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Sellers Adjust Their Expectations In The Face Of Fewer Buyers And More Competition

A report from The M Report. “The U.S. Census Bureau and the U.S. Department of Housing and Urban Development released their monthly residential construction report for October on Tuesday, revealing a downward slide in building permits, housing starts, and housing completions and prompting economists to speculate about the slowdown in the market. Despite the slip in the market in October, Tendayi Kapfidze, Chief Economist at LendingTree, did not find cause for concern in the report.”

“In fact, Kapfidze said the backward slide could be healthy for the market. ‘When we look at prior housing cycles, continued acceleration in home sales and prices would have to come at the cost of increasing leverage; this is how we got in trouble before. Had the market slowed in an orderly fashion in 2003/2004, we may have saved the economy from the woes unleashed later in the decade.'”

From KRON in California. “We know that the housing supply in the Bay Area is not keeping up with demand. For several years now, it has been a seller’s market. But now, the economy has stabilized, and in many cases, excelled. People are still looking into buying homes.”

“The American Dream of owning a home is not dead. ‘It’s alive, but we’re having to get a little more creative in keeping it alive,’ Mortgage Consultant Chris Hudson said.”

“Real Estate Agent Jason Moon says depending on your level of income, your credit history, and amount of cash available to cover the down payment and closing costs, a $640,000 home in Concord could be yours. ‘You want to know if they’re buying a home with cash or with a loan,’ Moon said. ‘And most of the time, it is with a loan, regardless of what some people may say out there.'”

“Loan officer Kristine Marr says most people are still signing traditional 30-year, fixed-rate mortgages, but adjustable rate mortgages may fall more in line with the borrower’s needs, especially in the Bay Area–if the home buyer intends to move out within three-to-seven years.”

“‘Say two young professionals, straight out of school,’ Marr said. ‘I can qualify them straight out of school to buy a home, and I’ll show them the options. I’ll show them this is a 30-year fixed mortgage, but since you’re buying a small home or a condo, you might want to look at a side-by-side comparison with a seven-one arm. It will be fixed for seven years. So, if you sell anytime before seven years, it will never adjust on you because you’ll sell the home. The mortgage is gone–paid off. And you move to your next home.'”

“Marr says the myth of needing 20 percent cash down to secure a mortgage and a home is just that–a myth. ‘You can go with 3 percent down, or 3 1/2 percent down, or anything above that,’ Marr said. You could also possibly qualify for down payment assistance in the form of credit that can also be applied to closing costs.”

From Globe St.. “Affordability issues are driving condo sales down significantly this year. According to research from Polaris Pacific, condo sales in Los Angeles were down 18.9% for year-over-year in October with a total of 1,093 condo closings during the month. Unlike the single-family housing market, condo sales activity was not impacted by a supply shortage.”

“Condo listing were actually up 68.3% year-over-year in October with a 3.8 month inventory. This is still considered a seller’s market however as a buyer’s market is four to six months of inventory. Rather than supply, high pricing has driven prospective buyers out of the market.”

“‘Although we are in the midst of an extremely strong economy that continues to drive demand, there are headwinds that are making home purchases more difficult for a portion of the potential pool of buyers,’ Mike Akerly, VP and regional manager at Polaris Pacific, tells GlobeSt.com. ‘We have seen seven straight years of appreciation in the Los Angeles Metro which has had an impact on affordability. Although wage growth in recent years has been in the 2.5% to 3% range, it is barely outpacing inflation and not keeping up with appreciation rates in the residential sector.'”

“Pricing is one indicator of the strong market—despite the decrease in transaction volume. Prices in October actually increased 7.3%, according to Polaris Pacific, with the median price for a condo in Los Angeles $804,000. However, Akerly says that it may just be taking the market a moment to adjust to the smaller buyer pool.”

“‘In this case, year-over-year price increases are a lagging indicator of the direction of the market,’ he says. ‘These continued increases will likely not be sustainable in the future in the face of increased inventory and decreased transaction volume.'”

“Likely, there will likely be a pause before sellers begin to lower prices to meet new demand levels. ‘On a practical level, I think what you are seeing is the stand-off period when sellers attempt to continue to push pricing above prior levels and a portion of the market begins to balk at the continued increases,’ says Akerly. ‘Ultimately, sellers are likely to adjust their expectations in the face of fewer buyers and more competition, which will in turn lead to an increased number of transactions until a new equilibrium is found.'”

From NBC Los Angeles. “Dozens of cranes are swinging through the sky in downtown, only outnumbered by the hardhats of construction workers, busy putting up yet another mega apartment building. LA’s historic skyline is literally changing before our eyes.”

“‘You’d have to go back to the mid-1920s to find a period of construction similar to what we are seeing downtown,’ said Steve Basham, CoStar senior market analyst.”

“The average one bedroom apartment is now up to $2,430, and there’s no shortage of availability. In fact, an explosion of new development in downtown Los Angeles means there are more empty apartments than ever before. So while the new buildings are becoming more luxurious, the deals for renters are getting better and better.”

“Basham says the vacancy rate of apartments in downtown LA is currently 10.6 percent. That’s as high as it’s ever been. ‘The perception of the area has really shifted, and the opening of these apartment communities is a big part of that,’ Basham said.”

“But in order to fill these towers, developers are now going extreme. The Sofia building will offer a free gym membership that includes yoga and spin classes. There’s even a karaoke room. And – drum roll – up to six weeks free rent.”

“In another building called Topaz, the deal is even better. They offer eight weeks free rent on some leases, which could save more than $4,000. There’s also free parking, a resort pool, and a washer and dryer in the apartment.”

“CoStar says more than 10,000 units have opened in downtown since 2014. There are another 4,300 under construction.”

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This Post Has 41 Comments

  1. ‘You’d have to go back to the mid-1920s to find a period of construction similar to what we are seeing downtown’

    Wa? But shortage?

      1. I thought the same thing, it wasn’t good after the mid-1920s. The 1920s is just like today and you see the excess with Silly Con Valley and their Maria Antoinette-themed “Let Them Eat Cake” parties.

        1. No need for Google maps. Just follow the smell of hobo stew and rat kabob being cooked by realtors and FBs.

    1. Per your link, median home size is down 30% with median list price down 31% which seems about right. So the mix of homes is trending towards smaller, which tells me the luxury buyers are backing off. If luxury buyers are backing off then the median list price will naturally be lower because only smaller houses are selling. THAT DOESN’T MEAN PRICES ARE DOWN 31% SO WHY DO YOU KEEP POSTING THIS GARBAGE, IT MAKES US ALL LOOK DUMB, HAPPY THANKSGIVING.

      1. It remains that in the buildup of the mania people bought bigger and bigger houses, so as to generate as much wealth as possible. In the real world, people go for smaller less expensive houses so as not to bleed out wealth so much. Things are getting more real. There’s nothing dumb about that.

        1. I completely agree Blue. I’ve often wondered why people stretch to buy a bigger house. Of course if you are a trust fund baby or are independently wealthy, then I guess I get it. But the more you spend on housing, the harder it will be to sell if you need to move. When you buy expensive housing, you are basically cutting off a huge portion of potential buyers in the event of a resell.

      3. The standard response is $/sq ft won’t account for quality. On the other hand it is better IMHO than just price.

        -The price of a piece of meat is $10 and last year it was $11 (mortgage watch)

        -Yes but you have to look at the $/lb last years piece of meat was bigger. (any reasonable person)

        -But price per /lb doesn’t account for quality. (mortgage watch)

        1. piece of meat

          It is curious. How much can you afford to spend on groceries John, $100/wk or $50. I suspect $/lb isn’t how you decide.

          I’ve heard that in the old days real estate taxes were based on how many panes of glass you had in your windows.

          1. I can agree that $/sq ft isn’t the best way to analyze the situation but I disagree that it is worse than $, in fact I say it beats $.

          2. it beats $.

            Perhaps, but only if everything else is equal, in which case the ft2 would drop out of the equation. I don’t build houses every day but I do make tables. Two tables of the same materials, design, finish and joinery, the smaller will be more $/ft2, but less expensive.

            A shift to smaller and less expensive houses is a measure of the greed and debt burden tolerance of buyers. It’s the size of the debt donkey cart, not the ft2 of the house that let’s us see where this biggest credit bubble in the history of the world is headed.

            If you want to see the mania. Otherwise just complain that the $/ft2 for a baby elephant is more than for a moma elephant.

          1. My son and I drove through Driggs after visiting the Teton Dam blowout disaster site. There’s not much out in that corner of the world until you drive east over the mountains into Jackson, WY. It’s post card beautiful out there.

  3. “Although we are in the midst of an extremely strong economy that continues to drive demand, there are headwinds that are making home purchases more difficult for a portion of the potential pool of buyers”

    WTF kind of Realtorbabble did I just read?

    “There’s even a karaoke room”

    LOLZ

    1. Tons of realtor babble in these articles. “Oh yes, the good news is that moderation of prices now will prevent a bubble” and “while volume is way down a strong economy is revealed by yoy increases on median pricing” . Yeh right! The only accurate statement was about the standoff. This is exactly what I saw in early 2006 in my woods. Buyers under no pressure, but some sellers will have. When time pressure mounts, they will move the bar in order to sell and new standards will get set. Fear amongst other sellers will set in and sales will increase at lower prices. Not my opinion, just what actually happened during last downturn.

      Stats for October just came out for our county. Typical of what is being reported elsewhere complete with YOY data. How about MOM data? The take way on this this that our county closings are over one third cash, most commonly in upper end which is showing the most slowing. Kind of in conflict with the interest rate narrative.

      Despite many who claim that this is not like the last go around, the trend, events, and data points on the curve are quite similar to the last go around. Only rents at this point are holding it up. If that bubble pops, it could be “game over”

      2. “The WORLD is my karaoke room.”

        Reminds me of that bald headed guy in Jeremiah Johnson proselytizing to the great blue sky and wilderness.

        1. Hey RMS, my father and all his family is from Rexburg. He owns the Teton Valley Resort which is close to Driggs (Victor). I have to agree with you, that part of the world is immensely beautiful and it hasn’t (yet) been overrun by tourists.

  4. “In another building called Topaz, the deal is even better. They offer eight weeks free rent on some leases, which could save more than $4,000. There’s also free parking, a resort pool, and a washer and dryer in the apartment.”

    What part of “affordable” don’t these future bankruptcy cases understand?

    1. Why would an existing borrower refi into what is undoubtably a higher rate. I am surprised there is any activity at all.

      Now to what extent is cash out activity driving the economy?

      1. RT is a propaganda organ, but it doesn’t mean everything they put out is false. You have to be able to understand the angle to be sure, but once you do you can glean something useful from time to time.

  7. Did AlbuquerqueDan predict this? If so, I don’t recall it.

    The Great Oil Crash of 2018: What’s really happening
    By Matt Egan, CNN Business
    Updated 11:46 AM ET, Wed November 21, 2018

    New York (CNN Business)
    The meltdown in the oil market has caught almost everyone off guard.

    In the span of mere weeks, crude prices went from a four-year high to a full-blown bear market. The oil crash — crude is down almost 30% from its recent peak — was triggered by a series of factors that combined to spook traders who once saw $100 oil on the horizon.
    …

    1. predict this?

      In a way. He said $80 to 100 was a lock. Since he was always wrong with his predictions it was an indicator.

    2. The 93 million people “not in the work force” (but not unemployed, oh heavens no!”) aren’t doing much driving or consuming, it would appear.

    1. Schadenfreude offers bittersweet comfort for schlonged Bitcoin HODLers.

      Bitcoin Analysis
      November 20, 2018 20:51 CET
      Not Just Bitcoin: FAANG Stocks are Down $1 Trillion from Yearly Highs

      As the crypto market reels from a weeklong downturn that has forced the bitcoin price to its lowest point in almost 14 months, it appears that traditional markets do not intend to welcome investors back with open arms.

      Markets Erase Year-to-Date Gains

      Following yet another decline on Tuesday, the Dow Jones Industrial Average, S&P 500, and Nasdaq have now erased their 2018 gains heading into Black Friday weekend.

      The sell-off has been even more pronounced among FAANG stocks, with tech stalwarts Facebook, Amazon, Apple, Netflix, and Google (Alphabet) now firmly in a bear territory after descending more than 20 percent from their 52-week highs. Collectively, FAANG stocks have shed than $1 trillion from their yearly highs, marking a remarkable shift since the beginning of Q3.

      https://www.ccn.com/not-just-bitcoin-faang-stocks-are-down-1-trillion-from-yearly-highs/

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