October 2018 housing data

Submitted by Rich Toscano on November 7, 2018 - 9:43pm
October looked pretty similar to September... for commentary, see the September writeup. Updated graphs below.

Also, check out this article arguing that there is a "new normal" level of housing inventory thanks to various changes in the industry (including technology). This supports the logic behind the "new normal" months-of-inventory vs. price change graph, as initially suggested by gzz. The article suggests that 4 months of inventory is the new level; just fitting it via eyeball in San Diego it looks to have been closer to 2.5 months in recent years. But that could change in the next downturn.





































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Submitted by pokepud3 on November 8, 2018 - 11:47pm.

I've been waiting to see this.. thanks for the hard work Rich.

It's good to see that unlike before inventory numbers are holding steady rather than dropping due to seasonal changed. After November we will be able to confirm the cycle properly and see if it's just a seasonal thing or permanent.

I picked up multiple placed during the recession, but ironically didn't pick up one to live in, in a place I like.. so now I'm biding my time in a rental waiting to sell what happens in the next 6-7 months.. hope to pick up a place to live in for the next few years or forever depending on what I find. Hope for the best for all you bubble free house hunters out there.

Submitted by gzz on November 9, 2018 - 11:08am.

Poke, In the three prior years, inventory was also flat/very slight increase. See the second graph.

So it wouldn't be correct to say that there was an expected seasonal inventory decrease from Sept to Oct.

Submitted by gzz on November 9, 2018 - 11:23am.

As mortgage rates flirt with 5%, real estate is less of a no-brainer good investment compared to a few years ago.

I am collecting 7.3% on my taxable muni bond funds, GBAB and BBN. That's a pretty nice alternative to another rental!

For San Diego real estate in particular, higher rates are the only headwind. Otherwise we have strong population growth, strong job growth, strong rent growth, very low construction, and rising wages. We had the single best wage growth in the entire USA as of a few months ago.

We probably will continue to have some spillover effects from the even larger gains in the Bay Area. Elon Musk moved from Northern to Southern California!

I think we'll end 2018 with more like a 5% price gain compared to year end 2017.

The repeal of the anti-AirBNB law is also a relief. It would have been tied up in litigation for years anyway, but good to see the city isn't even trying anymore.

At the ballot box, we saw rent control laws fail statewide and in National City. We also saw anti-AirBNB leader Zapf go down. She was the only counsel member to vote against repeal.

Vivian Moreno was pro AirBNB and beat anti-AirBNB Antonio Martinez in an open seat.

I think the years of talking about a strict law may have deterred some investment buyers, but it is pretty clear now that any restrictions will be far more moderate than proposed, and probably will take many years before they ever take effect, if ever.

Submitted by pinkflamingo on November 10, 2018 - 11:56pm.

Thanks Rich. I also saw this recently. https://www.marketwatch.com/story/housin...

Submitted by Escoguy on November 12, 2018 - 7:27pm.

Well I guess the days of wanting to run naked through the streets shouting about how much things have gone up is over. At least for now.

Have to find a new way to get a thrill!

Submitted by renterclint on November 15, 2018 - 12:40am.

Thanks Rich. I rarely post, but always look forward to seeing your monthly data/charts. In addition to the near 5% interest rate, I suspect the new tax law is adding to the downward trend in home sales. With the old tax law, I might pay an additional $500-$800/month for a new mortgage compared to rents because of the significant tax benefit, but the tax break is significantly lower now - making rents more attractive.

It is so interesting to track home seller reactions to this recent market softening. Some are reducing the asking price $10-$20k after only a week or two on the market. But it seems like a lot of homes in my area have been listed on Zillow a couple months and the sellers are still holding firm. I remember the bubble years on this website, when we'd talk about waves of ARM resets and rising default rates. Even though today's prices are now above the 2005 bubble peak (nominal), I don't think we'll see material price declines without outside pressure encouraging sellers to come down. This market is so different than the last peak time.

Submitted by gzz on November 18, 2018 - 2:11pm.

Clint, mortgage interest is still deductible, the amount just went down from the first mil to the first 750k. It will go back to $1 mil in 2025 absent further change in the law.

Regarding buy v rent, I just ran the numbers for my condo using 5% assumption and assuming fully financed at today's market price.

The numbers are:

Mortgage interest + HOA + insurance = 2570/mo
Rent 2200 actual, 2400 market rate
Tax benefit of mortgage interest deduction at 30% rate= 650

Net benefit of owning the condo as a primary v renting = apx $500/mo

As time progresses the $500 monthly benefit will increase as the mortgage interest payments fall, the property appreciates, and rents increase.

Using a bearish 2% price and rent growth, the rent goes up by $96 and the property's value goes up about $20,000 over two years. Adding the $20,000 in appreciation and the benefit of owning increases to $1381/mo.

Submitted by pinkflamingo on November 21, 2018 - 11:27am.

Great point Clint. Not to mention there is a freeze of foreign buyers. I read somewhere that "Chinese accounted for 32% of homes sold to foreign buyers in California". That may also have a downward force on prices.

Submitted by renterclint on November 21, 2018 - 1:26pm.

Wow Pink, I didn't realize one third of California home sales were to Non-US buyers. I wonder if the foreign sales are drying-up due to politics or their sense that we're at the height of the housing market.

Gzz, the new tax law effects much more than the mortgage interest deduction. Other big factors are the cap on state/local tax deduction, doubling of standard deduction, and lower tax rates. All these changes make buying less attractive than renting. For example, a married couple at $250k AGI buying a $600k house w/ 10% down, the decrease in tax benefit is over $5k/year or about $450/month. That has to create pause for some would-be buyers.

Submitted by phaster on December 1, 2018 - 8:34am.

I'm not too surprised there has been a slowdown in RE sales (WRT the recent past)

for years affluent asians were setting up households (both here in CA and other parts of the USA) so their kids could attend high school which would then setup their kids to go on to university,... but w/ trump in office I have to wonder is it possible to calculate damage to the US brand appeal

next headwind one has to consider is the amount of debt that has built up,... and w/ the fed increasing their rates, this has a knock on effect in terms of decreased RE sales

last head wind for CA RE is trumps tax reforms,... as I understand it high cost of living states are going to be hit hard,... income, sales and property taxes have a limit of $10,000 in total starting in 2018 (prior the deduction is unlimited)

https://www.forbes.com/sites/brianthomps...

going to be interesting to see how things play out in the next few years, my guess is eventual major turbulence due to mismanagement

www.TinyURL.com/InvestorWarning

thoughts?

Submitted by gzz on December 1, 2018 - 11:35am.

Rates are down 0.22% since their early October peak!

Refis are at their lowest level in decades. Hopefully that supports housing by compressing the yield spread between mortgage rates and treasury rates, which had what looked like a permanent increase because of post-crash regulations.

Submitted by spdrun on December 1, 2018 - 5:49pm.

Nah. Hopefully the Fed will raise by another 0.25% this month, mortage rates will shoot above 5%, and housing will keep being dampened. Nothing like a bucket of icewater thrown in the middle of a roaring party.

Submitted by pinkflamingo on December 10, 2018 - 12:34pm.

Here is another from the wsj
https://www.wsj.com/articles/housing-slo...

One thing mentioned was that places like Dallas seem to be hit especially hard. 6 months of declines. I am wondering if there were canaries in the coal mine for the last housing down turn? Were there specific cities that fell first? Any one knows where one would find such data?

Submitted by gromit on December 11, 2018 - 12:18pm.

pinkflamingo wrote:
Here is another from the wsj
https://www.wsj.com/articles/housing-slo...

One thing mentioned was that places like Dallas seem to be hit especially hard. 6 months of declines. I am wondering if there were canaries in the coal mine for the last housing down turn? Were there specific cities that fell first? Any one knows where one would find such data?

Check out Rich's old posts from 12 plus years ago... he talked about declines in various parts of So Cal (the inland empire being a particular sinkhole). He probably quoted or mentioned sources that discussed other parts of the US.

Submitted by Rich Toscano on December 11, 2018 - 12:49pm.

pinkflamingo wrote:
Here is another from the wsj
https://www.wsj.com/articles/housing-slo...

One thing mentioned was that places like Dallas seem to be hit especially hard. 6 months of declines. I am wondering if there were canaries in the coal mine for the last housing down turn? Were there specific cities that fell first? Any one knows where one would find such data?

I would start with the Case-Shiller city indexes...

https://us.spindices.com/index-family/re...

Submitted by gzz on January 3, 2019 - 5:36pm.

deleted duplicate

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