High End Homes Surge

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Submitted by XBoxBoy on June 2, 2021 - 7:06am

Interesting article.

https://www.redfin.com/news/real-estate-...

From the looks of it, the high end market is pretty busy in lots of cities.

Submitted by sdrealtor on June 2, 2021 - 7:57am.

Agree and this is what I've been reporting along the NCC. I've never seen hi end hotter. It seems as though folks with lots of money be it earned, inherited or gain in stocks/investments/crypto or whatever have decided to put some of that wealth into a nicer home to enjoy everyday. There could be other factors too but this is not purely driven by rates or inflation. Something is going on out there that we have not seen before

Submitted by deadzone on June 2, 2021 - 8:37am.

sdrealtor wrote:
Agree and this is what I've been reporting along the NCC. I've never seen hi end hotter. It seems as though folks with lots of money be it earned, inherited or gain in stocks/investments/crypto or whatever have decided to put some of that wealth into a nicer home to enjoy everyday. There could be other factors too but this is not purely driven by rates or inflation. Something is going on out there that we have not seen before

What's going on that we've never seen before is this:

https://www.federalreserve.gov/monetaryp...

there is more money and wealth around right now than ever before thanks to Fed policies. Investing in high end RE is huge just as investing in high end baseball cards is big right now, rich people have nowhere else to throw their money and inflation (or fear of inflation) is a big part of it. This topic has been discussed ad nauseum on here yet you still act like this is some unexplained mystery.

Submitted by sdrealtor on June 2, 2021 - 8:48am.

Baseball cards have been big before. Stock markets have been big before. And rich people have plenty of places to throw their money around. They are choosing hi end real estate to a degree we have never seen before. Hi end real estate has never been anything close to this hot. No one is disputing fed policies are driving things higher across the board. But just the same, people are making choices with how to spend that wealth in ways we have not seen before.

Submitted by an on June 2, 2021 - 8:55am.

Between August 2008 and December 2008, the Fed's balance sheet increased ~2.5x. Between 9/2020 to today, they've increased the balance sheet by ~2.1X. Did we see similar craziness in 2008 for the high end? I know the low end were getting bought up for all cash back then, but price wasn't skyrocketing like today, even w/ all cash offers. I got beat out by several all cash offers that were lower than my offer price.

Submitted by deadzone on June 2, 2021 - 9:18am.

an wrote:
Between August 2008 and December 2008, the Fed's balance sheet increased ~2.5x. Between 9/2020 to today, they've increased the balance sheet by ~2.1X. Did we see similar craziness in 2008 for the high end? I know the low end were getting bought up for all cash back then, but price wasn't skyrocketing like today, even w/ all cash offers. I got beat out by several all cash offers that were lower than my offer price.

Fed balance sheet increased about 1 trillion in 2009. In 2020 in increased nearly 4 trillion. Big difference.

Not sure RE is any hotter than other commodities but if so, I would say it is for inflation hedge. Hi end baseball cards have never been this hot. A new record selling auction is reported nearly every week. Fed has created so much wealth that money is being thrown around everywhere.

Submitted by an on June 2, 2021 - 9:50am.

Rate of increase, not total increase.

We did see an increase in ~$3.5T between 2008-2014. Did we see similar craziness over those 6 years? I've been buying throughout those 6 years and did not see anything like what we're seeing today.

Submitted by sdrealtor on June 2, 2021 - 10:16am.

deadzone wrote:
an wrote:
Between August 2008 and December 2008, the Fed's balance sheet increased ~2.5x. Between 9/2020 to today, they've increased the balance sheet by ~2.1X. Did we see similar craziness in 2008 for the high end? I know the low end were getting bought up for all cash back then, but price wasn't skyrocketing like today, even w/ all cash offers. I got beat out by several all cash offers that were lower than my offer price.

Fed balance sheet increased about 1 trillion in 2009. In 2020 in increased nearly 4 trillion. Big difference.

Not sure RE is any hotter than other commodities but if so, I would say it is for inflation hedge. Hi end baseball cards have never been this hot. A new record selling auction is reported nearly every week. Fed has created so much wealth that money is being thrown around everywhere.

Prices are higher due to inflation but the baseball card mania was much bigger and widespread years ago. my best friends father started a company called Scoreboard that started the whole sports collectible mania. His partners son who I also grew up with runs the top sports memorabilia auction house to this day.

https://www.referenceforbusiness.com/his...

Submitted by gzz on June 2, 2021 - 12:37pm.

Redfin defines "high end" in that link as averaging $440,000.

Perhaps this is the first SD bull market where the high end does better than the mid and low end, but I'd want to see SD specific data first.

Factors than hold back the high end:

1. harder to rent out/lower cap rate if you do
2. new supply is mostly high end
3. the number of people who can buy and drive up the price of a high-end place is increasingly limited. low end places become the "new middle class" tier as prices rise, and also can be purchased as rentals and renovations/redevelopments.
4. Loans are easier and cheaper if under the conforming limit.
5. Foreign investors favor property they can leave vacant sometimes with low/no landscaping/pool worries and costs. While some high-end condos and townhomes fit this bill, overall high end tends to be on larger lots.

Favoring high end:

1. The rich keep getting richer
2. Work from home means higher demand for larger residential spaces
3. Supply of good location/large lot homes goes down every year (even while distant location and small lot high end keeps being built)

Submitted by XBoxBoy on June 2, 2021 - 2:07pm.

sdrealtor wrote:
Agree and this is what I've been reporting along the NCC. I've never seen hi end hotter. It seems as though folks with lots of money be it earned, inherited or gain in stocks/investments/crypto or whatever have decided to put some of that wealth into a nicer home to enjoy everyday. There could be other factors too but this is not purely driven by rates or inflation. Something is going on out there that we have not seen before

sdrealtor, take a breath. I'm not trying to say that the recent surge is caused by inflation or interest rates. I've only argued that over the long term (30 years or more) you can justify pretty much all the increase in prices by inflation and interest rates. And, I've repeatedly acknowledged that in the short term this isn't the case. Take a breath, I've never tried to disparage your claims about what is going on in NCC, so don't act so defensive.

Submitted by deadzone on June 2, 2021 - 2:14pm.

sdrealtor wrote:

Prices are higher due to inflation but the baseball card mania was much bigger and widespread years ago. my best friends father started a company called Scoreboard that started the whole sports collectible mania. His partners son who I also grew up with runs the top sports memorabilia auction house to this day.

https://www.referenceforbusiness.com/history2/28/The-Score-Board-Inc.html

You are correct, baseball card mania was much bigger and broader back in the late 80s through early 90s. It was a mainstream, popular culture phenomenon in that era.

But what is happening today is a completely different animal, which is my point. It is really just high end, investment grade cards being bid at record prices. New records being set almost daily. This is comparable to fine art or classic car sales. Sports card collecting as a hobby is a shell of its glory days and those days will never return. That's what makes the current situation so bizarre. The only explanation for this bizarre buying behavior is the ridiculous amount of cash flowing into our economy.

Submitted by XBoxBoy on June 2, 2021 - 2:15pm.

gzz wrote:
Redfin defines "high end" in that link as averaging $440,000.

Perhaps this is the first SD bull market where the high end does better than the mid and low end, but I'd want to see SD specific data first.

In the article, if you scroll down there is a table with data for individual markets. San Diego:

Affordable - $485k sales 20% YoY price 9% YoY
Mid-Priced - $688k sales 28% YoY price 14% YoY
High-End - $1,050k sales 39% Yoy price 18% YoY

Submitted by gzz on June 2, 2021 - 3:25pm.

Thank you xbox. We'll see if the giant YoY Rich reported will be reflected by redfin in the future and also continue to show the high end doing best.

$1.05m doesn't feel very high end anymore, but I guess South and East County are big places we tend to ignore.

I certainly hope so, as my "portfolio" is weighted about 20% mid-price and 80% high end.

Or maybe 100% high end. Zillow now says my full ocean view condo is worth exactly 1.05m, up 20% in 30 days. I wish!

Submitted by Escoguy on June 12, 2021 - 2:58pm.

XBoxBoy wrote:
gzz wrote:
Redfin defines "high end" in that link as averaging $440,000.

Perhaps this is the first SD bull market where the high end does better than the mid and low end, but I'd want to see SD specific data first.

In the article, if you scroll down there is a table with data for individual markets. San Diego:

Affordable - $485k sales 20% YoY price 9% YoY
Mid-Priced - $688k sales 28% YoY price 14% YoY
High-End - $1,050k sales 39% Yoy price 18% YoY

If I filter zillow for 1BR+1BA up to 485K, 750 sf with a cap of $500/monthly HOA, there are only 159 homes on the market. then it basically looks like a 2 BR condo (1000 sf) for about 350K. At some point in the not too distant future, the low end market may not exist as defined here. Kind of sad to say that.

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