Why Home Prices Will Keep Rising

Over the history of real estate, buyers have determined the market.

They decide how much education and investigation they need to complete before making what is now the biggest decision of their life, and then they proceed when ready – or when they see an attractive house, hopefully in that order!  There isn’t much education available on how to do it, so people just trust their gut and start looking around – even those who already own a home.  HGTV makes it look easy (see three, and buy one), and the disrupters keep promoting that their agent-lite program is all you need.  In a hot market, the investigation/education phase usually gets obliterated.

You’d think it would cause people to Get Good Help, to compensate – and many do (thanks!).

But once on the playing field, the buyers are split into two categories:

  1. Those who own a home here now, and are trying to do better.
  2. Those who don’t own a home here, and want/need to get in.

Buyers from the second category are determining the market.

They see every decent home get snatched up by those who got desperate sooner.  It becomes a race for those newcomers to get desperate enough so they can compete with those ahead of them.

Buyers in Category 1 already have it good.  Even if their home doesn’t suit their current needs, it’s what got them here.  The property taxes are lower, the neighborhood is a known quantity, and they are comfortable.  Are they going to rise to the same desperation level as those who don’t own a home here yet? It’s doubtful, even if the Prop 19 passes and sellers can take their property-tax basis with them anywhere – nobody is desperate to leave coastal San Diego.

It’s what is causing the inventory to be so thin, and why I’m convinced it’s only going to get worse.

Consider these factors:

  1. Baby boomers are older now – if they haven’t moved yet, it’s probably too late.  They will make do with their current residence, and make it last for the duration.  Kids will inherit, and one of them will occupy as their primary residence – and the cycle of low inventory for sale will continue for another generation.
  2. San Diego is a mid-range market – there are a number of more expensive areas that makes us look cheap, relatively.  It’s those move-down buyers from affluent areas who are filling up Category 2, making it very tough for locals to compete, which prevents them from moving…..which means less inventory.
  3. There aren’t any new-home tracts left to build in Coastal North County.
  4. There will be massive pressure on the Fed to keep rates low for years to come.
  5. The business is being dumbed-down for easier consumption, not smarter.

These factors will keep the inventory low, and competition high for a long time.  It also means that the deliberate, informed buyers will keep getting run over by those who are just in a hurry to buy a house.

The old adage of buyers determining the market is being snuffed out.

Sellers can name their price now, and there is probably someone who will at least consider paying it.  Until unsold listings are stacking up to the rafters, sellers will ensure that prices keep creeping upward.

Statewide Showings Subside (Slightly)

I’m not alarmed here with a statewide drop-off in showings:

  1. Showings are 37.4% above those in early March.
  2. They are way ahead of last year!
  3. It was going so good that a drop-off was inevitable.
  4. Showings declined this time last year too – might be seasonal.

If you would have predicted this market bounce-back in April, nobody would have believed it!

Move to the Suburbs?

At least this was based on a survey, rather than ivory-tower speculation:

Where people choose to live has traditionally been tied to where they work, a dynamic that through the past decade spurred extreme home value growth and an affordability crisis in coastal job centers. But the post-pandemic recovery could mitigate or even produce the opposite effect and drive a boom in secondary cities and exurbs, prompted not by a fear of density but by a seismic shift toward remote work.

Now that more than half of employed Americans (56%) have had the opportunity to work from home, a vast majority want to continue, at least occasionally.  A new survey from Zillow, conducted by The Harris Poll, finds 75 percent of Americans working from home due to COVID-19 say they would prefer to continue that at least half the time, if given the option, after the pandemic subsides.

Two-thirds of employees working from home due to COVID-19 (66%) would be at least somewhat likely to consider moving if they had the flexibility to work from home as often as they want.  Only 24 percent of Americans overall say they thought about moving as a result of spending more time at home due to social distancing recommendations.

Many employed Americans are trying to square the desire to work remotely with the functionality and size of their existing homes.  Among employees who would be likely to consider moving, If given the flexibility to work from home when they want, nearly one-third say they would consider moving in order to live in a home with a dedicated office space (31%), to live in a larger home (30%), and to live in a home with more rooms (29%).

A Zillow analysis finds 46 percent of current households have a spare bedroom that could be used as an office.  But that percentage drops off by more than 10 points in dense, expensive metros such as Los AngelesNew YorkSan JoseSan Francisco and San Diego, where far fewer homes have spare rooms.

When it comes time to move, home shoppers who can work remotely may seek out more space — both indoor and outdoor — farther outside city limits, where they can find larger homes within their budget.

“Moving away from the central core has traditionally offered affordability at the cost of your time and gas money. Relaxing those costs by working remotely could mean more households choose those larger homes farther out, easing price pressure on urban and inner suburban areas,” said Zillow senior principal economist, Skylar Olsen. “However, that means they’d also be moving farther from a wider variety of restaurants, shops, yoga studios and art galleries. Given the value many place on access to such amenities, we’re not talking about the rise of the rural homesteader on a large scale. Future growth under broader remote work would still favor suburban communities or secondary cities that offer those amenities along with more spacious homes and larger lots.”

Zillow Premier Agents from Silicon Valley to Manhattan say anecdotally, they’re seeing the early beginnings of a shift.

“We are seeing more buyers looking to leave the city,” said Bic DeCaro, a member of Zillow’s Agent Advisory Board serving Washington, D.C., and Northern Virginia.  “Buyers, who just a few months ago were looking for walkability, are now looking for extra land to go along with more square footage.”

Keith Taylor Andrews, a small business owner in Denver, started home shopping on Zillow the week Colorado issued a stay-home order.  The first-time homebuyer is now under contract on a house in Fayetteville, Arkansas that he plans to use as his home office.

“We learned from COVID-19 that we could operate our business remotely,” said Andrews, who has 40 employees working from home. “Arkansas is a good place to move, it’s economical and there are far fewer people.  It feels like a breath of fresh air to get out of the city.”

http://zillow.mediaroom.com/2020-05-13-A-Rise-in-Remote-Work-Could-Lead-to-a-New-Suburban-Boom

NSDCC Since April 1st

They send out this survey twice each month – on the 15th and 21st – so these agent comments above were based on their market observations around then. Hopefully they have gotten back to work by now:

Town
Zip Code
New Listings Since April 1st
New Pendings Since April 1st
Cardiff
92007
18
3
Cbad NW
92008
25
15
Cbad SE
92009
63
36
Cbad NE
92010
18
15
Carlsbad SW
92011
47
20
Carmel Vly
92130
79
50
Del Mar
92014
28
10
Encinitas
92024
71
38
La Jolla
92037
60
16
RSF
92067
38
15
Solana Bch
92075
13
2
NSDCC
Totals
460
220

We have had 220 new pendings since April 1st, which is remarkable! The 220 is today’s number, of which 47 have already closed. Others that went pending and fell out of escrow are not included.

1627 New Crest Ct, Carlsbad 92011

Our new listing in SW Carlsbad!

Davidson-built and better-than-new 4 br+ loft/4.5ba, 4,381sf turnkey home with views at the end of the culdesac! The perfect-sized great room includes the signature chef’s island, internet station, massive pantry, extra-large nook and a seamless indoor-outdoor experience designed for max enjoyment!

Downstairs bedroom w/full bath plus access to private courtyard with views, gorgeous high-end hardwoods throughout, paid solar, and custom loft that could be 5th bedroom if needed. Outdoor stainless kitchen (with fridge), three-car garage with custom high-end cabinetry with heavy-duty 1-inch shelving, and 10,000+sf lot with a good-sized turf area out back.

All priced at $1,629,000, which is a reasonable $372/sf (and 12% under this year’s average of $430/sf in 92011). Jim Klinge, broker-associate at Compass CA DRE# 00873197 (858) 997-3801.


Link to Zillow listing

Covid-19 Wrapping Up (?)

New listings, new pendings, and more showings are happening everywhere. Regardless of what you think about it, there are people who are proceeding with their plans to buy and sell homes.

The industry is cautious, and you see it in the showing instructions. I haven’t seen a listing agent who wants to take your temperature (yet), but other demands are increasing. The basics include signing a Coronavirus disclosure, plus wearing gloves, mask, and shoe coverings to see a home. Some are taking the opportunity to load up, and insist that buyers furnish their loan approval and proof of funds just to SEE the home.

At least we are screening! Not sure if it will encourage or discourage buyers though.

Next will be the happy talk. The California Association of Realtors got started here with a heartfelt message that doesn’t flat out tell you to go buy a house yet, but you can feel it coming:

Are there buyers out there? Retail buyers?

This home listed on Friday, and already has 22 offers!

Hopefully there will be a vaccine, and/or testing for all at some point. It would be great if we had proof of wellness on our phone! But in the meantime, the market is forming.

This is the Compass action across the country – the new pendings are out-pacing the new listings:

When Will the Market Comeback?

Everything seems like “If” these days, but if we had a market comeback, the dates of a modified and compressed selling season would be fairly predictable, looking at it logically.

The actual results will be a matter of compression and intensity.

If there isn’t much of a market rebound, then we might only have a couple of hot weeks in July, and a lot of standing around, relatively.  If things get cooking, then we could have a solid 4-6 weeks before school starts (in red above) when the most sales will be made.

The dates in green is when buyers will be looking hard – and might be when the best deals are made.

Two to four weeks in October will be a lost cause, due to the election.  In December, buyers and sellers will both pack it in early for the holidays, and prepare to GET ‘ER DONE IN ’21!

Next year’s selling season is 11-12 months away – we gotta be ok by then, right?

Then all we have to do is get through 2020!

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