The headline of today’s Los Angeles Times Business section reads: 1 in 3 L.A. County home mortgages is underwater.  It could just as easily have read: 2/3 of all homeowners have equity, but that doesn’t sell as many papers.  The article correctly identifies what we in real estate have known all along: California’s inland cities, communities and neighborhoods are bearing the brunt of the real estate downturn.  We have known for months, that low inventory will be the key to recovery and that the coastal areas are well on their way.  Those interior communities like San Bernadino, Onterio and the Central Valley, are still way over built.  Areas where new home development ran rampant during the housing boom, still have too much supply and the only tightening of that supply is coming from cheap houses that investors are scooping up.  The average homeowner in these communities is stuck.

By contrast, many markets are in a full blown recovery.  Interest rates are ridiculous with the 30 fixed yesterday as low as 3.625% at zero points!  Foreclosures are down and distressed properties are making up an ever smaller percentage of the inventory.  Our area for example, along the Los Angeles/Ventura County line, is seeing an almost unprecedentedly short supply.  The number of homes under contract is rising monthly and currently rests at nearly 57%.  Sales are up 16% while inventory is down 42%.  In fact you have to go back to 2004 to find inventory levels this low.

What is fueling this dramatic drop in inventory?  The Times points out that the “negative equity loans hinder the move-up market.” by “breaking the chain” of the entry level buyer selling after a few short years and parlaying those gains into a new, larger home.  What negative equity is doing therefore, is slowing the ability for people to sell one property to buy a larger one because the would-be-sellers don’t have enough equity to jump into the next level home or make the “move up.”  The effect of this is tight supply.  Why?  Because fewer homeowners can’t sell to move up, they don’t sell.  When homeowners don’t sell, we get a tight supply like now.  The good news is that a tight supply leads to rising prices which we are already witnessing in the sub $700,000 range and higher prices means better equity and eventually we climb out of the hole we’ve dug for ourselves.  The irony is guys like me (predominantly listing agents,) are finding it increasingly difficult to find listings, so if you are thinking of selling, call me, I’ve got loads of marketing not being used by other listings just waiting and ready for you!

In the mean time, our market remains hot as a pistol.  And should the jobs picture continue to improve and the economy along with it, we should be able to see the negative equity numbers recede like the sea at low tide.  Welcome news indeed.  So raise your glass which really is half, or should I say 2/3 full, and let’s toast to the housing recovery, it’s about time.