In my 31 years of selling real estate, certain things have remained true. The 3 most important words for example, are now, always have been and will always be, location, location, location. For investment, find the cheapest house in the most expensive neighborhood. Alternatively, someone always buys the most expensive home in the neighborhood. Spring is the best market for sellers and fall is better for buyers. There’s no greater way to build wealth than with real estate. I could go on like this for another 20 minutes, but it’s the last two statements that I want to focus on and discuss.
I have buyer clients that are actively looking to purchase homes. At present, these clients are looking in the more affluent ends of town like Agoura Hills, Calabasas, Westlake Village and Oak Park. Essentially the east end of the Conejo Valley and the towns that straddle the Los Angeles and Ventura County lines. These areas have become hotter than ever since the pandemic has put a premium on space and these areas are close enough to LA to attract those who still need to get to their city jobs. Despite the huge run up in prices over the past 18 months, I have begun telling my clients that I believe I’m beginning to see a pattern of normalcy emerging (Contact Tim Here). This normalcy I’ve predicted will benefit them as buyers. That is, that more homes are going to come on the market just as they do every fall and then they should stay on the market a little longer than a minute. In doing so, inventory will build and this in turn will put some pressure on prices and perhaps even offer a little more negotiating ability. If nothing else, there should be a better selection to choose from. I thought I saw this pattern emerging and I thought this reflected a return to normal where prices will again rise in the spring and give some of those gains back in the fall. I thought this was happening as it has year in and year out. And yet…
While it is true, that we have not yet hit fall officially, September has often been the looking glass to the coming fall and even winter months. Some years we Realtors would tell our sellers, “September is usually a pretty good month for sales; a rebound from historically slow August.” Other times I might say, “It’s slower than normal this September because the Jewish holidays came late.” Other times it’s that the “Jewish holidays came early.” Some years we’d say, it was an “Especially hot September that kept buyers away.” Or even, “Expect the market to be slow, it’s an election year so people are distracted.” This year we’re singing a different tune. This year we started warning our sellers that it “Might be slowing just a little…” but to our buyers, “If it’s slowing, it’s not really slowing much.” It’s sort of true that there’s been an uptick in inventory nationally. But real estate is local, just ask @DianaOlick with CNBC. It’s phrase she uses a lot. (Search listings here) Our local market for example, has more active listings than we did last month: 7. We went from 223 to 230 – a 3% gain. But really? 7 homes? Compared to last year (333 Active listings) when the market was on fire, we are down 30%! Or 2019 when we had 548 (+57%) or 2018 when we had 634 (+64%) or 2017 when we had 508 (+54%)… yikes.
For casual observers, this real estate market doesn’t make much sense. In fact, most Realtors have trouble wrapping their heads around it. Where are all these buyers coming from and how long can this continue? Over the past month I have moved from predicting an expectation for a return to normalcy, to one of hoping normalcy returns for both the health of the market and the dreams of my buyers. Why the change you ask? Simple really, I’m not seeing a substantive move in inventory and there are still multiple buyers for too few listings. Don’t get me wrong, there some signs of a slowdown like there are not as many multiple offers as we saw in the spring, but multiple offers of any kind are an indication that there’s a shortage of available homes. There are also a lot of cancelled contracts or “Back on Market” listings which is an indication of buyer remorse and doubt. Yet, if it’s slowing down, it isn’t slowing down very much. It’s funny, I can remember showing people homes over a period of weeks and coming back to the one they ultimately decided on and it was still available. And I’m not referring to the Great Recession rather the mid Aughts. So, what or whom do we have to thank for this rather unexpected, continued mayhem? Yes, yes, The Millennials are starting household formation and are the biggest generation ever; and yes, yes, the pandemic has put a premium on space so people are clamoring to get out of apartments and condos; and yes the Fed refuses to stop buying bonds and mortgage backed securities let alone dare I say, raise lending rates. But that’s not all there is. The elephant in the room, and no place is this more acute than in California, is slow growth and lack of single family home construction. Sure, new home costs are high and there are supply chain issues resulting from the Pandemic, but the NIMBY (Not in my back yard) movement that every somewhat affluent neighborhood has been experiencing is driving us into a situation where, as a nation, we will soon have more renters than homeowners. The great American Dream, home ownership, gone for most… the USA, a renter nation. Now that’s something hard to wrap one’s head around. This may sound a bit soap boxy, so allow me to apologize in advance, but go back to the last adage I started this article out with: There’s no greater way to build wealth than with real estate. Without the ability to own real estate then, how does the average Joe accumulate any wealth? Slow growth and maintaining the status quo is leading us down a very dangerous road of ever-increasing inequality; one that will only exacerbate the wealth disparity between the haves and have nots. It’s pushing people onto the street, which in turn means tents under our freeway overpasses and in extreme cases into our own back yards. “Let them build somewhere else!” You say. “I like things how they were!” But consider who you are saying this to. It’s not just our working class and service workers, no, this includes our police and fire, healthcare professionals and teachers, government workers and even small business owners. We are being forced to move farther and farther from where we work. And yes, I do mean we, not they or them. We are pushing our own people away. Steve Lopez (@LATSteveLopez) recently wrote an article about LA Firefighters commuting from Texas for goodness sakes. Sure, there’s a political component there, but none the less, this would never happen in our parent’s and grandparent’s time and wouldn’t now, if slow growth wasn’t the go-to law of the land and close-in residential new construction virtually nonexistent. Ventura County has the slowest most regressive growth restrictions in the entire country, so is it any wonder we don’t have enough homes and prices are through the roof?
In a study released this week, Realtor.com, the online data aggregator and brokerage, estimates we are more than 5 million single family homes short of what is needed to keep up with, yes you guessed it, Millennial household formation. And they say the gap is widening. There’s no answer that will please everyone here. In fact, it’s an almost certainty that the answer will please no one. But as they say, a good negotiation is either a win-win or a lose-lose, so expect the latter. Yes, we are the elephant in the room and to quote the inimitable Walt Kelly and Pogo, “We’ve met the enemy and he is us.” As to what to tell my buyers looking to buy a home in a nice neighborhood? What can I say, except, “Sorry and let’s keep trying.”