Future of Real Estate Sales

I disagreed with the expert opinion yesterday. What are they missing?

My thoughts:

We cannot apply any previous assumptions or beliefs about real estate sales to the market conditions of today – we need to clean the slate. The discussion starts with how the number of people who are willing to sell their home has dropped significantly:

The Ultra-Low Inventory Causes More Volatility

A single one-off sale in La Costa Valley where a cash buyer paid 10% above the last model-match sale has caused a similar increase in other LCV sales. Now pricing is the same or higher than the first half of 2022 which was the peak of the pandemic frenzy.

But will it continue?

Can the current LCV homeowners count on those holding recent gains? Only if they use these recent sales for comps – and they are only good for six months. Buyers in 2024 and beyond will be reluctant to rely on comps that are 1+ years old.

Here’s where the volatility comes in to play. Without having a steady stream of LCV listings to continue the hot streak, we will be starting over each year. Sure, the sellers will use the comps from the previous year, but will the buyers? Will the sellers be satisfied with getting the same price as the previous year, os insisting on the usual 5% bump or more? Will they improve their home to deserve a premium price? Probably not, which means the buyers will be faced with paying more, for less. Not a good bet, because….

Mortgage Rates Are Going To Remain High

Mortgage rates don’t appear to have much chance of coming down this year. The Fed could raise further and kill any likelihood of rates getting back to 6%, let alone into the 5s, which means….

Home Pricing Will Be Flat

Generally-speaking, the overall pricing will most likely go back to the +/- 3% annually, which gives buyers a reason to pause. Without runaway prices that cause buyers to worry about getting in now before they are priced out forever, they have a reason to pause. They already have to wait patiently for another house to come up for sale, and if they don’t get the feeling that prices aren’t going up – they can, and will, wait for the next one. Might as well if prices aren’t going up much.

Seasonality Is Back

The knucklehaeds who think that housing has been recovered are going to get a harsh reminder that real estate is seasonal – even in San Diego. Remember at the end of last year when I documented a few sales where the sellers were lowballed by more than 10% and they took it? It will happen again this year, which leads to…..

The Biggest Fear

Home sellers have had huge gains in equity, and if they have to give some back it won’t hurt much – and some will give more than others. A few low sales in the off-season will promote the idea that comps from the first half of the year are sustainable.

We’ve dodged the bullet this year – so far. Each year will be different!

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