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People Who Overpaid Is A Sign The Market Is Slowing Down

A report from the North Bay Business Journal in California. “Real estate experts around the North Bay are getting early inklings that housing markets in the region are cooling after several years of rapid appreciation in sale prices and rents. Some of it is thought to be related to the destruction of more than 6,000 dwellings in Sonoma, Napa, Mendocino and Lake counties during the wildfires of last October and this past summer. But there are other local indicators a shift may be underway toward more of a market balance.”

“By fall, many sales going into escrow in Sonoma County have had one offer on them and the price had been reduced to sweeten the deal, he said. That resistance is leading to houses remaining on the market longer. The shift in the housing market from the early months of this year is also being felt in Marin and Napa counties, according to Robert Bradley, managing broker of Bradley Real Estate.”

“‘We’ve seen a shift in 2012 to a seller’s market, and now the momentum is shifting toward buyers,’ Bradley said. ‘Prices, in my estimation, probably peaked for this cycle.'”

“One sign of a more balanced market is an increase in the number of dwellings sold, Bradley said. ‘They have to shift from a multiple-offer market to price properties competitively for the market,” he said. ‘Buyer agents have to be willing to write offers that negotiate price, and sellers have to be willing to negotiate. … What tends to happen is sellers get stubborn, part of it is the fault of the agent who is telling stories of houses getting six or seven offers.'”

“The number of properties for sale in the quarter was 12.3 percent higher than a year before. Now, buyers have ‘more choices than they have had in years,’ said Logan Songer, general manager of Coldwell Banker Brokers of the Valley.”

“In a rough look at property-tax data for the third quarters of 2015 through this year, Bradley found a ‘huge’ jump from last year to this year in sales of dwellings in Sonoma, Marin and Napa counties that weren’t owner-occupied.”

“‘Investors tend to be the wisest group of clients,’ Bradley said. ‘They have a gut sixth sense about things. When I saw a large percentage of sales to these folks, it told me we are probably at the top of the market. It’s affecting some of our clients doing major remodels,’ Bradley said. ‘Some properties they thought they could buy and improve may not have as much margin as they originally thought.'”

“The condo market also seems to be not as hot in recent months. ‘I’m hearing from my agents that condos are selling for less than they were before,’ Bradley said. ‘That’s telling me that maybe the market has gone down a bit. It may have been because of people who overpaid, but to me it is a leading sign that the market is slowing down.'”

From NBC San Diego. “It’s up in the air right now whether restrictions passed by the San Diego City Council will be permanent on short-term vacation rentals. Regardless of if they go through or not, what does it mean for the local real estate market?”

“Kuhn said the market is now experiencing a net-negative domestic migration, meaning more people are leaving San Diego than coming in. A factor that could stabilize rent rates and prices.”

“‘If the ordinance goes through in July, there would be a temptation for people who own those units to put them on the market for sale,’ said Kuhn. ‘You’ll see rents stabilize and more homes up for sale.’ Which means housing costs for buyers would decrease, according to Kuhn.”

From Realtor.com. “Case Study House #21 in Los Angeles—designed by Pierre Koenig—is now available at a discounted price. The showstopping home went on the market two years ago for $4.5 million, but didn’t attract a buyer. Its new list price is $3.6 million.”

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  1. ‘many sales going into escrow in Sonoma County have had one offer on them and the price had been reduced to sweeten the deal, he said. That resistance is leading to houses remaining on the market longer. The shift in the housing market from the early months of this year is also being felt in Marin and Napa counties’

    Wa happened to my shortage?

    1. Well in Sonoma most of it (this shortage) went up in flames!

      The part of the investors having some insight to when to sell is interesting. Are these the foreign investors that bought up RE with there funny money and plotted to cash out strategically at the right time? Man my conspiracy theories are running rampid 🤯

    3. “Real estate experts around the North Bay are getting early inklings that housing markets in the region are cooling after several years of rapid appreciation in sale prices and rents. Some of it is thought to be related to the destruction of more than 6,000 dwellings in Sonoma, Napa, Mendocino and Lake counties during the wildfires of last October and this past summer. ”

      There’s some sick irony in talking about a cooling market in the same paragraph which mentions that 6,000 homes were recently destroyed by fire.

      But just how bad is the buyer shortage problem if there is still excess inventory after losing 6,000 housing units?

      2. They (Realtors) say 6 months supply is a “balanced” market. I have no idea where they pulled that number from. But based on that, 4.4 is still a sellers market.

        1. “…(Realtors) say 6 months supply is a “balanced” market…”

          Arbitrary number, for sure.

          Even if we all agreed that a “balanced” market was 12 months, its the direction that counts.. In this case, it is downward.

  3. “Real estate experts around the North Bay are getting early inklings that housing markets in the region are cooling after several years of rapid appreciation in sale prices and rents.

    Gotta hand it to those real estate experts: nothing gets past them. And to think that none of us HBB small-brained nimrods saw this coming.

    Oh, wait. All of us saw this coming, long before the “experts.”

  4. Watch out below when permabulls turn bearish.

    Opinion: The stock market is overdue for a one-day 5% or 10% plunge
    Published: Oct 18, 2018 5:10 p.m. ET
    Friday is the anniversary of the 1987 stock-market crash, when the Dow Jones Industrial Average plunged 22.6%
    AFP/Getty Images
    Oct. 19, 1987 was one of the most frantic days in the New York Stock Exchange’s history.
    By Mark Hulbert
    Columnist

    CHAPEL HILL, N.C. — The Dow Jones Industrial Average could drop more than 5,700 points in Friday’s trading session.

    Impossible, you say?

    Think again. On Oct. 19, 1987 — 31 years ago today — the Dow (DJIA, -1.27%) plunged 22.6%. It was the worst stock-market crash in U.S. history. An equivalent percentage drop today would cause the Dow to skid more than 5,700 points.
    …

    1. And then the market recovered and had a super bull market and the plunge did not cause a recession.

  5. Good article. Thanks for posting.

    1) “‘We’ve seen a shift in 2012 to a seller’s market, and now the momentum is shifting toward buyers,’ Bradley said. ‘Prices, in my estimation, probably peaked for this cycle.’”

    Wow! The candor is palpable. Not the usual realtor-speak.

    2) realtor-speak:
    “‘Investors tend to be the wisest group of clients,’ Bradley said. ‘They have a gut sixth sense about things. When I saw a large percentage of sales to these folks, it told me we are probably at the top of the market. It’s affecting some of our clients doing major remodels,’ Bradley said. ‘Some properties they thought they could buy and improve may not have as much margin as they originally thought.’”

    Translation into normal-speak:
    Speculators “invested” in properties with the sole intention of doing a quick renovation and then “flipping” them and selling at (an obscene) profit to the next, greater fool. This works well on the way up, thanks to easy $/cheap credit/low rates. However, investors also think that they’re smarter than everyone else, and can sell before the market starts turning down.”

    The problem is that – as in a crowded theater when someone yells “fire”. Though they may try, not everyone can get out early, or even at the same time. There is then a very real sense of panic. Musical chairs is another example.

    People seem to need to learn this over and over again for some reason. Unfortunately, they keep getting lots of opportunities for from our ever-bubble-blowing Fed. Go figure.

    1. When I saw a large percentage of sales to these folks, it told me we are probably at the top of the market…

      Translation: When the only guys left in the market are the stupid degenerate gamblers, it is a clear sign that the party is over.

    2. “‘Investors tend to be the wisest group of clients,’ Bradley said.”

      Sounds stupidest to me if they are left holding the bag on a depreciating house that is halfway through a remodel.

      Bradley ?

  6. “Kuhn said the market is now experiencing a net-negative domestic migration, meaning more people are leaving San Diego than coming in. A factor that could stabilize rent rates and prices.”

    Sounds like San Diego is starting to develop a buyer shortage.

    “‘If the ordinance goes through in July, there would be a temptation for people who own those units to put them on the market for sale,’ said Kuhn. ‘You’ll see rents stabilize and more homes up for sale.’ Which means housing costs for buyers would decrease, according to Kuhn.”

    Why is it again that San Diego residents have to compete for a place to live with illegal hotel operators?

  7. Will the Chinese government bail out foolish stock market gamblers?

    Apparently, yes.

    And judging from the wording of the link to the article, it’s not working.

    Markets
    China Stocks Rise Most in a Month as Officials Pledge Support
    Bloomberg News
    October 18, 2018, 6:35 PM PDT Updated on October 18, 2018, 10:59 PM

    Chinese stocks rose, headed for the steepest gain in a month, after the heads of the central bank, banking and insurance regulator and securities regulator all issued statements voicing support for the battered equity market.

    The Shanghai Composite Index rose 2 percent as of 1:58 p.m. in the city, poised for its biggest gain since Sept. 21 as it reversed a drop of as much as 1.5 percent. The Shenzhen Composite gained 2 percent, while the ChiNext Index of smaller companies was headed for its biggest jump since August. While the gains accelerated in afternoon trading, the gauges were still set for a weekly drop. Data released Friday showed China’s economic growth slowed more than expected in the third quarter.

    “The latest official remarks strengthen expectations that authorities will put a floor under stocks through policy easing, especially on deleveraging,” said Zhu Bin, Shanghai-based strategist with Southwest Securities Co. “That’s driving a technical rebound in stocks where investment value starts to emerge as valuations get cheaper and the index breaks through 2,500 points intraday, though it’s going to take some time for the market to really bottom out.”
    …

  9. Updated the JoshuaTree extension to support ignoring users again. Version 4.2.1 has this functionality — just right-click on the comment header and choose “ignore user” from the menu.

    Enjoy!

    3. This morning my JTE had disappeared. This time Chrome completely disabled it for me without telling me and I had to go find it and re-enable it. It was mumbling something about permissions again…

      1. Weird. I’ll look more closely next time I publish a new version to see if there’s a setting I’m missing or something.

        1. OK. The one other weirdness that I’m seeing is that when you click on the comments link because you have 1-n unread comments, the “Next(n)>>” button in the lower right is immediately available as the page start to load. But the page is still loading comments and ads and whatever. The problem is if you click next before everything is finished loading it loses track of where that first unread comment was. You can scroll until you see a blue header or if you get out of the page and come back sometime later or post another comment it will sometimes reappear, but it’s annoying. I believe the solution is that the next button shouldn’t be active until the page is completely finished loading if that’s possible.

          1. Yeah, I’ve run into that issue too. The problem is the built in scroll animation and the delay before it’s run. Not sure how to sync with code I don’t control…. Will see if I can come up with something.

          3. Published a new version — 4.3.0. Tried to improve the ‘ignored’ color to better match the blue on this site, and tweaked the timing a bit on when the toolbar is enabled.

            I hate to make my stuff seem slower to work around the site animation, but….pushed it off half a second and also tried to override the timing of the built-in scroll animation. Hopefully it’s better, but speak up if you think it needs more work.

    1. At September’s sales pace, it would take 4.4 months to clear the current inventory. A supply of six to seven months is viewed as a healthy balance between supply and demand.

      6-7 months is “balanced”? Last I recall anything over 6 is considered a buyers market. Sounds like a forecast into what we will see in October’s report and that additional month padding to continue the spin that all is good in the RE market

    2. The media continues to ignore the impact of the Trump tax changes on overpriced coastal blue state properties. Cap the property tax deduction and cap the amount of debt at one million dollars from which you can deduct interest and it changes the economics on one million plus properties in particular. The tax changes take house subsidies from the rich.

      1. One of the other points that one million cap includes second homes. So if you have a mortgage on your first home of $500000 and your second home of $500000, you are at the limit. Thus, logic would tell you the areas of correction would be areas of one million dollar homes and areas with a lot of second homes. I think the data we are seeing confirms that educated guess.

        2. This is perhaps the best thing about the tax law is the $750k cap on home interest. Obviously mortgage interest deduction should go away completely (or allow renters to deduct a % of rent from their taxes too). The next step is to lower that $750k cap down to $500k, which is what it was in the first draft. Have it phase out gradually. Actually, this will already happen with inflation. In 30 years time, there won’t be a mortgage interest deduction, or the effective one will be much less

          1. allow renters to deduct a % of rent from their taxes too…

            Not so fast. Renters do not pay interest on the mortgage or RE taxes, their landlords do and can deduct all of it from their taxes. If the renter claimed them too it would be double dipping.

      2. yea they do seem to be ignoring the big tax change. Here in bubble land many home “owners” have massive mortgages and property tax bills. I am surprised they don’t see whats coming ? Sure they make allot of money but paying 50% combined tax with no way around that since they are straight up W2 HENRYs? I foresee allot of trump bashing and wailing come tax time.

    1. Yes but if you read the whole report you posted it is mixed with days on the market dropping total inventories dropping and prices up from last year. All and all, it shows a cooling market but not a collapse. Nothing like the high teen months of inventories we saw in the 2007 thru 2010 time period. Of course, the NAR has gotten more creative in gaming the system by taking houses on and off the market so some numbers today may be a little worse than are being reported.

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