Last week was the gap week for people returning from the holidays.
It’s GO time now!
To help describe today’s market conditions, here are two notes on today’s inventory:
The NSDCC median list price today is $5,495,000.
There are 22 houses for sale between La Jolla and Carlsbad priced under $2,000,000.
Wow!
A glimpse of the Cyclovia today in downtown Encinitas, plus a couple of open houses:
On Sunday, I will be the Compass host of Cyclovia!
I’ll be handing out swag and talking up the 2022 frenzy – stop by and say hello!
https://encinitasca.gov/Residents/Recreation-Programs/Special-Events/Cyclovia-Encinitas
Our office is on the corner of F Street and S. Coast Highway 101:
Impressive momentum to wrap up the year, with almost half of the buyers feeling the need to pay over list:
NSDCC Detached-Home Sales, % Closed Over List Price
January: 38%
February: 43%
March: 53%
April: 55%
May: 54%
June: 59%
July: 64%
August: 55%
September: 41%
October: 45%
November: 48%
December: 48%
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Have the higher-end buyers figured it out that paying over list could be a ruse though?
Percentage Of Sales Over List Price by Price Range
| Price Range | ||||||||||
| $0 – $1.0M | ||||||||||
| $1.0M – $1.5M | ||||||||||
| $1.5M – $2.0M | ||||||||||
| $2.0M – $3.0M | ||||||||||
| $3M+ |
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The December sales were a little soft, historically, but the inventory has been decimated:
NSDCC December Sales
2017: 224
2018: 196
2019: 227
2020: 290
2021: 182
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NSDCC Average and Median Prices
| Month | |||||
| Feb | |||||
| March | |||||
| April | |||||
| May | |||||
| June | |||||
| July | |||||
| Aug | |||||
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| Dec |
The median list price dropped and the median sales price went up!
The median sales price is 9% higher than the median list price!
The average LP and SP were almost identical for the second month in a row.
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Mortgage rates in the mid-3s in January should put some pep in the buyers’ step. From MND:
Regular readers know that we’re fond of setting the weekly record straight in cases where day-to-day rate movements paint a drastically different picture than weekly surveys. When it comes to the latter, there’s really only one game in town.
Freddie Mac’s Primary Mortgage Market Survey is not only the longest running weekly survey. It’s also by far and away the most widely cited in financial media. It’s even relied upon by the mortgage industry for certain calculations that affect borrower eligibility.
Unfortunately, the rate that Freddie published today (3.22% for a 30yr fixed) is a drastic departure from reality. 3.375% would be an aggressive rate quote this afternoon, and the average lender is closer to 3.50%! A gap of just over 0.25% might not seem like a lot, but consider that it held inside a range roughly half as big for the entirety of the 4th quarter of 2021! It can take months for rates to rise a quarter of a point and we just did it in a few days.
Why do buyers offer $100,000-$200,000 over the list price?
There isn’t a threat of transparency either – every listing agent (besides me) does blind bidding, and then just takes the highest offer. It would be understandable if there were rounds and rounds of open bidding and the buyers’ ego kicked in because they KNEW they had to out-bid everyone else to win.
But with blind bidding, you don’t know anything about the other offers (if any).
The extended frenzy is causing buyers to voluntarily sacrifice hundreds of thousands of extra dollars in trade for the hope of ending their frustration – and if they still lose, then they offer even more next time!
The frustration builds over time, and buyers go through a fairly predictable sequence:
Early-on: I’m not going to play that game – I’m not desperate.
After losing 2-3 houses: These people are nuts.
After losing 4-5 houses: Ok, this is ridiculous. I gotta get this over with.
The biggest problem is that it seems there are always people with more horsepower who started the process earlier and, as a result, are MORE frustrated than you.
Once buyers reach the peak frustration level and end up winning a house, they are left in disbelief with the one universal thought: “Oh, what have I done?”
It becomes obvious that buyers are paying tomorrow’s prices today, but they come to terms with it later because there are enough other reasons to buy this house that paying the frustration fee gets forgotten.
If overpaying is part of the environment, what can a buyer do?
You will have a 15-minute tour to size up the home and make decisions that will affect the rest of your life.
You’d be crazy to attempt that without a solid, experienced agent to assist you!
Yet, even with all this pent-up frustration among buyers, it doesn’t occur to listing agents to go back to all the other bidders and give everyone a chance to overpay.
Get Good Help!
Just an early-frenzy temperature check here – how many people are out looking at an older condo priced at $1,550,000 in the first week of January? I saw 20+ visitors INSIDE the home. Link to listing
Agent said he already has three people who want to write a full-price offer!
These look like the towns to which people from New York and California are moving. Excerpts:
The boomer tide in the for-sale housing market is expected to continue to rise for at least the next 8 years; younger millennials will be hitting first-time home buying age at about the same time, meaning the 2020’s will be a period of sustained underlying demand in the housing market.
Year by year, these effects will be felt differently across markets.
In 2022, the market with the most demographic lift in the for-sale market is Austin, with a trend suggesting the formation of 3.4% more owning households (assuming there are homes available for them to buy). Orlando follows at 2.8%, and then Tampa at 2.7%. Of the largest 50 markets, 29 have natural owner household growth exceeding 1% in one year, the rule-of-thumb rate at which the housing stock increases nationally. The markets with the least demographic pressure for growth are Pittsburgh, Hartford and Buffalo.
There are two large known risk factors for housing markets in 2022. First, mortgage interest rates are expected to rise in 2022, making home loans more expensive for aspiring buyers. At the margin, this would restrict the inventory accessible in the most expensive markets, potentially driving up competition for the lowest-priced homes in those markets or removing them from consideration altogether.
Historically, home value appreciation in the following markets has strong negative correlation with interest rates — so if interest rates go up, these markets are likely to slow the most: San Diego, New Orleans, Washington DC, Los Angeles, San Jose and San Francisco.
Second, forecasts on the performance of stocks are incredibly wide, with analysts’ 2022 year-end targets ranging from -7% to +13%, slower growth in any case than what we’ve seen in the last 2 years if not declines. A slower stock market would mean buyers are bringing relatively less to the table for a down payment in 2022.
This would most affect markets where there are a lot of first time buyers or where more buyers are entering from lower cost areas, bringing less equity from their previous home. (Or if housing is treated as an asset it could mean a substitution to housing in the next few months. What follows addresses only the downside risk.)
In the following markets, growth has strong positive correlation with stock market returns — so if the stock market falters next year, we’d expect home value growth in these places to slow disproportionately: Phoenix, Las Vegas, Cincinnati, Hartford, St. Louis, Miami, Cleveland, Los Angeles and San Jose.
https://www.zillow.com/research/zillow-2022-hottest-markets-tampa-30413/
Buyers who stalled their home search when school began are going to be shocked at recent prices.
In September, there were two sales of the larger 3,362sf floor plan; one was $1,869,000 and the other was $1,875,000 (both under list). So when this house came on at $1,895,000, it seemed about right.
It closed for $2,125,000:
Housing bulls on Wall Street argue that this is an upturn that could last for a decade. Millions of millennials are now at a point in their lives when they are seeking single-family homes in the suburbs and exurbs. They are in good shape too. Almost 70 percent of homebuyers who took out new mortgages in the third quarter had credit scores above 760, according to the Federal Reserve Bank of New York.
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Mortgage rates started off the year at the “highest rates in 9 months”, but aren’t insanely higher than anything we saw last week. From the lowest rates over the past 2 months, today’s are roughly a quarter of a point higher.
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From Bill:
As of December 31st, inventory was at 294 thousand (7-day average), compared to 420 thousand for the same week a year ago. That is a decline of 30.0%. Inventory is down 5.4% from last week.
Compared to the same week in 2019, inventory is down 61.5% from 764 thousand. A week ago, inventory was at 310 thousand, and was down 29.0% YoY.
Seasonally, inventory bottomed in April (usually inventory bottoms in January or February). Inventory last week was about 4.2% below the previous record low set-in early April 2021.
Inventory peaked for the year in early September, when inventory was at 437 thousand (the peak for the year), so inventory is currently off about 32.8% from the peak for 2021.
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Architectural Digest says the biggest design trends for 2022 will include the desire for more earthy-related color tones, contemporary conservatories, a greater attention to sensory qualities, not purely esthetics, and more curves…..
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The world’s population is currently estimated to be at 7.8 billion people. According to some estimates, the global population should peak at around 9.7 billion in 2064. Imagine how many homes need to be built to house almost 2 BILLION extra people over 40 years! If 4 people share a home, that equates to about 12 million new homes per year! Then, population could fall to 8.79 billion in 2100…..maybe a good year to wait to buy a new home?
