It's all about the "R" word

The "R" word dominates homebuyer conversations these days. And I'm honestly a little taken aback. Because on August 17th, the real estate industry changed how buyers' real estate agents can be paid for the first time in 40+ years. It also changed what listings can and, more importantly, cannot say about whether a seller might consider offering concessions to pay buyers' brokers fees. Yet buyers don't seem concerned.

Silly me.

Paying their agents is hardly a blip on buyers' collective radar. They're more afraid of potentially overpaying for a home now, if we're headed into a recession. So let's address that.

First, though, let me advise that if homebuyers decide to forgo hiring their own agents, they're effectively waiving their consumer protections. I'll wish them all the luck in the world. And I'll have a list of experienced real estate litigators waiting for them, when the shit hits the fan later. (Not "if", "when")

...Now back to the "R" word.

As for a potential recession, who knows? I can't find any two "experts" who agree on whether it's happening, has happened, or will happen. And if so, whether it will impact home prices here in "OC". Yes, of course, after the 2008 recession, prices cratered everywhere.

That was because the run up in prices (aka "bubble") was based on the availability of very sketchy, often "zero down" financing, which allowed anyone to buy and sell homes like an investor, trading up on "paper" gains. Then the music stopped and there were not enough chairs. Far too many homeowners were caught with nowhere to land and suddenly a glut of listings hit the market.

Mortgage banks were shuttered and high risk loans were wiped off the face of the Earth. As a result, because the vast majority of folks had no liquidity, there was greatly diminished demand. Econ-101 came into play. Too much supply and too little demand devalued the product.

Poof!

The current run up was based on lack of supply and massive, persistent demand from buyers with larger down payments, who actually qualify for loans. Obviously demand was highest when mortgage rates fell into the 2% ranges. It has waned a little since then, and price appreciation has slowed. But it has not reversed.

Unlike the prior recession, virtually all today's homeowners have substantial equity. So if a recession did set them back financially, they'd be able to sell quickly. Our market can likely absorb another 20-30% more inventory before prices decline at all. But let's humor those desperately waiting to catch a falling knife, and assume home prices will fall.

They certainly wouldn't fall more than they increased during what these unicorn chasers are calling the current "bubble". That would be a greater reset than occurred after 2008, when everything was different. In other words, crazy.

I have literally drawn on the pictured FRED chart, which shows California home prices going back to 1972, to make my point crystal clear. The actual prior "bubble" escalated home prices from 400K to 650K and back down to 400K again, statewide. In 2012 to 2013 (depending on where you were and the price category) prices began to recover.

For all you bubble loving theorists, the green arrow shows the likely continuing straight line trajectory, if COVID never happened. If you believe current prices are artificially inflated and likely to "reset" to the pre-COVID projection, then you'd be very smart to wait.

I truly can't say what will happen. This was my first pandemic. It was also the first time I've seen $5 million +homes sell at a faster rate than entry level priced homes. And now that rising interest rates and the cost for everything prevents enough new home construction here (making no mention of the abundant NIMBYs), there will definitely not be enough supply to meet current demand.

Something would need to greatly reduce buyer demand, or increase housing supply. The pandemic didn't kill enough people to make a dent. And not enough fled the state. What else do you think is going to happen? Even if massive layoffs occur, the wealthiest among us can still afford to buy homes as rentals and wait for the tide to shift. That's what happened last time.

Or perhaps you think there will be a global nuclear war? If so, housing prices are the least of our worries. I give up. Maybe we should all hope for a recession to crater the real estate industry? If that fails to materialize, I think we should all get on with making the best we can with what we have and what we know.

If you need to move, move. If you can afford to buy a home and it provides additional tax benefits for you, then buy. But please stop asking me when home prices will fall. My answer remains the same. There will always be seasonal adjustments. However, annualized home prices will not fall here. You can buy property today, or you can wait and pay more later.

It's entirely up to you. (Just pay my fee.)

#Fed #realestate #orangecounty #truthliveshere #homebuyers #recession #doomsday