May 2021 housing data - we may have achieved peak frenzy

Submitted by Rich Toscano on June 13, 2021 - 2:14pm

Note: I did some housekeeping on the graphs, getting rid of many that I thought didn't add that much value. For example, condo data was volatile without adding much info (so I mostly focus on single family homes now), and contingent inventory hasn't been a factor for many years. Also, for the long-term price graphs I wanted a log scale graph, and user spdrun told me a trick for getting those to look good (thank you spdrun!). However, the downside is that the Y axis units on the log scale graph are pretty meaningless. So, for both the long term price graphs (pr/sq foot and Case Shiller), I include both a linear and log scale version.

OK, onto the data. Looking at these graphs, my feeling is that the frenzy has probably peaked. It's still a frenzy! But months of inventory has finally stopped declining and even rose a bit. (Edit: to be clear, I am not suggesting that prices have peaked, just that the imbalance between supply and demand may have started to diminish).



Zooming out, supply and demand might be moving back towards balance, but it has a long way to go:



As for prices, based on the single family price/square foot they appear to have held at last month's level, but there is noise in these monthly figures, as is clear from last month's dramatic increase. The Case-Shiller estimate rose as it is based on the past 3 months of price/sq ft. (Remember: there are 2 versions of each graph, the linear one to get a sense of the units, and the logarithmic one to better represent the magnitude of changes over time).











Here's months of inventory vs. price changes, which have correlated strongly in the past:



While inventory (inverted on the chart) is still quite low, it's also the case that prices overshot the gains we should have expected given current inventory levels. So there could be some price pullback for that reason. Aside from that, this level of inventory is suggests continued price increases, if it remains this low. (The sustainability of this situation is a whole other topic, and a difficult one, which is not addressed here).

That's it on the comments; few more graphs below...











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Submitted by phaster on June 13, 2021 - 4:57pm.

rich wrote:

my feeling is that the frenzy has probably peaked

w/ CA covid restrictions sorta ending

https://www.foxnews.com/politics/califor...

FWIW my gut feeling is people will have "irrational exuberance" and push prices higher awhile longer

Submitted by Rich Toscano on June 13, 2021 - 5:51pm.

I didn't mean to suggest that prices have peaked, but I could see how maybe that came across. I added this:

(Edit: to be clear, I am not suggesting that prices have peaked, just that the imbalance between supply and demand may have started to diminish).

Submitted by sdrealtor on June 13, 2021 - 10:25pm.

I think we have seen the peak of frenzy conditions. We usually slow down in June with last year being an outlier we should return to that seasonal pattern. But we are far from done.

Also am I correct that the year over year is 28% based upon a 3 month moving average? If so I think we'll see that number peak when you release this data in August. Prices seemed to be well over 30%+ by late April and by then the lag should catch up to report that.

Submitted by Rich Toscano on June 14, 2021 - 7:59am.

"Also am I correct that the year over year is 28% based upon a 3 month moving average?" - Yep

Submitted by sdrealtor on June 14, 2021 - 8:41am.

Thx! So prices across the board were jumping through April and mostly hit peakish number in early May. I think once we are looking at a 3 month average that is full month of May/June/July in August we will truly see the true magnitude of the move up we have gone through. Prices are up across the country but when those number hit the press I would not be the least bit surprised to see us standing alone at the top nationally. It could be as much as 40% IMO

Submitted by XBoxBoy on June 14, 2021 - 3:11pm.

sdrealtor wrote:
I would not be the least bit surprised to see us standing alone at the top nationally. It could be as much as 40% IMO

Do you feel that's true for all of San Diego, or just NCC?

Submitted by sdrealtor on June 14, 2021 - 3:30pm.

I could see 40% NCC for detached and well north of 30% for the county. Condos don't perform as well on appreciation but better on income.

As an example you could buy a house in Mira Mesa last year in low 600s. Now it seems like 800 is base for something in decent condition sold on open market.

Submitted by gzz on June 15, 2021 - 10:20am.

Looks like the inventory increase is seasonal, every recent year raw inventory went up April to May.

I just ran 92107, it is 31 sales in past 30 days and 19 active for-sales, 0.6 months.

I am open to the idea that we’ll keep up this pace and end 2022 at 2x Jan 2019. Seems crazy at first, but look at other asset prices, especially those whose stock is physically limited and produce income and appreciation.

RE appreciation is short-term limited and semi-sticky because houses need to appraise based on recent comps and a sort of general psychological sticker shock. Here’s what you’d expect to support such a theory: 1 extremely low inventory because prices are short term suppressed 2. Cookie cutter properties with lots of obvious comps show higher prices and less inventory shortage compared to hard to value properties with comps that require going back to 2020. The first sign is very present, the evidence seems to be against the second.

Submitted by Rich Toscano on June 15, 2021 - 3:38pm.

gzz wrote:

I am open to the idea that we’ll keep up this pace and end 2022 at 2x Jan 2019. Seems crazy at first...

Not just at first

Submitted by Escoguy on June 21, 2021 - 7:51pm.

The three zips where I own and watch both rentals/for sale show no change in trend. No pull back in number of views/saves.

If anything rents are going higher and there are fewer homes available on the market.

Only 25 4BR 2BA 2000 SFH for rent in whole county below $4500 per month!

This is important as it justifies holding vs alternatives of stocks/bonds/pay off of debt etc.

Appreciate the updates and everyones input. Just advise everyone to stay data focused.

Submitted by gzz on June 25, 2021 - 10:42am.

Related zillow stat: 4+/3+ homes under $1 million currently number 46 in the entire city of San Diego, and 24 of those are in Encanto or San Ysidro.

Looking more closely at the remaining 22 homes shows a mix of incomplete construction, duplexes and 2-on-1s wrongly listed as single family, and weird things like a 6-bedroom house with 1400sf used as a SDSU minidorm and another that's a "Residential Care Facility for the Elderly."

Submitted by serendipity4 on June 26, 2021 - 3:58pm.

Hello, do we actually expect the prices to correct (drop to pre covid levels) anytime in the next year or so? Thanks,

Submitted by Escoguy on June 28, 2021 - 7:59pm.

I usually like to draw this box and see the 4BR+2 BA, 2000 sf, if I use 1M, it gets about 170 but yes a handful are funky and only about 20 in San Diego proper, I guess 1.3M is the new 1M.

tag

Submitted by sdrealtor on June 28, 2021 - 8:02pm.

His number was much lower because he did city of SD and 3 br. Most of SD city is older construction and built before they were building bigger houses and/or 3 bath homes. Much more in the county

Submitted by Escoguy on June 28, 2021 - 8:18pm.

Yes, here is a graph of San Diego proper.

Thin pickings.

tag

This is with 2 BA, not much difference, maybe 2 more.

Submitted by Escoguy on June 28, 2021 - 8:22pm.

1.3M only gets us to 46 in SD proper.

tag

w 4BR 2BA 2000 sf.

Submitted by gzz on June 30, 2021 - 12:18pm.

I've found when playing with zillow, one way to screen out "fake" SFH listings is to require 1000sf lot minimum.

This screens out properties with no lot size listing which tend to be cloud condo SFH or townhouses in the wrong category.

You do miss out though on some very tiny houses on tiny lots, like this 991sf lot and home for sale: https://www.zillow.com/homedetails/2009-...

Submitted by renterclint on July 2, 2021 - 2:57am.

Thanks for the great data, Rich. I think your SD Payment Index chart you shared in May is the most important aspect of trying to predict where the market will go over the next year. Even with these crazy-high values, PITI mortgage payment relative to rents/incomes is still below the historical median. So I think if interest rates & inventories both remain so low, we could likely see another year of price run up (which is a bummer for those of us looking to buy).

I know there's a lot of talk about demographic/cultural shifts fueling demand, but I think interest rates are so critical here. If the 30-year fixed rate moves up just 50bps, I think prices will stay flat. I recall in 2018, the market softened very quickly with a sizable bump in the mortgage rate.

I wonder how much longer rates can stay so low with so much governmental cash dumping into the economy and inflationary pressures.

Submitted by sdrealtor on July 7, 2021 - 3:37pm.

Just got updated stats and they are finally showing what I was seeing and writing about in Feb and March. The reported prices for June y-o-y for detached homes in most NC zips are up 30 to 40% and most prices everywhere are at least 20%.

Condo prices are all over the board. Mira Mesa condos are up close to 30% but Ocean Beach condos are only up 5%. Go figure

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