February 2022 housing data - prices moving again

Submitted by Rich Toscano on March 14, 2022 - 9:23pm

Last month saw a big jump the single family median price per square foot:



Here's how it looks on the graphs -- a monthly move comparable to the height of last year's frenzy.





However, now check out the Case-Shiller index (smoothed over 3 months, and much more accurate because it measures repeat same-home sales). The frenzy early last year looked a lot steadier than the charts above. It just shows that there can be a lot of noise in the monthly price-per-square-foot data.





Anyway. The pieces were in place for a price jump. The rise in mortgage rates might have scared people into buying (I've heard it suggested by people smarter than me that this is a typical reaction when rates start to rise, but I have not verified this). But the main thing is that there is just no inventory. Last month hit an all time low:



...as well as an all-time low in months of inventory:



Per my favorite graph, months of inventory is a good predictor of price changes in the short term. (I like to occasionally point out that this graph is inspired by Bill McBride aka Calculated Risk. On that note, Bill has recently started writing a Substack on housing, and it's as good as you'd expect). Back to the graph: I had theorized last year that the market was "digesting" the spring overshoot, hence flat-ish prices despite very low inventory. I guess it's done digesting!



Side note: the gap between nominal and real price changes is... well, it's what we'd expect (there is an ~8% difference) but it's quite striking visually:



So: inventory super low and prices just jumped after a period of relative (to last spring) quiescence. There are actually some real risks to housing. The main one can be seen above -- headline inflation is at 7.9%,  core is at 6.4%, and geopolitial events just threw another log on that inflationary fire. Can mortgage rates stay this low, and -- given the very high prices -- how much of a rate rise could housing withstand before prices turned down? A second, probably less serious risk comes from other markets. I am of the view that there is an outright bubble in US growth stocks, and that bubble money (from this crypto, and generally spendy markets even outside the bubble stuff) has been a boost to housing. I'm also of the view that the bubble may be starting to burst. Which would reverse the positive wealth effect that everyone's enjoyed for years here. It's hard to quantify how much of a risk that is, but I think it's, like, higher than zero.

But these are longer-term concerns. As of now, there is nothing for sale, and still plenty of people who want to buy, so prices are on the rise again.

A few yearly graphs below:









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Submitted by XBoxBoy on March 15, 2022 - 8:12am.

The amazing part of this story is the low inventory. Why haven't prices risen enough to cause inventory to rise? With interest rates hitting 4.5% will inventory rise enough to get us back to "normal" range? Is the current level of inventory the "new normal"? How much would inventory have to rise for prices to level off? These are the questions, but I'm not sure anyone has real answers. Clearly we are in uncharted territory.

Submitted by sdrealtor on March 15, 2022 - 9:32am.

That’s in line with what I’ve been saying and seeing. It’s also behind due to time lag in closings and reporting. I’ve been saying we are already up over 10% this year and this is the data proving it.

Also spoke to a lender friend last week. While the 30 year is over 4% we all forgot about our old friends the 10/1 ARM. That’s down around 3 % maybe lower some days. Nearly all homebuyers move or refinance within several years so expect those to come back into Vogue this year after many years of 30 yr fixed only loans. The punch bowl will not empty anytime soon

Submitted by sdrealtor on March 15, 2022 - 11:11am.

Ahem…Ahem…

As I was saying

Submitted by carlsbadworker on March 15, 2022 - 11:08pm.

So what’s the current payment-based valuation?

Submitted by Rich Toscano on March 16, 2022 - 8:24am.

carlsbadworker wrote:
So what’s the current payment-based valuation?

It's on my to do list! :-D

Submitted by sdrealtor on March 16, 2022 - 9:10am.

Rich Toscano wrote:
carlsbadworker wrote:
So what’s the current payment-based valuation?

It's on my to do list! :-D

I’d be interested to see it 30 yr and 10/1 rate. It has been all 30 year the last decade but that’s gonna change quickly IMO

Submitted by Rich Toscano on March 16, 2022 - 10:49am.

That will be left as an exercise for the reader I'm afraid...

Submitted by gzz on March 16, 2022 - 11:05am.

Inventory of SFH in my zip of 92107 today hit a new all-time low of three. Down from ~80 or 96% when I purchased my residence in 2011.

And one of the three is a tear-down, a 2/1 in bad shape on a 10,000sf lot. So really only two houses.

Can mortgage rates stay this low, and -- given the very high prices -- how much of a rate rise could housing withstand before prices turned down?

Who is going to sell an asset rising in value, with rising cash returns (either as rentals or owner-equiv rent) for deprecating cash?

Sure there are inflation protected assets other than RE. But higher rates and inflation I can't see driving anyone to sell.

Submitted by gzz on March 16, 2022 - 11:12am.

Frenzy is a good way to put it.

It has been a decade now where pretty much every residential RE investment has performed spectacularly.

There's plenty of dumb money sloshing around in worthless NFTs, SPACs, reddit meme stocks, profitless tech with p/s of 20+.

But, these bubbles are deflating or even crashing, while RE just keeps on performing.

In my view, it is prudent to be positioned to profit off this bubble. So go buy a condo on spec to flip!

Submitted by SD investor on March 16, 2022 - 9:32pm.

I think things will slow down in a hurry once rates go up a bit more . We saw a condo last week on first day listing. Listed at 650k, we offered 670k, just sold at 815k three days later. In that time, rate has gone up by 25 to 50 basis. Effective cost is 15% higher. Would have negative cash flow of 1k at 670k, guess the new owner doesn’t mind 2k neg cash on a 1 bedroom+ loft in Carmel valley. 10/1 arm rate is still below 4%, but you have to pay 3 points. I know people moving into nursing homes are selling.

Submitted by carlsbadworker on March 17, 2022 - 9:51am.

gzz wrote:
Frenzy is a good way to put it.

It has been a decade now where pretty much every residential RE investment has performed spectacularly.

There's plenty of dumb money sloshing around in worthless NFTs, SPACs, reddit meme stocks, profitless tech with p/s of 20+.

But, these bubbles are deflating or even crashing, while RE just keeps on performing.

In my view, it is prudent to be positioned to profit off this bubble. So go buy a condo on spec to flip!

It’s so weird that you are so outraged by low yield in one type of financial asset (tech stock) but not the other (housing). In the long run, companies with unique products have more rooms to raise their prices than commodity products such as housing.

Submitted by gzz on March 17, 2022 - 1:18pm.

I don’t feel “outrage” at asset prices.

I also don’t think there’s anything objectionable about the p/e of something like amzn sbux msft or fcbk. Their p-e ratio is high, but can be justified.

The bubble is in highly unprofitable companies like Uber and WeWork.

To a lessor but still big extent, there a ~70% deflated bubble in business and cloud software. Datadog is one I shorted for a while, though covered recently.

Overall, stocks in my view are on the whole fairly valued, with plenty of areas undervalued.

RE isn’t comparable to profitless tech. A SD condo might not be worth its price or using leverage to buy, but it still generates income on cash. WeWork and Uber don’t. They grow (though not much anymore) entirely by taking a product and reselling it at a large loss.

Submitted by MLG on March 19, 2022 - 11:05am.

A lot of you piggs are much smarter than me, but to me frenzy seems like an understatement for what is taking place! I live in Penasquitos, this house just closed last week for $1.55M. It was listed on 2/11/22 for $1.350M, went into escrow 4 days later. I'm guessing $205k over asking means multiple offers and a LOT of cash down on this property.

https://www.sdlookup.com/MLS-220003091-1...

Closed in February 2020 for $880k.

I get much of this is supply demand fundamentals (lot of demand and little to no supply = higher prices), but 77% increase in 2 years feels like a bubble to me. What can't continue will stop, as they say, I've got a hard time believing that higher interest rates won't at least curb this kind of appreciation, or even cause this bubble to burst.

I'll wait for Rich's affordability charts to see if I'm on the the right track here.

Submitted by observer on March 20, 2022 - 8:52pm.

The follwing house went almost 28% above asking, and the price has more than doubled in LESS than two years! Just check the 2020 comps for the similar plan.

https://www.redfin.com/CA/San-Diego/1382...

It was sold for 1.1 milion in 2004, so almost the same price as two years ago! The prices can't just go up forever, even though every one says this time is different.

Here are two of the comps from less than two years ago.

https://www.redfin.com/CA/San-Diego/1383...

https://www.redfin.com/CA/San-Diego/1387...

Submitted by an on March 20, 2022 - 9:43pm.

Dang, that was an opportunity of a lifetime. If that person put down 20% down ($220k), they would get ~10x on their cash.

Submitted by gzz on March 21, 2022 - 5:38pm.

Observer, RP had a very different price history than areas I track, which were way above 2004 pricing by about 2017, and higher still in 2020.

On the other hand, we may have end up in the same place, about 2.5x 2004 prices.

Today also marks a new all time low in 92107 SFH inventory. It’s now 2, down from ~80 during the bust. That’s a 0.1 month supply.

Submitted by sdrealtor on March 21, 2022 - 7:32pm.

That’s Torrey Highlands not PQ. Also it was a new build in 04 which means it’ it was sold in 03 and there was likely $100k plus spent on landscape and other things before move in

Submitted by andymajumder on March 22, 2022 - 8:02am.

I am sure they put in quite a lot of upgrades on this, but flipped at 42% higher price in less than 3 months, amazing!! $900/sqft for a SFH in Scripps Ranch.

https://www.zillow.com/homedetails/11626...

Submitted by observer on March 22, 2022 - 11:29am.

sdrealtor wrote:
That’s Torrey Highlands not PQ.

I know it is Torrey Highlands, but it is in the same zipcode, walking distance to PQ, and has the same schools. The story is the same all over PQ, even in the oldest parts. Check out this one, went from 860K to 1.585M in less than two years.

https://www.redfin.com/CA/San-Diego/1328...

In Park Village area of PQ, 5 bdr houses are now sartining to go above 2.1M. Less than 2 years ago, you could get one around 1.2M. Check out this house. It backs to the road, near a very busy intersection. The bathrooms are original, and I can even see mold in the old tiles. Maybe the big lot is worth it.

https://www.redfin.com/CA/San-Diego/1218...

Submitted by gzz on March 22, 2022 - 5:20pm.

Salix house has bathrooms that look fine. The kitchen reno is ugly and decorating way too cluttered. The huge flat lot looks great.

Those wide angle lens listing photos make me a little nauseated, like a funhouse mirror.

When I got my current phone that has such lens I used it a lot to see what I’d been missing, and it doesn’t do much that’s useful.

2.1 is a reasonable and fair price for the house. What’s odd is that it was so cheap for so long.

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