Why Home Prices Will Spike in 2018!

Starting in 2020, California is implementing building code revisions to Title 24. Title 24 is a set of building codes that are updated about every two years with the goal of making buildings/houses more energy efficient and healthier for the occupants. This sounds great, but it does add additional costs for new construction.

The legislators’ goal is to have all new residential housing built starting in 2020 to be Zero Net Energy (ZNE). Net Zero Energy means that any energy used is offset by renewable power produced onsite, which might mean fireplaces will not be permitted. In theory, all new houses will be designed and built to use less energy and produce enough energy to cover their use of energy. I say in theory, since the energy used in a house will greatly depend on the occupants.

Some of the goals will be accomplished by controlling the power at outlets to new standards for lighting. Since the most common and acceptable way to produce power for a house is solar panels, the hope is that there will be development in the technology to cost effectively store power when there is less or no sun. A neighborhood with houses covered in solar panels puts a lot of stress on the electric grid when a cloud floats by and at the moment the sun sets. Another option is small windmills.

Since the new code will affect all new construction making new homes more expensive, it will have a residual effect on existing homes.  But wait, this effect could be very significant as California Energy Commission (CEC) is pushing legislation to require homes for resale, existing homes, to meet the new standards at the close of sale.

Once people realize the implication of this requirement, I predict there will be a spike in existing homes closer we get to 2020.

If you would like more information below are some links.

California's Net Zero Energy Building Mandate To Reshape US Construction Industry

Building Energy Efficiency Program CA.gov

California's Public Utilities Commission CA.gov

California to Require Net-Zero-Energy Buildings

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Current Market and 2012 vs. 2013 Prices

In April, I compared the first three months of 2012 and 2013.  To recap, the number of homes sold increased by 7%, prices increased by 16%, and cash/investor purchases increased by 13%.  However, first time buyers decreased by 15%.

There are currently large investment firms buying residential property not only in the open market, but also on the courthouse steps and directly from banks, which are not in my calculations above. This is obviously not good for buyers, but is it good for the economy?  Articles from CNN can't answer this question either based on the links below.

3 reasons the housing recovery may not last             April 18

Home price rise continues to pick up speed              April 30

Home sales continue to climb                                    May 23

The market is tough for buyers in the under $500,000 price range as it is not uncommon for there to be 15 offers on a property and some offers being 5% over the asking price. To be more competitive buyers are waiving certain contingencies like the appraisal and inspection contingencies.

Since I like looking at numbers to see patterns, I pulled up some numbers from different zip codes for the month of May.  I looked at the number of homes actively being sold, homes in escrow, and the sold price per square foot.  I found it interesting that some zip codes have more homes in escrow than are actively being sold, and these tend to be in areas with lower cost per square foot.  These are also the areas that the investors are buying in.

The only other thing I can conclude from this data is that real estate is regional, so if there is a particular area you are interested in, let me know.

Location	Zip	Active	Pending	May 2012	May 2013	Price Increase
La Jolla	92037	249	131	$590	$599	1.5%
UTC	92122	50	71	$289	$351	21.6%
Carmel Valley	92130	136	109	$316	$374	18.3%
Del Mar	92014	99	44	$587	$590	0.5%
Encinitas	92024	125	114	$319	$382	19.6%
Coronado	92118	163	39	$626	$707	12.9%
Downtown	92101	186	120	$416	$474	14.0%
Point Loma	92106	42	32	$386	$460	19.1%
Santee	92071	46	105	$176	$195	10.4%
Poway	92064	103	101	$255	$284	11.2%
Mission Valley	92108	30	41	$206	$253	23.1%

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San Diego County Real Estate Market 2012 vs. 2013

There have been several articles released lately regarding the real estate market specifically how much homes has gone up. These articles typically use the median, which is the middle value. For example if one year four $300,000 homes are sold along with three $600,000 homes the median value is $300,000. If the following year three $300,000 homes are sold along with four $600,000 homes the median value is $600,000, which is an increase of 100%. Knowing this I don't believe the median number is good to use for real estate since every home is unique. The median number from one period of time compared to another usually show large changes in the market, which is probably why writers like to use it because is shows volatility.

I find using the average cost per square foot is a much more accurate number to use to show the direction of the market but it is not perfect as it does not take into account the size of the land. With this in mind I decided to look at the real estate market in San Diego County for homes sold in the first three months in 2012 and compared them to the first three months of 2013. Another criteria I used was to limit the price of the sold homes to under $2,000,000 for two reason. First, most people do not buy homes in the multi dollar range. Second, there was some anomalies in the high range of $12 and $14 million homes sold. The data comes from the MLS (Multiple Listing Service) and first time buyers are purchases that used a FHA or VA loan, which are loans that only first time buyers can use. There are some first time buyers who probably put down 20% but not many.

In the first three months of 2012 (7433) homes were sold. The average price per sqft was $220.23. Of those homes 2092 were purchased with cash while 2100 were first time buyers.

In the first three months of 2013 (7956) homes were sold. The average price per sqft was $256.27. Of those homes 2368 were purchased with cash while 1792 were first time buyers.

Using the price per sqft homes in the San Diego County market increased 16% in one year and purchases by investors also increased.

Encinitas, La Jolla and Downtown San Diego are areas that tend to have the most transactions so I looked at the numbers for those areas.

Encinitas
In the first three months of 2012 (126) homes were sold. The average price per sqft was $343.15. Of those homes 33  were purchased with cash.

In the first three months of 2013 (142) homes were sold. The average price per sqft was $383.41. Of those homes 39 were purchased with cash. An average increase in price of 12%.

La Jolla
In the first three months of 2012 (127) homes were sold. The average price per sqft was $508.61. Of those homes 51  were purchased with cash.

In the first three months of 2013 (153) homes were sold. The average price per sqft was $540.45. Of those homes 68  were purchased with cash. An average increase in price of 6%.

Downtown San Diego
In the first three months of 2012 (195) homes were sold. The average price per sqft was $377.11. Of those homes 88  were purchased with cash.

In the first three months of 2013 (219) homes were sold. The average price per sqft was $440.07. Of those homes 82  were purchased with cash. An average increase in price of 17%.


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San Diego Real Estate Market in the Last 38 Months

This year so far compared to last has seen more activity in the real estate market for San Diego. The following charts show the seasonal lows for sold homes in January and February, but when compared to 2011 there is a noticeable increase. There is talk of another wave of foreclosures coming on the national level but don't expect much in San Diego as San Diego lead the real estate boom and its eventual crash.

The following charts show data of sold homes in San Diego County over the last 38 months with the exception of the first chart, which is the monthly average of the 30 year fixed mortgage interest rate। Even though this information is historical it does provide some indication of the direction the real estate market is going and its potential.

To keep it simple I broke down the data into price ranges and tracked the “price per square foot” on a month-to-month basis.

Several things to note when looking at the charts: 1) There are insufficient sold homes in the higher price ranges to provide meaningful results without critiquing the information more. 2) The Federal First Time Buyer credit expired November 2009 but was extended to June 2010.

Double click on a graph to make it bigger.

http://www.877homes.com/

Buyers’ Market vs. Sellers’ Market – 4th Qtr 2011

This is a look at the San Diego market for the last three months of 2011, which helps buyers and seller to know what type of real estate market we are in by using the absorption rate.

Absorption rate is used to determine the supply vs. demand of real estate. It is calculated by dividing the amount of inventory by how many properties are selling in a month.

1 to 4 months supply of homes is a Sellers’ Market
5 to 6 months supply of homes is a Normal Market
7 or more months supply of homes is a Buyers’ Market

The real estate market we are in today is not an ideal market to calculate the absorption rate because of short sales. When an offer is submitted to a bank on a short sale it typically takes 60 to 90 days to hear back and during this time the listing agent usually puts the property into a status of Contingency, which removes it from the actively supply count. In this state the property is not actively being sold neither is it in escrow. The following data is a look at the San Diego County real estate market as of January 1, 2012. First we look at San Diego County by geographic regions then break down the numbers by price.

All of San Diego County
Active homes for sale: 8873
Contingent homes: 3565
Sold homes per month over the last three months: 2663
Absorption rate of active homes: 3.3
Absorption rate of active and contingent homes: 4.7

North San Diego County
Active homes for sale: 3729
Contingent homes: 1135
Sold homes per month over the last three months: 975
Absorption rate of active homes: 3.8
Absorption rate of active and contingent homes: 5.0

Central San Diego County
Active homes for sale: 2366
Contingent homes: 877
Sold homes per month over the last three months: 781
Absorption rate of active homes: 3.0
Absorption rate of active and contingent homes: 4.2

South San Diego County
Active homes for sale: 1296
Contingent homes: 1005
Sold homes per month over the last three months: 521
Absorption rate of active homes: 2.5
Absorption rate of active and contingent homes: 4.4

East San Diego County
Active homes for sale: 926
Contingent homes: 444
Sold homes per month over the last three months: 296
Absorption rate of active homes: 3.1
Absorption rate of active and contingent homes: 4.6


Up to $200,000 Homes
Active homes for sale: 1713
Contingent homes: 1206
Sold homes per month over the last three months: 623
Absorption rate of active homes: 2.7
Absorption rate of active and contingent homes: 4.7

$200,001 to $400,000 Homes
Active homes for sale: 3161
Contingent homes: 1827
Sold homes per month over the last three months: 1273
Absorption rate of active homes: 2.5
Absorption rate of active and contingent homes: 3.9

$400,001 to $600,000 Homes
Active homes for sale: 1623
Contingent homes: 452
Sold homes per month over the last three months: 478
Absorption rate of active homes: 3.4
Absorption rate of active and contingent homes: 4.3

$600,001 to $1,000,000 Homes
Active homes for sale: 1349
Contingent homes: 171
Sold homes per month over the last three months: 251
Absorption rate of active homes: 5.4
Absorption rate of active and contingent homes: 6.1

$1,000,001 to $1,500,000 Homes
Active homes for sale: 520
Contingent homes: 24
Sold homes per month over the last three months: 64
Absorption rate of active homes: 8.1
Absorption rate of active and contingent homes: 8.5

$1,500,001 to $5,000,000 Homes
Active homes for sale: 635
Contingent homes: 22
Sold homes per month over the last three months: 46
Absorption rate of active homes: 13.8
Absorption rate of active and contingent homes: 14.3

$5,000,001 plus Homes
Active homes for sale: 121
Contingent homes: 1
Sold homes per month over the last three months: 3
Absorption rate of active homes: 40.3
Absorption rate of active and contingent homes: 40.6

Note: Small towns and communities far from the major populated areas were not used in
the breakdown calculations of the county, which is why their sum does not add up to San Diego County as a whole.

The San Diego County for the last nine months has moved in the direction of a sellers market. This happened in the 2nd quarter because more homes were being sold but in the 3rd quarter it is because there are fewer homes on the market and this trend has continued into the 4th quarter. In fact there are 3564 fewer homes being sold today compared to six months ago. A more and more frequent buyer these days is the All Cash buyer. These buyers are going after the less expensive homes making it tough for buyers who need a loan to compete.

The following reasons to get into the market are the same as last
quarter with one addition.
- Historically low interest still (for every $1000 borrowed the monthly payment
- will be about $6.50)
- Cost of renting is going up
- Depressed prices
- All Cash buyers are investors and they typically invest wisely

If you want to know the absorption rate of a particular area
contact us at homes877@yahoo.com

Visit us at www.877homes.com

Buyers’ Market vs. Sellers’ Market – 3rd Qtr 2011

In December of 2009 I wrote a blog that took a look at the San Diego market so buyers and sellers would have a better idea on how to handle a purchase or a sell. The data gathered at that time was only useful for a short period of time because the real estate market is continuously changing. Since then I calculate this data once a quarter.

To learn how this information can be used visit my December 2009 blog “Buyers’ Market vs. Sellers’ Market”.

Absorption rate is used to determine the supply vs. demand of real estate. It is calculated by dividing the amount of inventory by how many properties are selling in a month.

1 to 4 months supply of homes is a Sellers’ Market
5 to 6 months supply of homes is a Normal Market
7 or more months supply of homes is a Buyers’ Market

The real estate market we are in today is not an ideal market to calculate the absorption rate because of short sales. When an offer is submitted to a bank on a short sale it typically takes 60 to 90 days to hear back and during this time the listing agent usually puts the property into a status of Contingency, which removes it from the actively supply count. In this state the property is not actively being sold neither is it in escrow. The following data is a look at the San Diego County real estate market as of October 1, 2011. First we look at San Diego County by geographic regions then break down the numbers by price.

All of San Diego County
Active homes for sale: 11,141
Contingent homes: 3714
Sold homes per month over the last three months: 2841
Absorption rate of active homes: 3.9
Absorption rate of active and contingent homes: 5.2

North San Diego County
Active homes for sale: 4784
Contingent homes: 1143
Sold homes per month over the last three months: 1057
Absorption rate of active homes: 4.5
Absorption rate of active and contingent homes: 5.6

Central San Diego County
Active homes for sale: 3096
Contingent homes: 978
Sold homes per month over the last three months: 843
Absorption rate of active homes: 3.7
Absorption rate of active and contingent homes: 4.8

South San Diego County
Active homes for sale: 1502
Contingent homes: 1040
Sold homes per month over the last three months: 537
Absorption rate of active homes: 2.8
Absorption rate of active and contingent homes: 4.7

East San Diego County
Active homes for sale: 1112
Contingent homes: 448
Sold homes per month over the last three months: 315
Absorption rate of active homes: 3.5
Absorption rate of active and contingent homes: 5.0


Up to $200,000 Homes
Active homes for sale: 1987
Contingent homes: 1234
Sold homes per month over the last three months: 644
Absorption rate of active homes: 3.1
Absorption rate of active and contingent homes: 5.0

$200,001 to $400,000 Homes
Active homes for sale: 3864
Contingent homes: 1885
Sold homes per month over the last three months: 1298
Absorption rate of active homes: 3.0
Absorption rate of active and contingent homes: 4.4

$400,001 to $600,000 Homes
Active homes for sale: 2167
Contingent homes: 481
Sold homes per month over the last three months: 525
Absorption rate of active homes: 4.1
Absorption rate of active and contingent homes: 5.0

$600,001 to $1,000,000 Homes
Active homes for sale: 1806
Contingent homes: 174
Sold homes per month over the last three months: 318
Absorption rate of active homes: 5.7
Absorption rate of active and contingent homes: 6.2

$1,000,001 to $1,500,000 Homes
Active homes for sale: 687
Contingent homes: 28
Sold homes per month over the last three months: 83
Absorption rate of active homes: 8.1
Absorption rate of active and contingent homes: 8.6

$1,500,001 to $5,000,000 Homes
Active homes for sale: 819
Contingent homes: 27
Sold homes per month over the last three months: 62
Absorption rate of active homes: 13.2
Absorption rate of active and contingent homes: 13.6

$5,000,001 plus Homes
Active homes for sale: 147
Contingent homes: 3
Sold homes per month over the last three months: 2
Absorption rate of active homes: 74
Absorption rate of active and contingent homes: 75

Note: Small towns and communities far from the major populated areas were not used in the breakdown calculations of the county, which is why their sum does not add up to San Diego County as a whole.

The San Diego County for the last six months has moved in the direction of a sellers market. This happened in the 2nd quarter because more homes were being sold but in the 3rd quarter it is because there are fewer homes on the market. In fact there are 1296 fewer homes being sold today compared to three months ago. A more and more frequent buyer these days is the All Cash buyer. These buyers are going after the less expensive homes making it tough for buyers who need a loan to compete.


The following reasons to get into the market are the same as last quarter with one addition.
Historically low interest still (for every $1000 borrowed the monthly payment will be about $6.50)
Cost of renting is going up
Depressed prices
All Cash buyers are investors and they typically invest wisely

If you want to know the absorption rate of a particular area contact us at homes877@yahoo.com

Visit us at www.877homes.com

San Diego Real Estate Market in the Last 36 Months

With everything going on in the economy I understand why people are hesitant to take the plunge into real estate but do not forget to keep an eye on interest rates.

The following charts show data of sold homes in San Diego County over the last 36 months with the exception of the first chart, which is the monthly average of the 30 year fixed mortgage interest rate. Even though this information is historical it does provide some indication of the direction the real estate market is going.

To keep it simple I broke down the data into price ranges and tracked the “price per square foot” on a month-to-month basis.

Several things to note when looking at the charts:
1) There are insufficient sold homes in the higher price ranges to provide meaningful results without critiquing the information more.
2) The Federal First Time Buyer credit expired November 2009 but was extended to June 2010.
3) In the last 36 months the US stock market lowest point was in February 2009.

CLICK on a chart to make it larger.

Ben Altman
Tidal Realty
(610) 890-1063
www.877homes.com