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Commentary: Housing irrational exuberance

By Cesar Diaz

Twenty-eight offers and not even close! That is the number of offers on a home my wife and I recently looked at in Carlsbad.

At the end of 2021, we decided this year was our year to move back to California. We want to live along the coast in San Diego.

Like some millennial couples during Part 1 of the Covid-19 pandemic (I think we are living in Part 3 now), we relocated out of the costly Bay Area to Nevada.

We had family we could be close to and luckily, we both would work remotely for our CA-based companies. We made a move, rented a spacious home in Summerlin, and my wife even got featured in the local newspaper for being a “remote worker.” Viva Las Vegas!

But my wife and I grew up in SoCal, and after one year in Nevada, it just wasn’t a fit.

We like to be close to the ocean, and that’s just not happening out there.

So, we decided to make the move back to Cali. At Christmas time, we began our Redfin and Zillow research of the two areas with great schools we love the most: Carlsbad and Encinitas.

We got our loan pre-approval, interviewed local agents, and settled on a genuinely hands-on Carlsbad realtor who knows the town well. And we were off to the races!

In the short time we’ve been actively looking in this market, we’ve learned that 1) homes are going significantly over the asking price, so be prepared to go there 2) it’s best to shorten the escrow period, and other contingency periods, 3) remove any asks such as requesting repairs or credits, 4) give the seller what they need, such as free rent back. And still no luck.

What is causing this frenzy? A low supply of homes for sale and pent-up high demand of buyers? Sure, I buy that. Is it a bunch of out-of-market folks like ourselves flooding the gorgeous San Diego market? Could be.

But when homes are receiving offers significantly over (10%-15%) the list price and the comps don’t support them, to borrow the title of Robert Shiller’s book, are we living in a moment of Irrational Exuberance?

If you look at 2021, you see in some North County submarkets that homes have appreciated $100,000 every six months.

When buying a house, should I offer the value of what I think it will be worth in six months rather than what it is worth today? Based on what someone paid for the house down the street yesterday? Tulip-mania indeed.

Is this a short-term situation? Will this submarket change after March when the Fed is expected to raise interest rates? Or at the end of this year?

I look at the submarkets and wonder, are we competing with 75 buyers or 30? If the latter, let’s all set up a meeting to organize around what neighborhood each of us wants to live in. The first round of beers at Pizza Port is on me.

I guess until then, we’ll wait for the day we can get into our first home.