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Sputter or Frenzy in 2023?

I think we can say that summer is over, and the off-season is here.

How will the rest of 2022 play out, and what will be the effect on the 2023 Selling Season?

We know that the local NSDCC sales counts will be low for the rest of 2022. Last year we had 136 closings between August 1-15, and this year we’ve had 65.  If we keep having about half of the 2021 sales, then our total sales between August and December will be 594, or an average of 119 per month!

It could look something like this green line:

We will probably have fewer listings than ever in 2H22, but those sellers should be motivated to sell.  If they didn’t need to sell, wouldn’t they be tempted to just wait until spring to go on the open market?

We know that every seller has a load of equity, so if they have to lower their price to sell, they could.  But will they?  We can speculate that if they only had to lower their price by 5%, then they would make the deal. But going lower than 5% off is where the trouble starts – and the seller’s ego gets a vote.

If sellers continue to hold out on price, and sales follow the green line, it will look like a hard landing – and the 2023 selling season could end up being a dud. It would definitely get off to a slower start, and could sputter through the selling season if the inventory is lackluster and priced at retail, or retail-plus.

How likely is that?  Very!

The second-half sellers of 2022 are going to determine our fate for the 2023 Selling Season. Expect next year’s market to be somewhere in the Sputter-to-Frenzy range, guaranteed!

But if you are a buyer, what are you going to do? Wait until 2024?

Let’s re-visit this in January. If sales beat the Green Line, then a more active market in spring is likely!

Here is Bill’s graph of the national sales:

Spring Clean

Hat tip Leonard @Compass:

Today is the last day of Winter 2022, and as Spring arrives, consider the following:

1. Clean up winter debris, old leaves, fallen branches, etc.

2. Check your roof. Winter winds may have caused damage that requires your attention.

3. Clean out gutters: they probably collected all sorts of debris over winter.

4. Clean and/or replace AC filters.

5. Deep clean your dryer vent and other appliances.

6. Check your washing machine hoses: Maybe install a leak detector?

7. Clean and repair screens…the bugs are coming!

8. Pressure wash decks, fences, etc. and check for damages.

9. Fix cracks in sidewalks and driveways before rains cause more decay.

10. Paint! Some surfaces may be overdue for some painting.

11. Replace smoke detector batteries if they are not hard wired.

12. Sharpen blades for garden equipment and kitchen knives.

13. Check caulking around doors and windows to conserve energy.

14. Trim bushes/trees and clean thoroughly around any mechanical equipment.

15. Drain your water heater to clear out sediment.

Ongoing small maintenance items can prevent larger ones. Keeping any home in tip-top shape year-round is smart. Doing these things just before selling is wonderful for the next homeowner, but you may wish to enjoy a spiffy home too!

The Selling Season Is Here!

The Super Bowl is complete, and the spring selling season begins today!

Judging by the quick jump in the total number of pendings, homebuyers aren’t waiting around. Mortgage rates have risen faster than any time in the last dozen years, and the number of homes for sale is scary low:

There was heavy activity over the weekend, and on the hot buys, the offers seemed to be starting at 10% over the list prices – which is now the new normal.  Waiving contingencies and giving sellers free rentbacks for 60 days will be part of the landscape for the next few months.

Will rising rates cool off the market? Only for those who are on the fringes and sensitive to payment shock. The affluent – the buyers who are controlling the market – are less impacted, and a measly 1% rise in your loan rate only changes the payment by $1,116 per month on a $2,000,000 mortgage.

How long will the 2022 frenzy last?

It should stay hot until one of the following happens:

  • Mortgage rates hit 5%
  • A flood of inventory
  • Mid-summer

By summertime, the pool of highly-motivated buyers should be diminishing, and we’ll be left with those who haven’t been willing to pay these prices. Remember that when you see another crazy-high sales price, there was only one buyer who was willing to pay that much – the rest all wanted to pay less!

ER Inventory Surge

The new listings of 2022 are only trickling out, but we know that there can be spurts.

We’re seeing one underway in Encinitas Ranch, where five listings are hitting the market this week! The three Coming-Soons will all change to active listings on Saturday.

Buyers – there is hope!

Whenever there are two or more homes for sale in a neighborhood, there is one fact of life:

Either yours is selling mine, or mine is selling yours.

The chances of EVERY house being perfectly priced to reflect their condition AND compare favorably to all other choices is about the same as the Padres chances of winning the World Series.  It’s possible every year, but come on.

There are times when NONE are perfectly priced, causing a stalemate and no sales.

The market is hot enough that at least one of these listings will compare more favorably than the rest, and will sell this weekend.  With few or no other choices for sale currently, the ultra-hot frenzy conditions could pick up two of more of these listings.

Let’s see how many go pending in the next seven days!

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.

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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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