The pandemic is still raging, the President of the United States is in the hospital, the election is right around the corner, and so are the holidays. The frenzy has to slow down at some point, doesn’t it?
So I schedule for 11am, and show up to find today’s list of showings taped to the front door:
The listing agent happens to be there, so we discuss the current market conditions. She is a long-time independent broker like myself (who now also works @ Compass) and we agree that the environment is ripe to convert to single agency naturally, and buyer-agents being eliminated.
It’s not because it’s what best for everyone involved, because clearly it’s not good for buyers and sellers – except maybe for those sellers who live in the house being barraged by showings the first few days on the market. It doesn’t sound like much of a price to pay, but for homebodies, or those with little kids & pets, it can be a major inconvenience.
Zillow is the only entity who spends eight or nine figures per year on advertising, so they will control our destiny – and with them setting up brokerage units manned by employee-agents in all 50 states, you can get a feel for what’s ahead.
In the meantime, consider these developments.
Today’s listing agents are making it harder to show and sell their listings, they are lowering the buyer-agent commissions (and taking the difference), and some realtors are advertising guaranteed cash offers as the better way to sell your house.
As is the case throughout America, the truth doesn’t matter nearly as much as how loud you can scream.
The greed displayed by these listing agents feeds upon itself, because other agents witness these practices happening without any reprimands, and they start to believe it’s acceptable…..and then they do the same thing. The game is evolving into how to beat the buyer-agents out of their commission.
In the short-term, realtors can justify this revolution by pointing to the commercial brokers who have practiced their real estate like this all along. Heck, less competition will slow down the rapid price increases we are experiencing, and help to trim the over-population of realtors everywhere too….so you can say there are good things about it.
But it all plays into the hands of Zillow, and eventually they will be who processes your order.
The pandemic is being blamed for people leaving town.
I think it’s more that Covid-19 is the last straw that is causing people to take the action they would have taken at some point anyway. The ‘rona will be gone in 1-18 months – moving is a major life-changing event.
But these two conflicting articles probably demonstrate who is being impacted.
On one hand, we have people – probably those who want/need to be economical – who are moving themselves and are being ripped off by the rental-truck agencies (hat tip SM):
But a survey of full-service moving companies describe a different scenario:
Are people in the U.S. migrating during the coronavirus crisis in different ways than pre-pandemic? Are they leaving cities? Moving to the suburbs? These are popular questions without definitive answers — yet. But there is some data emerging that can paint a better picture of Americans’ geographic response to the pandemic.
One thing’s for certain: So far, there is little support for the dramatic claims that people are fleeingcities writ large. In fact, available data indicates that overall, fewer people moved at all since the beginning of stay-at-home orders and through June — even with interest in moving on the rise again.
Among those who have moved, it’s unclear how many of those moves will be only temporary. But that doesn’t mean there aren’t interesting migration takeaways worth following. A select few cities including New York City and San Francisco do seem to be seeing more out-migration than most. But guess where many of those people are going? Other very large metropolitan areas, like Seattle and Los Angeles.
If there is a perception that the pandemic has ushered in a mass migration, it is not supported by the data. According to figures from two national moving companies, Americans moved less during the pandemic than they normally would have, not more.
Several surveys have found that the great majority of people who did move duringthe first months of the pandemic did so for reasons unrelated to the coronavirus. In one such survey of 1,300 individuals conducted by Hire A Helper, just 15% said they had relocated because of Covid-19.Out of these pandemic-induced migrations, 37% of respondents said they moved because they could not afford current housingdue to a Covid-related income loss. Thirty-three percent of the respondents said that they moved to shelter in place with friends or family, and 24% that they didn’t feel safe where they were.
A Pew Research Center survey in June looked more closely at Americans who said they did make pandemic-induced moves. It found that overall, young people between the ages of 18 and 29 were moving because of Covid-19 in higher numbers, whether permanently or temporarily (college closing for in-person education might be to blame, at least partially.) Only 3% of the respondents said they had moved because of Covid-19, and 6% said someone else had moved in with them because of it.
What the pandemic is exposing is the gap between the haves and have-nots.
Those who are moving are seeking financial relief – either homeowners cashing in their home-equity lottery ticket and moving down, or those who flee so they can afford to start their American dream in a cheaper area.
The affluent don’t have to worry about that stuff. But they’ll move closer to the grandkids!
The turnover and upgrading of neighborhoods is commonly called gentrification, and what it means around here is that the affluent buyers (many, if not most, from outside the county) take over the real estate market, one house at a time.
Their money does the talking – they pay more for houses because they can.
Those with the most horsepower tend to gravitate towards the coast, and once they arrive, they stay – heck, it’s paradise! This has been happening for the last 100 years.
As a result, the North San Diego County coastal region is comprised of older homes, and homeowners who have lived here for 20, 30 or 40 years. We are overdue for more turnover!
Who will be selling in the next 1-2 years?
Homeowners used to be more mobile when real estate was civil. There were up & down cycles that kept a throttle on pricing, and moving up was more feasible. For example, you could have bought a home in the mid-to-late 1980s, had a kid or two, and then in the mid-to-late 1990s move up to a bigger home without too much financial strain because the market took a dip in between. But if you bought anytime before 2015, it is extremely tough now to justify a move-up today due to the much-higher home prices and property taxes – unless you really need it.
Once the covid & politics simmer down (i.e., Spring, 2021), we should have more boomer liquidations.
We have to – they own all the houses around here, and they will be the only ones moving – they are the market. We will be dependent upon how many of them will be clearing out.
Oh, you say, “Boomers are settled in, and they’re not moving!”
It certainly has been the trend for the last ten years, but we’re all much older now. Isn’t it inevitable that more boomers – or their kids – will be selling? Each day, 12,000 Americans celebrate their 60th birthday – look how it’s stacking up:
Even if the vast majority of boomers don’t sell in the next 1-2 years, there will be more selling than we’ve had recently. Covid-19 has added a new dimension that held back the majority of boomers – 57% are waiting to put their home on the market, which means a potential surge next spring:
The number of boomers selling will be different in each neighborhood, and they will be selling for different reasons besides just being old:
Be closer to grandkids.
They need the money.
Kids need the money.
Neighborhood has changed.
Tired of the maintenance.
Politics.
We’ll have the usual number of home sales due to death, divorce, and job transfers (The Big Three). It will be the number of younger boomers, ages 60-75, that move for the reasons above that will supplement the supply and create more balance between sellers and buyers than we’ve had in recent years.
More balance = more sales, and less pressure on prices.
It’s a fine line though. A few more sales would build more comps to keep prices rising faster. But if we get 57% more listings in one spring, the competition will settle down and pricing will do the same.
Results will vary in each neighborhood. Just do a count – how many homeowners around you are 60+ years old? Don’t be surprised if you see more of them move in the next 1-2 years than ever before.
Catherine asked what I thought about the next 1-2 years of real estate.
First let’s discuss why real estate in the future won’t be like it’s been in the past – we’re out of dirt. Here’s my conversation with Bill Davidson in 2012 about the future of home-building in San Diego:
This is from 2015:
“We’ll be the Bay Area in no time,” said Borre Winckel, president and CEO of the Building Industry Association of San Diego. “We can offer very few product lines for the middle-class buyer.”
San Francisco was once a quirky, counter-cultural city that was home to a bevy of activists, artists and writers. But that city is vanishing because of sky-high housing costs. Now, only the elite can afford to live in the city and, like in Manhattan, low- and middle-income workers are forced to live further afield and make long commutes to their jobs.
San Diego is not far behind. It is already the nation’s fifth most expensive housing market, according to the National Association of Realtors. Only an estimated 25 percent of households can afford the median home price.
Even more troubling, most of the apartment units under construction are higher end, catering to wealthier millennials.
“My lament is that we’re royally screwing the housing opportunity for the middle class and young people,” Winckel said.
San Diego’s population grew by 159,000 people from 2010 to 2014, but the region added only 22,000 housing units in that time, according to the U.S. Census Bureau.
With today’s supply and demand being so out of whack, the outcome is being determined by money. Our home prices have risen steadily over the last ten years (which has never happened, at least since I’ve been around), and it looks like it will continue.
It’s the basis for any forecast, and with that said, let’s explore what could happen, shall we?
This article is written by a professor at the Wharton School who has a book coming out this week. It appears we have a glut of boomers – will we stay put, or sell the family homestead (once the covid is solved) and explore the world during retirement?
Population aging is a powerful force. By 2030 the population above age 60 will have grown so much that other generations like millennials and Gen-Z will be outnumbered by them in Europe, China, Japan and the United States.
Each day, 12,000 Americans celebrate their 60th birthday; in China, 54,000; and in the world, about 210,000, according to the United Nations Population Division. The pandemic will only accelerate this trend given the predictable decline in fertility — which tends to occur whenever unemployment is high — and the shifting demographics of cases and deaths, which are trending younger as time goes by.
The 60+ crowd will become very important economically for three reasons.
First, they own more than half of the net worth around the world, a proportion that reaches 80 percent in the United States, according to a study by the Federal Reserve. Second, the same study concluded that the net worth of seniors is more evenly distributed than among younger age groups, and poverty rates are also lower. And third, their incomes tend to be more resilient because many of them depend on pensions or investment income, and they can do some work on the side to cover potential shortfalls.
Not all seniors are financially secure, but they tend to be less exposed to large-scale financial disruption during episodes of crisis. Moreover, there are 25 percent more women above the age of 60 than men, they tend to be much better at managing their money and making it last, and they account for a smaller percentage of COVID-related health problems and hospitalizations, mainly because they heed the advice of health authorities and they have more robust anti-viral immune responses to begin with.
The gray market is quickly becoming in vogue because ever larger proportions of seniors are enjoying life by using their income and wealth wisely to procure goods and services that enhance their experiences.
Moreover, a 70-year-old nowadays lives the life of a 50-year-old in the 1980s.
The pandemic has also accelerated the technological savviness of this group, and not just in the area of e-commerce. In fact, a study in the Journal of Gerontology found that use of the Internet increases cognitive functioning rather than vice versa. Myriad new applications in virtual reality, robotics, and artificial intelligence are seeking to capture a rapidly growing market.
Other areas of technology will help seniors live longer and more fulfilling lives. Virtual reality can stimulate motor functions and the overall performance of the nervous system, and it can help reduce loneliness, a key problem afflicting large numbers of people at advanced ages. Artificial intelligence and robotics will also contribute to quality of life. Over the last decade, Japanese companies have invested heavily in robotics to aid with daily tasks like lifting weights, conduct physiotherapy sessions, and provide for companionship.
My video on Monday touched on the different groups of buyers and sellers that should be very active in the 2021 selling season. Let’s break it down further, shall we?
SELLERS
Boomer liquidations – When we first started talking about boomer liquidations, people in their 60s scoffed and shrugged it off. Now they are in their seventies, and the burdens of homeownership have never been so apparent. Stuff needs to be fixed regularly, and that dang property tax bill keeps coming twice a year. If you didn’t mind leaving town, a homeowner’s equity position has never been so solid, and you could go to most towns in America and buy a house for cash and live happily ever after. It’s a temptation that aging boomers will find harder to resist in 2021.
Health considerations – Covid isn’t going away, and for those who are physically challenged, selling their house here and moving to a healthier location will feel like a life-or-death decision – they need to do it. Cashing out their equity is a nice bonus too, and provides enough grease to make it easier to leave San Diego. Let’s note that there are good doctors everywhere, and while the transition may be uncomfortable for the first couple of months, you’ll adjust.
Grandkids – Obviously, it is harder for the kids to get a foothold here than the parents who came 10-30 years ago – home prices have doubled. If the kids pack it up and take the grandkids somewhere that is affordable, it is inevitable that the grandparents will follow. They don’t have much time left, and they want to spend it with family. The grandkids may be the #1 factor in real estate decisions for the next few years.
Move-Uppers – For those who want to stay local, the best time to move up is when you can sell your existing home for more money than ever, AND get a lower interest rate. My rule-of-thumb for move-uppers is that you have to spend 50% more on the next house to make it worth the move – if you only spend 10% more, you only get an extra bedroom, and it’s not worth moving. There aren’t many in this group who finance – you still need a big cash infusion to make it work. Here’s an example:
If you bought your home for $500,000, with a loan of $400,000 at 4%, the payment is $1,910 per month. If you sell now for $1,000,000, and use $600,000 for your down payment to purchase a $1,500,000 house, the payment is $3,794 per month at 3%.
Most who are used to paying $1,910 per month will want to inject more capital into the equation.
Last Movers – You are of the age where you have one more move left in you, and it’s probably due to hanging on to the 2-story family homestead for a little too long. The kids have been gone for a while, and you’ve been rattling around in a house that should be passed on to the next generation before you fall down those stairs.
BUYERS
First-timers or Out-of-Towners – If you don’t own a house here yet, your motivation is substantially higher than those who do own and are just trying to re-position. It’s why current homeowners struggle to understand why homes keep selling for record amounts – because heck, they’d never pay that much. But first-timers and out-of-towners are more desperate to get in, and will pay an extra few bucks to finally get something.
Downsizers – Rarely do locals downsize in the same town – keeping the old house makes to much sense, and why we have such low inventory. But San Diego County is well-positioned to be a landing ground for those selling for big bucks in L.A./O.C./Bay Area and coming here where our prices look like a bargain. This may be the largest group of buyers, judging by how fast prices go up.
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Next year’s selling season won’t be as predictable as they’ve been recently.
We are overdue for a surge of sellers.
It may be disguised in the overall stats as a blip, but if you have three houses on your street go up for sale, and two others on the next street over, don’t be surprised if buyers freeze up and wait it out. If you live in a neighborhood where most of the residents have been there for 10, 20, or 30 years, there only needs to be one from each of my five seller categories above to cause a glut of homes for sale within a week or two. If any of them are desperate for money and undercut the pricing to get out, it will affect all.
Next year will be exciting because each seller and buyer group could grow 10%+ without notice. Remember the graph that said 57% of boomers are delaying the sale of their home? Add a possible covid bump in the usual number of deaths, divorces, & job transfers and we could experience a surge of inventory that nobody sees coming.
If you are thinking of selling……are you willing to get out in February or March will all-time record money, or are you going to wait until June or July and try to milk it for another 5% because you can? And risk not getting out at all because those ‘lowball’ offers based on 2020 comps are insulting and unacceptable?
Because baby boomers tend to own in the best locations (they got there first), we should have an extended frenzy, and maybe an occasional glut of older and dated 2-story homes in some areas:
Nearly a third (31%) of home sellers are “extremely anxious” about selling their home in 2020. The percentage of sellers in each age group who feel this way are:
37% of millennials
35% of Gen Xers
20% of baby boomers
Another 46% of sellers are “somewhat anxious” about a home sale this year, while 6% have no anxiety at all.
While 32% of home sellers already have their home listed for sale, more than 6 in 10 sellers (62%) haven’t put their home on the market yet. Another 6% previously listed their home, but have since taken it off the market.
More baby boomers (57%) plan on waiting to put their home on the market, due to the COVID-19 pandemic, than Gen Xers (41%) and millennials (42%).
Reader AI said that “Eventually the big guys will own the entire process from beginning to end and the consumer will suffer, and pay more to do so”. Zillow is on the verge of owning the entire process, but they aren’t the only ones trying. Here’s another example:
In addition to resuming iBuying across 800 markets, Offerpad is now offering to list and sell homes for their customers.
According to Offerpad, “We aren’t a discount brokerage. Actually, we provide more services when listing than anyone else can. We’ll maximize home values in the end and get the home to sell for more so the customer can earn 3x, 4x, 5x, more than the difference of our commission fees and those of discount brokerages. Fees could be 5.5% – 6% depending on the market.”
Because the definition of real estate service has never been established, newcomers make any claim they want. They hope that in the end, the winner will be whoever advertises the most – truthful or not.
Compass is the last bastion of old-fashioned realtors. The company is hiring successful listing agents, and supporting them with additional tools in order to build market share that will survive the disrupter onslaught. We’ll see if it works, but it will probably include expanding into the mortgage/escrow/title business too, just to keep up.
The rest will claim to be top-notch professional realtors, but will consumers know the difference? Or care?
Our reader Another Investor has been supportive of the blog throughout the years. Her comment from the second link above still makes me wonder about the future:
We’ve already seen how the natural real estate cycles have been crushed, and now here we are in the middle of a world-wide pandemic, rampant unemployment, and racial/political unrest AND PRICES STILL KEEP GOING UP. There is nothing natural, normal, or historical about it – we are living in a different world. Today’s real estate market is tailored for the elite, and their insiders.
The days of individual realtors helping families with achieving the American Dream are just about over, and as AI said, ‘the Klinge era of service to clients is coming to an end’. All I can do is to try and help as many people as I can before I get pushed out.
This is one of the better options I’ve seen for touring a home remotely.
The live tour would be similar to showing the home in person because of the open discussion between buyers and agent, and the recording of the event is especially helpful for reviewing later! https://www.homeroverapp.com/
Are we at the point where buyers only tour the homes in person that are the real contenders? Yes!
