Charleen Price – GRI

Char’s January 2023 Blog – Market Update

Charleen Price

Before prices began to decline, we were overvalued [nationally] by around 25%. Now, this means prices will normalize. Affordability will be restored. The [housing] market will not be overvalued after this process is over.

There are very few problems in life that are impossible to solve, and few obstacles that will not eventually give way to a determined, motivated person with a plan that is flexible enough to cope with changing condition.

– Napoleon Hill

Did You Know?

* Wells Fargo – the biggest US mortgage-lending bank – is stepping back from the mortgage lending business and will only focus on home loans for existing bank and wealth management customers and borrowers in minority communities. (CNBC)

* Not unlike supply chain issues, inflation and covid, The Housing Recession is global: in Sweden, on average, house prices were up as much as 30% compared to pre-pandemic levels of January 2020…..but now are on the decline with some expecting a 20% correction, or as I like to call it: THE GREAT REBALANCING OF 2022/23. PS: 30% up, followed by 20% down = 4% up…much closer to a more ‘regular’ rate of inflation.

*Is renting about to get cheaper? According to Apartment List, rents fell nationally every month in the 4th quarter. Rents falling in the 4th quarter is in-line with the pre-pandemic seasonal norm, but the magnitude of the declines are bigger than what we saw between 2017 and 2019. Rents fell nationally by an average of 0.9% a month in the 4th quarter, versus a 2017-19 average that was half that. In a typical year rents grow by about 3%, so that suggests rents fell by 3% in the last 3 months of 2022 on a seasonally adjusted annualized basis. The national apartment vacancy rate rose to 5.9% in December, its highest level since April 2021, and has been rising by 0.2% a month recently. Then again, many of the double-digit rental escalations we saw in 2022 were extreme and probably unsustainable and due for re-balancing. And why might prices come down? Supply! There are more apartment units under construction than there have been in more than 50 years. Again, every US region will be different: some are under supplied and others are oversupplied. (Bloomberg)

* 56% of millennials (currently aged 26 to 41) remain unmarried. At the same time, the median income for unmarried households is higher than that of previous generations, hovering around $72,000 per year. Millennials have more than doubled their total net worth, reaching $9.38 trillion in the first quarter of 2022, up from $4.55 trillion two years prior, according to a MagnifyMoney report. The average millennial under age 35 has a net worth of about $76,000; those over age 35 stand at over $400,000. Members of Generation X have average net worths between $400,000 and $833,000, and older generations including baby boomers and the Silent Generation have average net worths of over $1 million. (CNBC/Fortune

* Rising rates have dramatically increased the cost of buying a home this year, reviving interest in mortgage products like temporary buydowns that fell out of favor after the 2008 financial crisis. Temporary buydowns offer steep but short-term savings on mortgage rates. Borrowers get a much lower rate in the loan’s first year that gradually increases until it resets to a rate in line with market conditions at the time the loan was made. They differ from standard buydowns, in which buyers pay an upfront fee to permanently lower the loan’s rate. And unlike adjustable-rate mortgages, the loans reset to a fixed rate. Buyers typically don’t cover the cost of temporary buydowns. Home sellers, lenders and builders can use temporary buydowns to win over buyers concerned about high rates covering the difference between the actual mortgage rate and the rate the buyer pays, stashing those funds into a custodial account that the lender dips into each month. (WSJ)

Trends & Forecasts

Market Update

The economy and the real estate markets of the past three years has been described, by the Feds and others as being “transitory”. Although universally berated when it was used to describe the recent inflation surge, it rings somewhat true today as we see commodity prices coming down, excessive demand for cars, new and used, is down, many equity prices are sharply down – even super, high-quality equities like Amazon have largely eroded all Covid-era gains, and yes, many home prices are coming down and may drop further. Homes are no different to most other assets in that their pricing is almost always defined by supply and demand.

Sonoma Valley’s stats for December are a perfect example (although this is a very small sample) of this theory of supply and demand. With a 40% increase in listings, year over year in December there was a 33% decrease (24 vs. 16) in the number of closed sales and a 9% decrease ($1,142,500 vs. 1,045,000) in the median sales price during the same period.

There are concerns that gains made during the Covid era from early 2020 to 2022 will be eroded or completely eliminated as markets readjust and rebalance. However, in looking at the numbers in Sonoma Valley, we found that this is not true…yet. For example, in Q1 of 2020 (just before the “lock down” caused by Covid) the median sales price came in at $694,000. Comparing that to Q4 of 2022, the median sales price was $1,045,000 – a whopping 51% increase. But, to say that we are out-of-the-woods yet would not be prudent. Our radically impatient expectations of everything and anything are often excessive and when we say transitory these days, we demand days, weeks, or months when maybe we should be looking at years instead. We shall see what 2023 has in store for us! Happy New Year.

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