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Has San Diego Real Estate Topped in March of 2020 ?

A North County Realtor asked me to help her answer the question, "Has real estate peaked in 2020?". 

The short answer is "No.'  Here is the long answer:

We have a supply/demand imbalance which won't get much better for years to come, maybe decades to come. f you REALLY want to get a read on the supply problem (and potential for upwards pricing) perform this exercise:

Run a search (on Homesnap) for 3 BR /2BA properties FOR SALE , in all of Carlsbad, under $850K. 




Now run that same search for "UNDER CONTRACT"





Then look at them overlaid-.




This frightens me.  What I can't determine is whether this is a demand curve shift (which means that prices are about to rise dramatically) or whether this is a seasonal/cyclical top.  I sincerely believe the former, mostly because of this article  about demand (and many other articles before it.)  I saw this coming two years ago and articulated it here. 

Challenge my theories but please read the linked material.  Demographics are destiny and demand is going to be at this level for 10-20 years.  Unless NIMBY politics is defeated (it wont be), I think the demand CURVE is shifting.  Buying property is a good idea but an even better idea is to start educating your Gen-Z kids so they can "get on the ladder" in 10-15 years

Why aren't people moving anymore (and why does that hurt YOU)?

Americans used to move every 7 years in the late 20th Century. This decade, the average is close to every 9 years and those two years are clogging up the housing market. Theories, over the past decade were:

 

(1) the house/mortgage was "upside-down", locking owners into their homes and then, after 2015

(2) nobody wanted to lose the low mortgage rate they have.

 

The "low rate theory" is now debunked. Mortgage rates are the lowest as they have been since 2011 and people still aren't moving like they used to:

 

The rate lockdown thesis is easy to test. If it holds up, then when mortgage rates fall, homeowners who have been anxiously waiting will put their homes on the market, and inventory will open up. 

 

Except that has never happened in this cycle. Inventory always went down when rates lowered because demand got better. The only time inventory went up was when mortgage rates went higher, demand got softer and sales went down.

Makes sense, right?

 

We saw this in 2013-2014 and again in 2018-2019. In each of these periods, when rates went higher, demand fell and inventory went up. However, when it went lower, demand got better and the monthly supply fell. We never saw the releasing of inventory that some had hoped for when rates went lower.

 

So what's the problem? Baby boomers aren't doing what THEIR parents did:

 

Baby Boomers, the 75 million Americans born between 1946 and 1964, are clogging up the housing market, according to a Chicago Tribune story last week. 

 

Instead of moving to retirement communities like many of their parents did when they got older, Baby Boomers are opting to age in place. The “near-gridlock” is keeping about 1.6 million houses off the national market, the Tribune story said, citing a Freddie Mac analysis.

 

This, combined with the lackluster new home construction this decade, is gumming up the works and that's one reason why we see higher housing prices. It's even worse in San Diego. San Diego County is so far behind in new home construction that we may have as much as a 100,000 home backlog.

 

What's this mean for you?

 

If you are looking to move up to a bigger home, it may be 15 years of price increases before prices plateau. With interest rates at this 8 year low, now might be the time to develop a strategy to move up BEFORE prices keep going up. The first step is to call one of us and determine just how much of a home you can afford.

 

Realtors should do this ONE thing to close more business

I try to speak to 25 real estate agents a week on the telephone.  It's pretty hard because none of you answer your phone anymore.  Before you jump back at me and say "maybe they didn't want to talk to YOU, Brian", you should know that I have called from different numbers so that's not the case.  Last week, I called over 150 real estate agents just to speak with 25 of you and that kind of shocked me.  I am not alone.  The number one problem I hear from real estate agents is that other real estate agents don't answer their phone when THEY call-- clients tell me the same thing.



ANSWER YOUR PHONE when it rings during business hours and I promise you that you will close more business.  That call could be a new buyer, an agent with a buyer for your listing, an appraiser who needs to see your listing, a lender updating you on a problem your buyer had, the escrow company wondering where your client's statement of information is.

Why don't REALTORS answer their phones?

Atlantic Magazine published a good article answering this question  .  Essentially, there are two reasons why you don't answer your phone:

There are many reasons for the slow erosion of this commons. The most important aspect is structural: There are simply more communication options. Text messaging and its associated multimedia variations are rich and wonderful: words mixed with emoji, Bitmoji, reaction gifs, regular old photos, video, links. Texting is fun, lightly asynchronous, and possible to do with many people simultaneously. It’s almost as immediate as a phone call, but not quite. You’ve got your Twitter, your Facebook, your work Slack, your email, FaceTimes incoming from family members. So many little dings have begun to make the rings obsolete.

But in the last couple years, there is a more specific reason for eyeing my phone’s ring warily. Perhaps 80 or even 90 percent of the calls coming into my phone are spam of one kind or another.  There are unsolicited telemarketing calls. There are straight-up robocalls that merely deliver recorded messages. There are the cyborg telemarketers, who sit in call centers playing prerecorded bits of audio to simulate a conversation. There are the spam phone calls, whose sole purpose seems to be verifying that your phone number is real and working.

I will stipulate that both are good reasons:  lots of less intrusive communication methods are at our disposal and spam calls are annoying.  But consider the negative effects of "screening" your calls-- missed business opportunities.  Consider this story from Denise Lones:

Like a lot of potential sellers, I got on the internet. And I found about nine agents who claimed to be the area expert in my parents’ neighborhood. So what do most people do next? They call someone. I called the agent whose internet site said he was the expert. He said he had the most sales in my parents’ neighborhood.  But when I called him, I got his voice mail.

I wasn’t really ready to leave a message…I’m just at the beginning stage of finding an agent to talk to…I was also at work…and I had lots of other things to do. I thought, “Okay, I’ll just quickly call the next name on my list. Maybe she hasn’t had as many sales, but I’m pretty sure she can at least get me the information I’m looking for.”  So I called her. Voice Mail. I called the next person. Voice Mail. The next person? Voice Mail. I did this SIX times. I don’t have time to call six people to just get their voice mail!

Finally, the 7th person answered. In fact, when he actually answered the phone and said “Hello”, I was so surprised that I could hardly even speak! I told him what I needed and what our situation was. He seemed very pleasant on the phone and sounded interested in helping me out. Twenty-four hours later, he’s given me a report of comparable homes that are on the market right now. He’s given me some client testimonials. He’s given me a list of homes that he has sold. In 24 hours, he got me loads of information. That is what he’s supposed to do. He’s a real estate agent.

Spam calls are annoying.  Facebook, Twitter, texting, and email all offer alternative communication tools.  A voice conversation however, is the second best thing to an in person meeting and, if the call is inbound, you are going to get a chance to sell yourself  to a new customer.

Pick up the phone.  You are losing money if you don't.

 

Suspend The California Regulatory Burden During the Housing Shortage Crisis

I have been talking about the housing backlog for a few years-- it's getting MUCH worse. 

Companies are leaving California because their labor costs, to compensate for the high cost of housing,  make it nearly impossible to operate as a profitable concern.  California has the highest percentage of the homeless population in the nation; one in four of this country's homeless people live in California.  While wealthy, older people are moving TO California, the next generation is leaving California at a record pace.    

If you are rich and have gray hair, enjoy our little paradise but, if you are young and upwardly mobile, we don't have room for you.  So, leave.

This is a problem.  Fortunately, the rest of California is realizing what I have been screaming about for the last 4 years-- we need more housing.  While everyone acknowledges that we have a housing shortage crisis, the politicians are acting like it's an opportunity to grant political favors.  To wit:  13,000 new, Bay Area homes are not being built because the city wants the builder to use only union labor:

The negotiations between Lennar and the unions have been going on for more than a year and spilled into public discussion this week at the council’s Tuesday meeting, which drew hundreds of people to the small council chambers.

For more than six hours, the council heard testimony from the developer, the Contra Costa Building Trades Council and city staff, along with close to 100 people — residents, union workers, business leaders and housing advocates — who spoke during the matter’s public comment period.

While about half of the speakers at the meeting spoke in support of the unions — noting the need to maintain good wages and strong apprenticeship programs — others urged the council to do whatever it takes to keep the project moving. Local business owners and leaders see the site as a potential hub for technology companies and other job creators. Housing advocates want the project’s 3,000 affordable housing projects to come to fruition.

I have nothing against labor unions.  Unions offer superior training which, in the long run, can save businesses money.  But not every single job on a construction site needs union-trained labor and higher costs eventually means higher sales prices on the finished product.  If the city approves housing, and puts a cap on the end-user sales price (which cities often do now), and forces the builder to overpay for labor, the builder won't earn a profit.  Make no mistake about it, if there is no margin, there is no mission-- builders will just stop building in California.

This is no way to address a crisis.  When 1 out of 4 of the country's homeless is living on the streets of California, and our kids and grandkids are moving to Texas, Nevada, Arizona, and Tennessee, it's time to change the way we do business in California.

"Business as usual" got us into this housing shortage crisis.  Radically different approaches to increase supply will get us out of it.

Accessory Dwelling Unit (ADU) Financing in San Diego

I like doing what I do because I can help people solve problems:

I met a lady today who has a 30 year old son who moved to Vegas three months ago-- he doesn't want to stay there. His girlfriend lives here and is getting a Master's degree and they plan on getting married.

His mother and stepfather own a home in Paradise Hills which they bought, 10 years ago, as a HUD repo-- they are sitting on a LOT of equity. Mother says, "I wish I could just buy a duplex so we could both live there"


"How much land do you have?", asks I.

"I have a huge backyard; I could build whole house on it" says Mother.

"Accessory Dwelling Unit. Build one for $50-70K, with already-approved plans from the City of San Diego, move the kids in and when grandchildren come, switch houses. " I offered.

"I love that idea. Now I just need $75K and someone to build it", replies Mother.

"I can solve BOTH of those problems for you. When do you and your husband want me to come over and meet with you?" I asked.

"How about next week?", she asked.

This is what turns me on. Helping young service members buy their first homes is cool. Helping retired people keep their homes with a reverse mortgage is cooler. But helping a mother keep her son and grandchildren in San Diego, and providing a safe retirement home for her is what this job is ALL about.

"Real estate is the husbandry of man to the land"-- Greg Swann

 Keeping families together and strong is REALLY what I do. I can't wait for this to happen for her family.

Real Estate Career Advice From Tom Hanks

The buzz about the Golden Globes was Ricky Gervais' irreverant takedown of Hollywood in his monologue but Tom Hanks offered the best career advice for ANYONE in his acceptance speech for the Cecil B. DeMille Award.

 

I thought the three things Hanks offered, in his speech, could greatly improve how we serve our customers and want to share them with you:

 

Show Up On Time

 

"Showing up on time is one of the greatest liberating acts you can give yourself in a movie. That means those people with radios in their ears don't need to knock on your door and say they're ready for you. You're actually already ready. And you have the liberty, and you have the freedom of being there early enough to settle down--because when the time comes, you have to hit the marks, and you have to 'go there."-- Tom Hanks

 

Real estate brokerage and finance is an unpredictable business. Too often, lenders, appraisers, inspectors, and agents throw money wrenches into what we originally thought would be a seamless transaction-- and that throws us off of our daily schedule.

 

When I first started, I was overwhelmed with this and was constantly running "15 minutes late". Even today, San Diego traffic and "surprises" will throw my daily schedule off. Back in 2008, a friend of mine commented that "tardiness is the ultimate form of selfishness"-- he remarked that it sent a signal that I didn't respect others' time as much as my own.

 

I am not perfect by any measure. Traffic and "surprises" still get me behind in my schedule but I've done two things which I think communicate my punctuality. Firstly, I try to show up for every in-person appointment, or scheduled telephone call, 10 minutes early and (more importantly) prepared for the meeting. Secondly, as soon as I think I might be tardy, I communicate that to the other person. I think those two things tell my customers that I value their time and that it's a privilege to serve them.

 

Know the text.

 

"Knowing your text--it's not just your lines, it's the whole thing," Hanks continued. You might not be right in the opinion you bring to it. But you've got to come at it with some direction."-- Tom Hanks

 

Prepare yourself or explain, at the outset of every meeting why you are unprepared. I try to show up to every meeting or scheduled telephone call with a stated goal. If it's a new buyer, I present the California Real Estate Transaction Flowchart so that they fully understand what everybody is doing to make their transaction go smoothly. If I am meeting with a new Realtor, I am prepared to show them our Yelp reviews to explain our strengths (and weaknesses) as a lender.

 

If you have done business with us, you'll know that I over-communicate with you. When a problem arises, I usually send a text and ask you to give me an hour or so so I can have solutions to present to you. I think it's important that I approach our business relationship as a problem solver because I know your customers expect that from you. Sometimes, the problems are out of my control so I will suggest ideas which YOU can initiate to solve the problem but I think being prepared adds value to our interactions.

 

Have a head full of ideas.

 

Speaking to this final point, Hanks said the following:

 

"The head full of ideas: Bring anything. Try anything. They might not use it. If it stinks, they won't use it. Am I right, Marty Scorsese?"

 

I think this piece of advice is invaluable. When we were in the depths of the real estate recession, I had to learn how to be creative to get deals funded. Some of the ideas I offer you cost me (and you) money and can be interpreted incorrectly. I approach every idea I offer within this hierarchy:

 

1- First, protect the licenses: if it's illegal or unethical, I won't do it.

2- Next, protect the customer: Is this the best thing for the person you represent?

3- Thirdly, protect the transaction: does this idea get us to closing?

4- Lastly, protect the commission: we earn our commission and, while we sometimes have to "share costs" to get to a closing, we are entitled to the money we earn.

 

The Golden Globes is sometimes depicted as a self-congratulating Hollywood show. People often think that Hollywood actors are incredibly "out-of-touch" with most of us working Americans. But Tom Hanks' speech reminds us that acting is a job; a career in which character rewards longevity. The basic fundamentals of good business apply even to Hollywood actors. Tom Hanks successful career proves that to be so.

Realtors Should Quit Doing These 8 Things

These 8 things can hold you back from being the REALTOR you thought you would be when you first got your license. Consider giving up:

 

1- An unhealthy lifestyle. I am as guilty of this as most of you but, as you grind and grind away, there are four things you NEED to have the energy to produce at a superstar level:

 

a- 7-8 hours of sleep each night

b- a healthy diet

c- daily exercise (even if it's walking for an hour)

d- play. (build a sandcastle on the beach sometime)

 

2- a Short-Term Mindset. Successful people set long-term goals, and they know that these aims are merely the result of short-term habits that they need to do every day. Break down what you want into daily disciplines and make those daily disciplines non-negotiables. I started speaking with a minimum of five past clients/day in 2017 and it made a huge difference in my production numbers. I got to that number by reverse engineering my income goal into something a I could control each day. I can control how many people I speak with each and every day.

 

3- Playing Small. I am as guilty of this as anyone but I decided a year ago that I was going to learn commercial mortgage brokerage and fund $10 million in commercial loans in 2019. I didn't come anywhere close to that number (I funded $2.5 million in commercial loans) but I learned exactly what it takes to fund $10 million in 2020. Watch me do it this year. That's an extra $80K to the income we earn from residential mortgage brokerage. With a daughter at the University of San Diego, that extra income will come in handy (ASK ME WHAT MY NEXT "BIG IDEA" will be to add for 2020)

 

4- Excuses. Successful people know they play the hand their dealt. When I read Jocko Willink's "Extreme Ownership" in 2017, the light bulb went off. I started listening to the Jocko Podcast three years ago and I learned that I was responsible for EVERYTHING in my life: my business, my marriage, my family, my happiness, and my health. I stopped making excuses for why I wasn't making $500,000/year and started focusing on doing that.

 

5- Fixed Mindset. This goes hand-in-hand with #3. Can you learn something new? Maybe you can get your Military Relocation Professional designation and help a whole new market. Or get your Senior Real Estate Specialist designation and learn how to help San Diego's fastest growing market of existing homeowners.

 

6- Believing in the magic bullet. Overnight success is a myth.

Successful people know that making small continual improvement every day will be compounded over time, and give them desired results. If I can speak to 6 past clients each day, in 2020, I'll increase my input by 20%- I hope that increases my output by 50%

 

7- Perfectionism. Gosh this is hard for me, especially when working with real estate agents. I always wanted everything to be absolutely perfect for every single loan transaction. I would get mad at underwriters, appraisers, borrowers, and even the Realtors who referred me business because they weren't helping me to meet the closing goal. In reality, perfectionism is all about my ego rather than about doing the job right. I read Dan Kennedy's book about Time Management and I learned that "good enough is good enough". I also learned that by delegating more things to my wife Debra, I found out that she knows how to a LOT of things better than I did them.

 

8-Multi-tasking. Shut off the cell phone. Close your email. Don't go on Facebook. Do "that one thing" well and quickly and move on. The human brain is not wired for multi-tasking and its hurting your work quality.

 

Which is the next San Diego neighborhood to "Pop" ?

I need your help. If you could spend a couple of minutes reading this and replying with an answer, I'd be grateful.

 

Every year, since 2008, I have published a "San Diego Housing Outlook" for the upcoming year. I talk about "themes" and try to identify undervalued neighborhoods which fit those themes

 

In 2008, while the market was starting to decline, I liked the theme "Blue Collar Beach Towns" and suggested that investors/home buyers consider Oceanside and Imperial Beach. In 2011, I felt that most every property in San Diego County was a buy because they were selling below "fundamental value" . Two years ago, I suggested that millennial home buyers would migrate to suburban, single-family homes and out of the condos in urban neighborhoods.

 

I still think the theme of migration to singe-family homes is a valid one but I need your help. There is a shortage of SFR's in San Diego and the County isn't approving a whole lot of SFR building permits. Thus, the prices have been "bid up" and it's hard to tell someone where there are "hidden values". I think Linda Vista could be a neighborhood which "pops" but you folks are the real 'front-line" intelligence gatherers.

 

Would you reply and tell me which neighborhood(s) offers, in your opinion, the "best" value moving forward? You can offer a short answer or a detailed one and I will include your quote, and link to your website, in my 2020 San Diego Housing Market Outlook.

 

I appreciate your participation and we appreciate the opportunity to help your buyer clients obtain mortgage financing.

Why are San Diego real estate prices so high?

Why are San Diego housing prices so high?

 

a- the ocean?

b- temperate climate?

c- strong economy?

d- proximity to Mexico?

e- real estate is a rigged game in San Diego

 

The answer is a combination of all answers but "e" is the best answer. San Diego News Desk points out the glaring supply/demand imbalance in San Diego County:

 

In 2010, data revealed that San Diego was short 59,000 housing units. Furthermore, if one were to include the past 20 years, the data would reveal that San Diego is actually 140,000 housing units short.

 

San Diego has tried to recover from the 1990 recession that involved Southern California, but three decades later, San Diego has failed to approve the permits needed. The refusal to grant building permits, in turn, is producing the very slow homebuilding pace seen in San Diego. This impediment is ruining the housing market by artificially restricting the supply—which increases the cost of existing housing.

 

Here is my analysis, if you are thinking of purchasing a home in San Diego:

 

The supply shortage doesn't mean that housing prices will always rise, year-over-year, but it illustrates a structural imbalance which heavily favors ownership in residential real estate, be it for living in the home or holding it as a rental. Long-term then, San Diego real estate can be expected to rise at a greater rate than the inflation rate. When leveraged, San Diego residential real estate can produce annual returns which rival the stock markets but with far less volatility.

Realtors losing listings to iBuyers

Guess what?  Zillow is entering the San Diego residential real estate market and Realtors should take it seriously:

Zillow Offers is continuing its expansion, announcing Monday it will be buying and selling homes in San Diego.  Through its iBuying service, Zillow seeks to provide a solution by enabling sellers to forget about the hassle of cleaning their home, forgoing home repairs, open houses, and the like. They can even choose the date they want to sell and move by. (For more on what, exactly, is an iBuyer, read this.)

I know.  I know.  Zillow is no competition for a professional, local expert...or is it?  What San Diego Realtors often miss is that, while iBuyers may "low-ball" sellers, looking for homes with cosmetic repairs needed, the simple fact is that the iBuyers end up negotiating with sellers long before an agent has a chance to prsent his/her services.  Here is my friend, Phoenix real estate broker Greg Swann:

As for iBuyers being nothing to worry about: Ahem.

If they’re in your town, they’re in your potential-seller’s head – and maybe in his email in-box, too. They’re in everyone’s net.world, on billboards, radio, TV. If your prospect hasn’t solicited an offer yet, you need to get out in front of that eventuality.

The iBuyers are the elephant in the room at your listing appointment. If the seller doesn’t bring them up, you had better. It could be that iBuyer offers are already in play, so you may already be smoked. Or the seller may want your help going that way, in which case you just made the easiest money in your real estate career – although the party to whom you owe fiduciary duty may have just pissed away half or more of his accrued equity in the home. Or, god help you, he may want to be sold on the value of listing traditionally.

But to go in to a listing appointment assuming the listing is your to lose is a mistake, I think. In the iBuyer world, the listing is theirs to lose, yours to win. You got the appointment because the seller wants your advice, not because he wants your sign in his yard for six months.

Greg has done extensive research on just how poorly iBuyers perform and you should follow what he's doing.  More importantly, read the emboldened statement Greg made. I'll parse it for you here:

You got the appointment because the seller wants your advice, not because he wants your sign in his yard for six months

Realtors need a strategy to position themselves as a trusted advisor so that their clients contact them before the iBuyers do.  Gary Keller said, some 15 years ago, that Realtors are either going to be fiduciaries enabled by technology or functionaries working for technology.  Thus, San Diego Realtors are going to have to examine the way they charge clients for the knowledge, advice, and expertise.  For too long, Realtors have relied on the commission model ad the only way to charge for their services.  Developing a "menu of services", which includes pre-MLS solicitation of iBuyer offers seems like the only way to get ahead of the curve.