By Mike Bodeen · 18 November 2019
I received more comments from last week’s blog than any other blog I’ve written. The title, “Seeing An Approaching Price Tsunami?” was inspired not by my subjective feelings about the market getting hotter, although more often than not, those “feelings” have been pretty accurate. This is all about the numbers.
We showed that the average October sales numbers compared to October 2018 displayed a modest 5.4% annual gain. That is healthy. Incidentally, it also shows that we are leading the country for appreciation, at least according to the most recent S&P Case-Shiller price index.
My concern, however, was recent pricing that showed that although active listings were down 19% vs 2018, the average PSF (per square foot) sales price had increased 2.8% over just the last month. Annualized this would be 34%! Further, the Monthly Median Sales Price had risen 2% from the previous month. If this trend were annualized it would be 24%!
A homeowners’ tendency is to view such major upward price swings as awesome. After all, what homeowner wouldn’t want an extra 24% to 34% annual hike in their home’s value? The problem is that it’s a problem – for everyone.
If 43 years in this industry (18 in California) has taught me anything, and it’s taught me a lot, it’s that those sort of price increases don’t end well! Here are my issues:
Many, especially first-time home buyers, get aced out of the market. Current low mortgage rates, which typically help spur buying, get zeroed out by higher prices.
A topic that we’ve discussed recently is the impact of Arizona being the number two landing spot of choice for fleeing Golden Staters. Buyers arrive in Arizona with a ton of cash from selling their homes in California, where they are selling for astronomical prices. Many of these buyers left California AND kept their California (read: Silicon Valley) jobs via tele-computing. Personally, I applaud them for a wise move.
Like California, at some point, Arizona home prices, after potential skyrocketing values, could then drop due to unaffordability. California, and others states as well, will re-enter the “Under Water Mortgage” scenario of ten years ago. The same can happen here, and anywhere that hyper-appreciation occurs. We’ve only in the past few years gotten rid of that horrific anchor, though thousands remain.
As real estate professionals, our view of hyper appreciation in the trenches, gets real ugly very quickly. Multiple offers, price bidding, frustrated buyers, etc. We’re also now seeing more folks enter the real estate industry believing that it’s quick and easy money. Sadly, seldom are these new arrivals looking to make residential real estate an actual long term career.
So, after 43 years of a career I love, I see this appreciation train a comin again. What will we do? We’ll keep doing the good things we’ve always done. Represent the best interests of our clients, in hyper markets or diving markets.