Holy cow – only $729,000 for a spectacular detached-home in gated Trilogy!
This is one of the premium locations high up the hill and away from road noise. The kitchen has been updated with new stove, refrigerator, dishwasher and backsplash, plus there is new carpet, new paint inside and out, hardwood floors, and the backyard is a tropical oasis with privacy!
Located in the coveted Del Mar school district too – where the least-expensive detached home for sale today is $899,000 – WOW! Close to the I-5 Bypass/Carmel Mountain Rd. exit – skip the traffic jams – and only 3 miles to the beautiful Torrey Pines State Beach!
It’s that time of the year – the 2017 forecasts are starting to roll out!
Zillow has been conservative about our local markets. For the most part, the actual appreciation of the Zillow Home Value Index has been higher than their forecasts over the last two years.
Their local forecasts for 2017 are all lower than their 2016 guesses, and what they are predicting could also be described as ‘Flatsville’. If their local forecasts of +0.9% to +2.2% come true, it would mean that several sellers would end up selling for less than they could have gotten in 2016.
Are we ready for that yet?
Local ZHVI-Appreciation Forecasts
Town
2015 Forecast/Actual
2016 Forecast/Actual
2017 Forecast
Carlsbad
+2.7%/+4.8%
+1.9%/+3.8%
+1.3%
Carmel Valley
+0.3%/+5.4%
+1.4%/+1.9%
+0.9%
Del Mar
+5.5%/+1.1%
+1.4%/+2.6%
+1.1%
Encinitas
+0.6%/+8.3%
+2.4%/+6.3%
+2.2%
La Jolla
+2.7%/+6.6%
+2.3%/+6.1%
+2.1%
RSF
+0.4%/+11.1%
+3.7%/-0.5%
+1.9%
San Diego
+1.7%/+6.4%
+2.1%/+4.0%
+1.7%
Solana Beach
+2.7%/+6.4%
+2.2%/+2.6%
+1.4%
The Zillow data changes slightly, depending on where you look on their website, and whether you use town names or zip codes. Here is the LINK to find others.
The graph above shows the inventory of Orange County homes listed for $1,300,000 or higher (San Diego wasn’t included but is similar to the OC).
Mark likes to believe that prices have to fall – his quote:
In other words, higher-end real estate prices have much more air underneath them than lower-end prices have air above them. The resulting house price compression will accelerate taking all price bands lower until the higher-end housing market can catch a macro bid.
Here is how inventory in our higher-end areas have changed since May 26, 2015:
Area
5/26/15 Actives
Today’s Actives
Diff
Del Mar & Solana Beach
73
99
+36%
Encinitas
91
110
+21%
La Jolla
185
218
+18%
RSF
237
275
+16%
Carmel Vly
116
126
+9%
Yep, our inventory in the tonier parts of town is higher but it has been so low lately that an extra 20-40 or so houses on the market in each area isn’t going to hurt much. These are the only numbers I have for comparison, and May vs. August isn’t that great either – there is more build up of the unsuccessful sellers in every August.
Most importantly, the high-end sellers have more horsepower – they can hold out longer, and in most cases, will only sell if they get their price.
Rancho Santa Fe has been the harbinger of what we can expect elsewhere – lots of listings sitting around not selling, but few lowering their price – they are happy to wait.
Unless we get a surge of boomer liquidations, the worst thing that will happen is the whole high-end market will go stagnant.
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If you have concerns, just buy in Carmel Valley. In the first 7 months of 2015, there were 276 houses sold in the 92130, and this year there were 321 – a 16% increase! And that doesn’t include the 100+ new CV homes sold this year.
Carmel Valley pricing statistics have been flat though. The average cost-per-sf only went up from $413/sf to $419/sf, and the median sales price actually went down from $1,178,000 to $1,124,000. It’s probably a reason why they’ve had so many sales!
Our regular commenter elbarcosr backed me up on how wacky the zestimates have been lately. They seem to be getting worse, which is hard to believe.
Being a Zillow homer now, I thought I better look into it.
Let’s serve up a nice big softball. Certainly the zestimates have to be accurate on recently-sold homes, don’t they? We saw how Redfin’s evaluator can cozy up close to a recent list or sales price, and you can’t blame them. After a few years, the database would look pretty consistent.
Does Zillow do the same? Wouldn’t it make sense to have your algorithm compute a recent sales price into the property’s zestimate? Because if you did, it would also help value the nearby homes that haven’t sold recently – because that’s how everyone would value them.
Evaluations in unique, non-tract areas is tougher. But if we are just looking at recently-sold properties, and their zestimates – the uniqueness shouldn’t matter as much!
I looked at 28 homes sold in La Jolla, Del Mar, and Rancho Santa Fe that closed between $2,000,000 and $3,000,000 in 4Q15, and compared their sales price (the definition of value) to their zestimates.
The average margin of error was 16%, and after removing the four that were wrong by more than $1,000,000, the average error was still 12%.
These are houses recently sold, and their sales price defines the actual value!
Even though the $2,000,000 to $3,000,000 range is the lower end for those areas and there are plenty of comps to help pin-point a zestimate, let’s consider an easier target.
Carmel Valley should be the hotbed of zestimate accuracy, especially when we look at the low-end where every data point is a pure tract house.
There were 57 CV sales in the fourth quarter between $1,000,000 and $2,000,000 that were considered.
The average margin of error was 3.6%, which is probably acceptable. But if it was any higher, there would be concerns – these are tract houses that just sold in 4Q15, and have a long history of steady comps around them!
My takeaway?
The only zestimates that might be close are in pure tract neighborhoods.
There hasn’t been a sale in Derby Hill, one of the premier newer tracts in Carmel Valley, in almost six months. Will buyers mind picking up where they left off last summer?
Most national forecasts are predicting a 3% to 4% appreciation rate for 2016, which has to be a safe bet. If it comes in anywhere from -2% to +8%, you can say that you were close.
Zillow has enough algorithms that they are willing to make predictions for each local area. They have conflicting numbers, depending on where you look on their website – these are from the Home Values section:
You can see that Zillow was less optimistic last year too. Most were predicting that mortgage rates would be in the mid-4s by now, so the lower rates in 2015 helped fuel higher-than-expected prices. Could rates stay right where they are? Maybe, but both Zillow and I think the euphoria will die down next year:
Zillow Price-Appreciation Predictions
Town
2015 Prediction
2015 Actual
2016 Prediction
“Market Temperature”
Carlsbad
+2.7%
+4.8%
+1.9%
Cool
Carmel Valley
+0.3%
+5.4%
+1.4%
Cold
Del Mar
+5.5%
+1.1%
+1.4%
Very Cold
Encinitas
+0.6%
+8.3%
+2.4%
Warm
La Jolla
+2.7%
+6.6%
+2.3%
Very Cold
RSF
+0.4%
+11.1%
+3.7%
–
San Diego
+1.7%
+6.4%
+2.1%
Warm
Solana Beach
+2.7%
+6.4%
+2.2%
Cold
For some reason, Zillow is also labeling each market from Warm to Very Cold. The labels don’t seem to correspond to the predictions, so I don’t know their intent – are they just trying to tell you to put on a sweater?
How will buyers feel about getting worked over for that last 2% to 3% when they see they are in a ‘Very Cold’ market?
Two of the most successful new-home tracts in the history of Carmel Valley are winding down, and the demand has been impressive.
After 2.5 years, ADM is down to their last 13 homes plus the three models, and they still have 90 people on their priority list – and those had to qualify to get on the list. This weekend, they are releasing ten homes, starting at $2 million. I love the strategy, because it sends a thrill throughout the entire list of people – everyone might have a shot to buy something!
Further out the 56 corridor – but still in the Del Mar School District – is Verana. In February, they opened the models to sell 78 homes around $1,000,000, and they are down to the last two phases plus a handful of stragglers; of which two or three back to the freeway.
Selling 78 million-dollar homes in less than a year is an incredible sales pace:
The company expects to fire about 15% of its semiconductor business’ full-time staff, significantly reduce its temporary workforce, and streamline its engineering organization.
They expect to layoff around 4,500 people company-wide. What does that mean for the local real estate market? Let’s point out the general changes:
1. YOU DON’T HAVE TO MAKE YOUR PAYMENTS.
A result of the financial crisis – banks are equipped to let you ride for months or years without making payments.
2. CUSHION
There will be severance packages, plus stock and stock options to live on.
3. ONLY RECENT PURCHASERS WOULD FEEL THE SQUEEZE.
If a Q-employee bought their home more than 3 years ago, they have plenty of equity, and have probably re-financed at a low rate. Payment amounts are tolerable, especially compared to rents in the same area.
4. MICKELSON EFFECT
Phil Mickelson made a big stink about the state tax he has to pay (probably around 13%) – but you haven’t heard a peep out of him since. Why? My guess is that his wife put her foot down, and told him they aren’t moving anywhere. The same thing would happen here – even if a spouse or both are laid off, they will exhaust all avenues to maintain the same lifestyle and kids’ upbringing. Selling the house would be the absolute last resort.
5. BANK OF MOM AND DAD
The kids have been very successful up to now, and the grandparents will drain a few accounts to help keep the grandkids’ lifestyle in place.
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There would be loads of buyers today of homes priced at 20% under today’s values. If that is the floor, then about 10% off would be a retail-price target. We could have a few different factors contribute to a similar discount (Fed move, Grexit, unknown factors, etc.), but we already endured the most severe downtown in the history of real estate and the premium areas didn’t take much of a hit.
Let’s use Carmel Valley as the target market to follow:
May + June stats
# of Sales
Avg. $/sf
Median SP
Avg. SF
2007
96
$391/sf
$1,003,750
3,117sf
2012
113
$323/sf
$883,000
3,076sf
2015
97
$405/sf
$1,235,000
3,183sf
A mass exodus of elderly or foreign homeowners is much more of a concern – they’re urgency is higher, they have less reasons to stay, and they can probably afford to dump.
