This 1998 tract house sold for $2,440,000, or +$144,000 over list price (+6%). The +6% should be about the maximum from now on. Heck, these are selling for the same money as they were getting next door in the Ranch of Carlsbad last summer!
This just hit the market and will be a good one to watch.
It’s the least-expensive house for sale west of I-5 in Solana Beach, and it’s in a quiet little stretch only a block from the beach access and walking distance to everything in downtown SB! Asking $2,395,000 – thanks to the Compass listing agent Wendy!
Reminder that the speed limit on Coast Highway 101 is only 35 MPH:
By the end of today, the 30-year mortgage rate should be in the mid-6s – who would buy a house now?
Between higher prices, higher rates, and the hefty federal and state capital-gains tax, the move-up/move-down homeowners are effectively locked in to their existing home. It’s just too hard to make sense of a move, unless there is another strong reason to overcome those.
It would help if they don’t mind leaving town, and probably leaving California. But who wants to do that?
Without the move up-and-downers, the supply and demand will both be greatly diminished, and the number of sales should drop significantly. But there will always be sales!
Here are the potential buyers who might still be interested, even at 6%-7%:
The Mega-Rich – When they see something they like, they just buy it.
Tenants – They are sick of how high the rents have become, and they don’t want to keep moving around trying to ease the pain. Some inheritance would help.
Inheritance/Gifts – They have been waiting, and now their ship has come in.
Job Transferees – They are used to owning, and they usually have their company’s blessing – and relocation package ($$) to assist them with the transition.
Contarians/Opportunists – The deal hunting will kick into high gear.
Self-Employed – Lenders should ease up a bit on underwriting to keep the doors open, and the alternative mortgage products might get more love. Qualifying with 24 months of bank statements, instead of tax returns, and getting a 8% or 9% rate won’t sound as onerous as it did when rates were 3%.
Most Everyone at a 10% to 20% discount – Those who stay in the hunt might get lucky!
Hopefully, the floor for NSDCC sales should be around 100 per month while the market recalibrates in preparation for the next selling season.
If sales drop below 100 per month, then I’ll be looking for the panic button!
The frenzy wasn’t going to last forever.
Coming off the initial covid months, everyone thought the red-hot market was an acceptable reaction to the way our world had changed. But it’s gone too far, and somebody had to do something – and the Fed is going to do it again tomorrow, which will continue the rise in mortgage rates.
It means sales are going to tumble, which is nothing we can’t handle.
Here’s how it looks so far:
NSDCC June Sales
2017: 360
2018: 299
2019: 282
2020: 274
2021: 357
2022: 61
Currently there are 198 homes in escrow, and 68 of those were marked pending this month.
Of those that went pending prior to June 1st, let’s guess that 100 of them will close in June – and there might be a few others that are just coming together this week with a quick close date in June too.
It will make for around 180-200 NSDCC sales this month! It’s quite a bit lower than usual, but we’ll survive.
We’ll have more unsold listings, longer market times, price reductions, and fewer sales – it’s all part of the recalibration! Additional price reductions are an unreliable indicator because you don’t know how crazy the recent list prices were in the beginning, and they have never been so optimistic, even for the frenzy.
The closed-sales pricing will be the last thing to change, if at all.
I’m sticking with my +/- 5% for NSDCC pricing here in Plateau City.
As you can see in my mortgage-rate tracker (in right column), we had another meltdown today, and the conforming rate now is over 6% (with no points).
The idea of paying higher prices AND rates really discourages the move-up/move-down markets. Combined those with having to pay federal and state capital-gains taxes and the existing homeowners aren’t going to give moving another thought. They probably weren’t giving it much thought any way! And now they might have to sell their home for less? Forgetaboutit!
While most will be (rightfully) concerned about how the buyer pool could dry up, also keep in mind that for every move-up/move-down homeowner that decides not to move, the supply side shrinks a little more too.
Bill added more towns to this list, and it keeps showing how San Diego is bucking the national trend:
We’ve had enough buyers who NEED a house that sales will keep happening, regardless of mortgage rates. I’m sure buyers are hoping to just pay the list price, or less, to compensate.
Yet, after rates got into the 5s and several ER sales closed for less, here’s another over-list:
The number of active listings keeps climbing, which is expected. The likelihood of getting the list price wrong has probably never been higher, given that sellers have been planning their move for months – and they are going to test it out to see if they can get lucky, rather than adjust the price pre-maturely.
With more choices available, the buyers are reacting, and the number of pendings increased 10%.
As a reminder from last week, we used to have 900-1,000 active listings at this time of year:
It will be irresistible for people to wait-and-see where this goes. But ‘it’ is not going anywhere. Until there is some sort of boomer liquidation event, which at the soonest will be 5-10 years from now, the demand is going to out-strip the supply and keep the pressure on pricing.
I encourage readers to click on the ‘more…’ button (below) and examine the individual stats by price range. If there is going to be a supply-and-demand problem, it will be on the high-end, where the active-to-pending ratio is back to 10:1. But those sellers are the most equipped to handle it.
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Are you wondering if our local housing market could maintain current pricing – or even go higher? It’s possible, and if it happens, a major reason will be baby boomers pitching in to help their kids buy a home.
Compare the 2018-2022 era to what’s expected to happen over the next 20 years (chart above).
And then there’s this:
It’s hard to determine exactly how many buyers are receiving help from their parents, in part because few are willing to discuss how they’re paying for a new home. But financial advisors say they’ve seen a wave of ultra-wealthy parents seeking advice on buying homes for their kids because of the increased gift and estate tax exemption.
The Tax Cuts and Jobs Act doubled the amount that Americans can pass on to heirs tax-free, to about $12 million for individuals and $24 million for couples in 2022. It will sunset at the end of 2025, when the exemption is scheduled to be cut in half.
It’s not just for the ultra-wealthy either. Every homeowner has picked up enough additional home equity lately that they might find a way to tap into it to help out their kids:
Unfortunately, the generational wealth transfer will do nothing to add to the supply of homes for sale – it will only create more demand of affluent buyers playing with money that’s been given to them.
The Fed will be forced to keep trying to control inflation, and Rob Dawg thinks mortgage rates will get as high as 7.25% (and they could go higher). It will cause an uncomfortable frenzy-transition period because the longer it takes, the more money will be inherited. Yikes!
How long will people wait-and-see?
Get Good Help!
With mortgage rates blowing through the fives and another Fed meeting coming up on Wednesday, I think we can declare that the frenzy is over.
Or at least we can expect that it’s over in the buyers’ minds.
But one fact remains the same: There still isn’t anything to buy.
Will there be a surge of new listings? It would be very unlikely. If homeowners weren’t motivated to sell for all-time record prices during ideal conditions, they won’t be interested in the thought of taking less either.
There will be a transition period while buyers, sellers, and agents get comfortable with the new environment. The talking heads will keep reminding us that rates are still historically low, and that buyers have more negotiating power now (up from zero, previously).
By the time we get to the Selling Season of 2023 though, the market players (buyers, sellers, and agents) should establish a decent comfort level with the direction of the variables.
The big question is: What will happen between now and February?
We can probably count on these:
Ponder the other likely possibilities:
The market will be driven by the out-of-town buyers who really want and need to live here. They didn’t let higher prices stop them, and neither will higher rates. What are they going to do? Not move here? There might be fewer of them, and they might take longer, but they will keep coming – count on it.
We will survive this!
I picked a great day to start the mortgage-rate tracker in the right-hand column! >>>>
Mortgage rates haven’t been in the 6% range since 2008:
How many agents have operated in a 6% environment? It will be less than half of the active agents today. To check, their license number would have to be around 01850000 or lower (real estate license numbers in California are sequential).
Wondering how to cope? Here are my tips:
While the impact on the buyers’ monthly payments is real, it’s the market psychology that will make it worse. Buyers will be expecting lower prices, so instead, consider one of my tips above as an alternative.
Here are graphs that look generally supportive of the local market.
The SP:LP is still well above 100%, though hopefully it will keep receding. Everyone should be happy with it running around 100% or a little under, like it has throughout the history of real estate:
There are more homes for sale – but still low for the selling-season:
June sales are going to be really low, which is fine. Both buyers and sellers have the right to wait for some future date when it might be different (conditions are not likely to change though).
Rapidly-rising prices have decimated the lower-end markets. We’re left with an affluent, higher-end market where buyers and sellers both tend to wait for something better, later:
Check out my new mortgage-rate widget in the right-hand column – we just hit 5.85%! >>>>>>>>>>>>
