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Low Inventory, Defined

We’ve heard for years now that the inventory is low.  For the casual observers, it’s a discouraging thought – but it’s not as bad as it sounds. There have been plenty of homes for sale this year, and in 2020 we could post the highest number of NSDCC sales in history…..during a pandemic!

For everyone’s sake, we should be more clear. There have been plenty of homes for sale – they just sell fast, giving the appearance that there isn’t much for sale.

The inventory of ACTIVE listings is low, especially in the more-affordable price ranges.

Look at the median days-on-market of NSDCC homes sold this year:

Price Range
Listings Since 1/1/20
Actives
Pendings
Solds in 2020
Median DOM
Under $1M
597
11
52
529
9
$1M – $1.5M
1,305
30
97
1,044
13
$1.5M – $2.0M
939
63
91
648
23
Over $2M
1,633
352
126
816
38

If you want to buy a NSDCC home for less than $2,000,000 today, you have 104 choices. In an area of 300,000 people!

But don’t despair – we have sold 2,220 homes sold for less than $2,000,000 this year, mostly to buyers who had a strategy of jumping on the new listings quickly.

What can buyers do?

  • Work with an agent who has a great reputation in the community.
  • Work with an agent who has bidding-war strategies and works in the off-market space.
  • Work with an agent who can present a compelling case on why sellers should accept your offer.
  • Make a cash offer.
  • Get pre-approved with an impressive and well-known lender.
  • Consider removing contingencies upfront (be careful).
  • Include an intro love letter that’s neutral/generic so sellers can’t discriminate.
  • Make a big deposit – and maybe non-refundable if you know you are going to buy the house.
  • Let sellers occupy for free after closing.
  • Find a way to make an offer that’s not contingent upon selling another property.

Get Good Help!

Only An Occasional Low Sale

The 15% increase from the last peak 15 years ago doesn’t seem bad, though both were bubblelicious thanks to stimulus (exotic financing then and ultra-low rates today).

https://wolfstreet.com/2020/11/24/the-most-splendid-housing-bubbles-in-america-november-update/

The big difference is that the last bubble was built on the backs of the the under-qualified borrowers who took exotic mortgages from unscrupulous loan brokers.  The bad loans were funneled to Wall Street, where the same thing happened – the Tan Man took advantage of greedy but unknowing financiers and the combined effect exposed the house of cards.  Without the end users making their payments, the machine came to a grinding halt.

Could it happen again?

Because mortgage underwriting has been strict over the last ten years, it’s hard to imagine that a wave of homeowners loaded with equity would get foreclosed – and then the banks would give them away too.

But it is possible that we could have mild swings of 5% to 10%.  But if there were a couple of low sales, wouldn’t the lower-motivated sellers just wait it out? Probably.

Here’s a recent example we can follow – I think we can call this a low sale:

1756 Skimmer Ct., Carlsbad, CA 92011

4 br/2.5 ba, 2,409sf one-story with 3-car garage on a 10,041sf lot.

LP = $1,328,000 on September 10, 2020

SP = $1,000,000 on November 17, 2020.

The home had been on the market for a couple of months and it was time – the seller was ready to move!  My buyers offered the right price, on the right day, and the seller signed it.

It’s a classic example of finding a long-time owner who could sell for less and still walk away with a bucketful of money. The seller paid $430,000 when the home was new in 2001. They didn’t put in any upgrades then or now – it was the original carpet and paint, etc., they made no attempt to improve the property for sale:

https://www.compass.com/listing/1756-skimmer-court-carlsbad-ca-92011/603767865654710185/

The thing to appreciate about this home is that it backs to dedicated open space, where the other side of the street backs to Poinsettia, a four-laner which will soon be connected to the I-5 off-ramp about a mile away.  My buyers benefit from easier access but no noticeable road noise!

New bridge in red

The last two sales of this model were $910,000 and $935,000 in 2017 (does anybody want to pay within 10% of 2017 prices today – yeah!). The last sale on this street was a newly-built 3,380sf home at the end of the street that sold for $1,380,000 in August. It was in the shadow of the power lines, and backed to El Camino Real/Poinsettia intersection with substantial road noise:

Here are the one-story homes sold in the last six months – they average $533/sf, and we closed at $415/sf:

Yes, I’m tooting my own horn for being the agent who recognized that this home was languishing on the market, had an original owner and would be a candidate to sell for less.

But will I be the villian who started the Big Downturn in the 92011? No, every other one-story-home seller nearby will shrug this off and list for at least $500/sf in the foreseeable future.

 

San Diego Top 5 Brokerages

The local recruiting effort by Compass has been very effective, and it’s really starting to show up in the numbers. With 1,200+ productive agents in San Diego County now (I was #160 in July 2018), we are taking away market share and becoming the dominant brokerage – especially in the coastal markets.

How will it all play out?

There could be a tectonic shift in the business if this lawsuit prevails.  The result will be that the commission rate paid by the seller to the buyer-agents will be revealed publicly (can’t find them now), and it could end up that buyers will have to pay their buyer-agent’s fee, instead of the seller:

https://www.seattletimes.com/business/real-estate/a-challenge-to-real-estate-commissions-gains-ground/

This training video from a realtor seminar is expected to be a key piece of evidence:

If buyers have to pay their agent’s commission, hopefully they will take more interest in their qualifications, and ability to give good help! We’ll see which brokerages can survive then.

2021 Moving Survey Results

The results are in!

We reached 1,692 people, of which 89 participated in the survey, which is about right.

Let’s go through each question.

Q1. Most of the participants (2/3) already live in San Diego County.  The question was passive in nature, but it was interesting that 10 out of 86 people have thought about moving here!

Q2. No surprise that 2/3s aren’t moving, but stunning that the next highest category was those who are selling and leaving California!  Of those who are moving, 37% are leaving the state!

Q3. (No chart) Their results chart was poorly formatted, but 10 out of 70 rated their likelihood of moving as an 8,9 or 10.

Q4. Of those who plan to move, 27% are jumping right on it in the first quarter of 2021!

Q5. Covid-19 only caused 5 people to change their plans about moving?

It’s still 7% of those surveyed, which is enough to change the outcome, especially if we had that much more inventory to sell. The tipping point is probably more like 15% to 20% additional inventory to sell – then buyers might take a step back to see where this is going.

Q6. A bit of a shocker here: Getting My Price was the least concern!  It may look easy, but getting your price in 2021 will require skill and some luck. Finding the Next Home is by far the biggest concern, and if we have more inventory it could grease the wheels a bit.

Q7. Those who aren’t moving would have selected the #4 answer, but glad to see the majority believe in good help!

Others left warm thoughts appreciating the blog and the effort. It’s my pleasure – thanks for participating!

2021 Frenzy Preview

While the 2020 is winding down and we look forward to next year, I’ll occasionally repost the unique factors that will have impact on the 2021 selling season. Let me know of any others:

Ultra-Low Mortgage Rates – Rates around 3% are expected to continue through 2021, and they are probably the #1 factor that keeps buyers interested – because you can buy more house!  This is especially helpful for those who are trying to move up – if their current rate is higher, then getting 3% or lower helps to offset the increase in price.

Vaccine News – Just the thought of Covid-19 coming to an end will energize the populace, and the motivated buyers & sellers will want to get a jump on it – even before any actual vaccine is readily available.

Work From Home – This trend frees up many to move.

Unemployment – Older homeowners will grapple with taking a pay cut or quitting the job-search altogether. Retiring earlier than expected won’t seem so bad when their home’s equity has never been so high, and more boomer moves that would have happened in 2022-2025 will be pulled forward.

Eviction Ban – With both tenants and landlords being affected, this new frustration could cause more transactions that are rushed (buyers pay too much/sellers giving it away).

Politics – No matter who wins the presidential election, it will be the last straw for some.

Divorce Rate is Up 34% YoY – Technically, this could add more buyers and sellers, but realistically those coming out of a divorce will be more likely to split their equity and take a break.

Prop 19 – Our association swears that more 55+ seniors will move if Prop 19 passes, so if it does, we’ll have more sellers and buyers. I still expect Prop 19 to be soundly defeated.

Capital-gains tax.  From the WSJ: Biden will raise the tax on the capital gains of high earners to the same rate as wage income, increasing the rate to 43.4% (39.6% plus Medicare 3.8% investment tax) from 23.8%. Mr. Biden on Thursday estimated that these increases on high earners would raise $92 billion, but that’s before they put their tax lawyers to work. Biden has also said he will eliminate the 1031 exchanges, but all of the above will need Congressional approval. Just the thought could cause landlords to hurry up their plans of selling.

Don’t Own Here Yet – Renters, first-timers, and out-of-towners have a different look at our home values because they don’t own here yet.  They are more motivated to get their hands on something, and will pay more than those who are just trying to do better than what they already own.  The market will hinge on buyers in this category!

Those are TEN reasons why 2021 will be the most exciting real estate market ever!

Get Good Help!

No More Love Letters

The time-honored tradition of buyers hoping to sway sellers with a personal introductory letter came to an abrupt halt this month with the new FHDA form (see snip above).

Not only has it been customary to submit a letter of introduction with your offer, but if you don’t, the listing agent usually asks about the buyers. I had one last week say, “Tell me their story” which probably wasn’t meant to gather information to use against them, but who knows?

Paragraph 8A mentions ‘actual or unconscious bias’.  Agents who are stuck in their ways may not realize how this information is being digested.

It’s not just for agents either. Paragraph 7 specifically includes sellers and landlords too.

Nobody reads these forms so the practice will probably continue for a while, which means that those who DON’T include a love letter could be hurting their chances if other agents keep doing it.

(hat tip Annabama)

Bad Time to Buy?

Here’s a sexy headline:

Red-hot home prices have more consumers saying now is a bad time to buy

Anyone out hunting for a house knows that bidding wars are no longer the exception, but the rule.  Demand for housing has been unusually strong, due to the coronavirus pandemic, and supply is historically lean. That is a recipe for high prices, which are now beginning to take their toll on potential homebuyers’ confidence.

The share of buyers who say they think it’s a good time to buy fell in September, from 59% to 54%, according to a new survey from Fannie Mae.

Home values were up nearly 6% annually, according to CoreLogic, a data analytics firm. More consumers now expect those price gains to grow.

The percentage of respondents to the Fannie Mae survey who says prices will go up in the next year increased from 33% to 41%, while the share who said prices would go down decreased from 26% to just 17%.

More people do think now is a good time to sell a home, which is an improvement from the first months of the pandemic, when potential sellers didn’t want shoppers in their homes and worried about the state of the overall economy.

If seller sentiment improves substantially, that could help bolster supply and take away at least some of the heat in prices.

“Going forward, we believe the wild card to be whether enough sellers enter the market to continue to meet the strong homebuying demand,” said Doug Duncan, Fannie Mae’s chief economist. “The home purchase market requires the proper mix of home price growth and continued economic recovery to achieve sustainable levels of housing activity.”

https://www.cnbc.com/2020/10/08/red-hot-home-prices-have-more-consumers-saying-now-is-a-bad-time-to-buy.html

A bad time to buy? When you can get a mortgage rate under 3%?

Any possible declines in home prices will be offset by higher mortgage rates, so there won’t be much, if any, savings in your payment if prices did come down – but fewer people in the survey think that’s going to happen. You would pay less property taxes, however.

Saying it’s ‘a tough time to buy’ would be more accurate.  Finding the right house, at the right price, is extremely difficult – but many signs point to the supply increasing next year.  Stay engaged, regardless of what the talking heads tell you about the general market. You only need one!

Brittany Forrest Sold

On Monday, the sale of our Carmel Valley listing on Brittany Forrest closed escrow.

I had discussed previously the valuation challenge when a recent seller had dumped on price and became the comp.  It was a model-match that closed for $1,880,000 in May with a similar view but was in all-original condition, so for those who were just looking at the numbers, my $2,250,000 list price looked high.

I needed to deliver a compelling case on value, which I did – and we closed at $2,200,000.

I want to tell a story from when I was showing the home.  I had received the offer from the eventual buyer, and knew we had a good chance of making the deal because I already had the chance to discuss the comps with him and his agent, and they saw the light.

But two other showings were scheduled the next day, and one was by a Redfin agent.

I want to give every buyer a chance to compete, so I got back to both agents and told them I had received a very good offer the night before, and to bring their A-game later that afternoon.

The Redfin agent arrived before her buyers did, so we had a chance to talk:

JtR: Are you new at Redfin?

Redfin agent: No, this is my second week!

JtR: Are you one of the showing agents who makes $50 per door, or an agent who writes offers?

Redfin agent: I’m a showing agent, and we make $50 to $80 per door opened, depending on price.  I’m making $80 on this one.

JtR: Did you relay to your buyers or to an experienced agent in your office that I have received a good offer?

Redfin agent: I did tell our office agent, and they were going to try and join us, but it didn’t work out.

The buyers clearly had some interest, judging by their deliberate review of the home. They begin the critical walk to the front door, where good agents know that it’s time to ask the right questions, the right way, at the right time…for the buyers’ sake!  We are here to politely assist buyers in making the right real estate decisions for them.

Because the Redfin model only includes opening doors on the front side, there isn’t a relationship between this inexperienced agent, and the clients.  They’ve never met before.  Her response in crunch time?

Redfin agent:  Nice to meet you!

I jumped in and mentioned that we had received a good offer, and asked them if they wanted to buy the home.  They waved, and walked off.

The sale is in the preparation.  If they had been told before they arrived that they would need to make a decision promptly, they would look at the house differently – or cancelled the showing.  I’m sure they will have other opportunities to buy a home, so it isn’t the end of the world, but they might not buy one this nice for this price – and they deserved to know that from the beginning.

It saddens me that the industry is going this way. Zillow will follow with the same model, and there are plenty of realtors currently that don’t aspire to any greater heights, either.

The worst part – and the only reason I bring it up – is that the unsuspecting buyers and sellers don’t know the difference between realtors, and there is no attempt by anyone in the industry to tell them.

They deserve to Get Good Help!

Doom?

After another weekend of multiple-offer situations where the listing agents made no attempt whatsoever to create a bidding war, and instead just shut down the showings, it’s hard to believe there is any downturn coming our way. When you can get a mortgage rate in the twos, the demand is unyielding.

But some authors still want you to believe that doom is around the corner – they should talk to realtors on the street!  An excerpt:

The price of low-tier housing in San Diego County skyrocketed after the latter half of 2012. 2015 experienced another price increase, due to the boost given by decreased mortgage rates throughout 2015 and 2016. Lower mortgage rates free up more of a buyer’s monthly mortgage payment to put towards a bigger principal. Thus, San Diego’s high home prices continued to find fuel from increased buyer purchasing power.

But in 2018, home price increases sharply declined in reaction to slowing sales and rising interest rates, which began in late-2017. Home prices have since turned back up, but today lack the fundamental support of home sales volume to continue.  The annual pace of increase is now just 5%, lower than in recent years when the annual rise averaged around 10%.

Accurate home price reports run about two months behind current events. Even when caught up, sticky prices tend to persist several months beyond the moment when home sales volume begins to slow. Starting in March 2020, economic volatility and shelter-in-place orders caused home sales volume to decline dramatically. However, historically low interest rates have provided a boost for buyer purchasing power, which has propped up home prices thus far.

Later in 2020, the impact of record job losses will see downward pressure on home prices. The overall home price trend for the next couple of years will be down, the result of job losses and plummeting sales volume. As during the 2008 recession, the drop in sales volume and prices will first be most volatile on the coast, before rippling outward to inland areas.

Link to Article

Sales and pricing should be directly connected to inventory.

When there is hardly anything to buy, sales may decline, but pricing would stay the same or go higher because only the quality homes would be selling.  A surge of homes-for-sale in 2021 would fuel the demand and energize the marketplace…..to a point.

There will be a fine line between frenzy and glut!

Get Good Help!

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