let’s call it the Big Confluence:

  1. Covid concerns keep diminishing over the next few months.
  2. More sellers feel safe to put their home on the market.
  3. More sellers find a way to hurry up and get their home on the market.
  4. Buyer skepticism rises.
  5. Agents get too cocky.
  6. Prices reach their limit.

All the above will cause inventory to increase, and buyers to relax. Then what?

This is my craziest theory of all-time:

Market Topics

I love hearing from new readers!

Hi Jim,

I have recently stumbled upon your blog and find it very interesting as I am an appraiser in San Diego. I wonder if anyone has considered that the low inventory levels are in part because home prices are going up so fast why would anyone want to sell something that is going to be worth 10K, 20K, 50K more within just months. For example my home according to Zillow is up 22K in the last 30 days. Something else to consider that I have not seen mentioned….

Are sellers paying attention that closely? If so, then you’re right – it’s possible.  Add that extra supply to the post-covid/Prop-19/usual-spring listings and there could be a real surge. But the worst thing that will happen is there will be 3-4 houses for sale in your neighborhood, instead of one or two.

Do sellers risk it? Most are already making $200,000 to $1,000,000+ profit……are they going to purposely hold out in hopes of picking up an extra $50,000? Maybe, but I’d guess that when and where they are moving probably plays a bigger role in their decision-making.

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Sellers are indeed holding back for some reason.

In the first nine days of March last year we had 148 new listings between La Jolla and Carlsbad, and so far we’ve only had 90 this year.  More will be added to that nine-day total this week, but we’re still well under where we’ve been in previous years. March is when the inventory really picks up, historically:

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The Frenzy of 2013 was red-hot for about a year.  If the same happens this time, it means the market should flatten out by July as rates increase and buyer exhaustion sets in.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The bump in rates over the last two weeks just threw gasoline on the fire for those who could find a house to buy.  But an extended run-up – especially if we get to 4% – should cool things off.

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I have two closings with buyers this week. One paid $135,000 over list, and the other paid $100,000 over.

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Over the weekend, I had buyers make a highest-and-best offer that was $207,000 over list….and lost.

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There is virtually no transparency – just take your shot and pray. Don’t think, and don’t blink!

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Low Inventory, More Sales

The NYT has another article lamenting the drop in the number of homes for sale, and offered some reasons, like covid reluctance, sellers skittish about finding their next home, forbearance relief, the lack of building new homes, and people keeping their old home as an investment property when they buy a new one.

But who cares about inventory when we’re having MORE SALES THAN EVER.

It’s true that the number of new listings this year is about 23% behind where it was last year at this time.

The other day I compared just to 2020, but here’s a look at the last ten years:

NSDCC Closed Sales Jan 1 – Feb 15

Year
# of Sales
Median Sales Price
2011
158
$810,500
2012
153
$749,000
2013
197
$845,000
2014
261
$1,007,500
2015
252
$1,200,000
2016
253
$1,125,000
2017
260
$1,200,000
2018
231
$1,300,000
2019
242
$1,288,000
2020
254
$1,394,775
2021
299
$1,695,000
% Change, YoY
+18%
+22%

We haven’t had this big of a jump in number of sales AND median sales price to start the year since the Frenzy of 2013 bled into early 2014 when we had a 32% increase in sales and +19% in median sales price. Back in 2004, we had a 26% increase in the median sales price (from $635,000 to $799,000), but the number of sales dropped from 253 to 209.

This is the new reality – more people chasing fewer homes for sale.

Buyers who might think we’re going to get a pullback because rates have gone up are going to get a good lesson on who’s in charge here. Sellers don’t care about rate hikes, lack of inventory, or your lease expiring. They just want their money, and if they don’t get it today, they will wait until they do.

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NSDCC Pendings Overtake Actives

This morning we have more homes in escrow than we have for sale!

NSDCC Detached-Home Listings

Listing Status
# of Listings
Median List Price
Active
352
$3,950,000
Pending
353
$1,925,000

Once upon a time I was discussing the actives/pendings relationship with local agent Peter B.  He agreed that a 2:1 ratio of actives to pendings was a sign of a healthy market.  If 2:1 was healthy, what is 1:1?

One thing that’s happening is that the action is rising into the upper price ranges. Today we have 94 homes in escrow that are priced over $3,000,000, which I doubt we’ve ever had before.

If we don’t see a surge of more listings, the pendings could extend its lead in the coming days/weeks!

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NSDCC Listings, February 1-15

Are we getting any more inventory? Are more homes coming to market?

There have been a few more good listings, which gives hope. The Super Bowl being on February 7th was later than usual, but the overall numbers are still very light:

NSDCC New Listings Between Feb 1 – Feb 15

Year
Total Number of Listings
Median List Price
Number Under $2M
Total Sold
% Sold
2019
207
$1,650,000
135
132
64%
2020
208
$1,731,500
126
121
58%
2021
140
$1,776,500
85
?
?

The 2021 count will climb a bit higher, but it’s safe to say that we are still well behind where we usually are.

If we end up around 165 listings, and the percentage sold improves to 70%, it would equal 116 sales which is close to the 2020 total.

If all we are missing are the casual sellers that wouldn’t have sold anyway, are we any worse off?

Not really – and the market would be more efficient if we’re just left with the serious players all around.

Average % Paid of Last List Price

Nobody is giving them away!

I think we can agree that list prices today are at or above the all-time highs, yet with demand overwhelming the few listings that are trickling out, buyers are forced to consider going even higher. It’s working too:

We usually get some anxious buyers who pay closer to the list price in Jan-Feb, but the average has stayed under 100% in recent years.

With January already pushing 101%, it’s going to get crazier – and this is the Over-$815,000 market!

If you’re the type of buyer that refuses to get into a bidding war, you might have to sit this one out.

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More Frenzy Fuel

San Diego didn’t make the NAR list of vacation-home areas (counties where 20% of the housing stock is for seasonal use), but our market should be enjoying some additional second-home purchases:

Vacation home sales are outperforming total existing-home sales. Sales of homes intended for vacation use rose to 109,100 in the past three months of July-September, a 44% gain from the level of 75,600 sales during the same period last year, according to NAR estimates based on information gathered from the monthly REATORS® Confidence Index Survey and NAR’s existing-home sales estimates. In comparison, total existing-home sales during July-September rose 13% year-over-year (1.72 million in July-Sept 2020 vs. 1.52 million in July-Sept 2019).

The pandemic and low mortgage rates have increased the desirability and affordability of owning a vacation home. Buyers may be desiring a vacation home as a weekend getaway as urban-based leisure activities are still constrained by social distancing. The ability to work from home also means buyers who can work from home can spend more time at and enjoy their vacation home. Historically low mortgage rates have also made a home purchase more affordable, while rising prices in past years have yielded larger home equity gains that can be tapped (through say a home equity loan) to use for a down payment.

Link to Full Article

Covid-19 Sales Predictions

In April, I thought we would see a big cooldown in October fueled by uncertainty leading into Election Day.  Instead, we had the most NSDCC closings as we’ve had in any month this year (374 so far), and we have almost as many pending listings as active (541/470)!

The post-election relief should add to the momentum, and with Covid-19 putting a damper on holiday plans, we might see sales plow right through into 2021 – and start the selling season early!  If we just had more homes to sell!

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