All’s quiet all right; quiet on the Western Front, Eastern Front and everywhere in between. It’s so quiet in fact that most Realtors are quietly freaking out. Typically at this time of year real estate activity slows a little do to Father’s Day and graduation. But we are coming out of a spring season that has seen an unprecedented drop in inventory coupled with an increase in sales – yes they are related – and that combination has created an environment that almost defies explanation. How is it most Realtors are asking, that suddenly everyone wants to buy (low rates maybe, perhaps an improving economy?), yet no one wants to sell? As I blogged sometime back, this bodes well for builders who have the ability to create inventory, but that doesn’t help Realtors in areas where there is no new construction, like the Conejo Valley.
So what’s going on? In looking at the numbers along the Los Angeles and Ventura County border, what stands out is that the inventory is even tighter than the raw numbers suggest. Our local market inventory is 60% lower than 3 years ago and effectively lower still because 45% of that inventory is made up of homes priced over $1M. Heck 10% of our inventory is in the exclusive community of Lake Sherwood! However, only 7% of all homes under contract are priced over $1M. In other words 93% of sales are under $1M but that inventory is only 55% of the listed homes for sale. Thus our already negligible inventory is effectively halved because only the bottom half is selling. Simply put, we have virtually no homes to sell, and those that we do, sell quickly, many with multiple offers. In the case of the upper end, however, the homes are sitting. The high end is still suffering a financing crisis where jumbo loans take 60 days to close and the rates are substantially higher than those available to conforming and high balance conforming borrowers and are much more difficult to qualify for.
What’s this mean? Trouble for Realtors for one thing. The dearth of homes to sell means we Realtors are scrambling. My phone has never been so quiet. It went from a booming spring to a quiet one seemingly overnight. Buyers are frantic, trying to take advantage of low rates, but can’t find homes to buy. I have been speculating that sellers were not selling for several reasons; lack of equity to make the move up; lack of inventory to move to and lack of equity to sell at all, being that the many sellers remain under water. Yet none of this explains the silence of the phones. For years now I have been meeting homeowners only to have them conclude they didn’t want to sell. But at least they were calling. I have had just one call for a listing in 2 months. My lenders report their purchase pipeline is declining and we see that pending sales are declining month over month along with the inventory. Clearly something has to give.
So what’s next? Darn good question. I have to assume at some point the phones will light up as we get into summer and sellers realize they have an opportunity to sell for a little more than in years past. At present I estimate prices are up about 3% over the past few months here in the Conejo and by every measure some gradual appreciation should continue. Appraisals however are constricting appreciation and remain a problem. Appraisers look backwards to comparable sales data, but with prices rising, adjustments have to be made to account for a seemingly similar home selling for a little more than the one down the street. It’s called a rising market, as contrasted with the discounted approach the lenders have been using for the past several years, called a “declining market.” But change comes slowly and those adjustments are being frowned upon by the lenders and in some cases tossed out upon review. I just had a deal fall apart over a 3% selling sales price increase over the comps because the appraiser didn’t make any rising market adjustment. Therefore, the lender won’t lend on the shortage and the buyer was unwilling to come up with the additional money to bridge the difference and the seller unwilling to come down… Result? deal dead. As for the trend, it’s like Dylan sang, “The times they are a’changin’,” and ooo-baby are they ever.