Why Home Prices Will Keep Rising

They decide how much education and investigation they need to complete before making what is now the biggest decision of their life, and then they proceed when ready – or when they see an attractive house, hopefully in that order!  There isn’t much education available on how to do it, so people just trust their gut and start looking around – even those who already own a home.  HGTV makes it look easy (see three and buy one), and the disrupters keep promoting that their agent-lite program is all you need.  In a hot market, the investigation/education phase usually gets obliterated.

You’d think it would cause people to Get Good Help, to compensate – and many do (thanks!).

But once on the playing field, the buyers are split into two categories:

1. Those who own a home here now, and are trying to do better.
2. Those who don’t own a home here, and want/need to get in.

Buyers from the second category are determining the market.

They see every decent home get snatched up by those who got desperate sooner.  It becomes a race for those newcomers to get desperate enough so they can compete with those ahead of them.

Buyers in Category 1 already have it good.  Even if their home doesn’t suit their current needs, it’s what got them here.  The property taxes are lower, the neighborhood is a known quantity, and they are comfortable.  Are they going to rise to the same desperation level as those who don’t own a home here yet? It’s doubtful, even if Prop 19 passes and sellers can take their property-tax basis with them anywhere – nobody is desperate to leave coastal San Diego.

It’s what is causing the inventory to be so thin, and why I’m convinced it’s only going to get worse.

Consider these factors:

1. 1. Baby boomers are older now – if they haven’t moved yet, it’s probably too late.  They will make do with their current residence, and make it last for the duration.  Kids will inherit, and one of them will occupy as their primary residence – and the cycle of low inventory for sale will continue for another generation.
   2. San Diego is a mid-range market – there are a number of more expensive areas that make us look cheap, relatively.  It’s those move-down buyers from affluent areas who are filling up Category 2, making it very tough for locals to compete, which prevents them from moving…..which means less inventory.
   3. There aren’t any new-home tracts left to build in Coastal North County.
   4. There will be massive pressure on the Fed to keep rates low for years to come.
   5. The business is being dumbed down for easier consumption, not smarter.

These factors will keep the inventory low and competition high for a long time.  It also means that the deliberate, informed buyers will keep getting run over by those who are just in a hurry to buy a house.

 

The old adage of buyers determining the market is being snuffed out.

 

Sellers can name their price now, and there is probably someone who will at least consider paying it.  Until unsold listings are stacking up to the rafters, sellers will ensure that prices keep creeping upward.