If you’ve not had the chance to see Netfilx’ Stranger Things, you’re missing out. It’s a fantastic show.
If you have seen the show, you know that it revolves around the premise that there exists a parallel but alternative universe filled with darkness, bad things and monsters. Where once inside, a person can become trapped or worse. This is a lot like the current state of the housing market in Southern California, or at least it feels that way.
If you are a home buyer, you are looking at the housing market with a very wary eye. Seems like prices are too high for what you get; homes have risen in value much faster than your income; sellers are generally myopic about the true value of their homes and darn it, the correction and possibly recession are coming. Oh yeah, and the selection of homes in your price range generally sucks. Price reductions are regular and in many cases, quite substantial, which further reinforces your opinion that the market is correcting. There’s no doubt in your mind, this is a buyer’s market. But wait…
How can you have less than 3 month’s inventory (which we have here) and be in a buyer’s market? 3 month’s is the tipping point in California between and a buyer and a seller’s market according to me (Check Out My Newsletter here) and NAR says it’s actually 6 months which must be true nationally. Therefore, at less than 3 months, by any measure or any metric, this is a seller’s not a buyer’s market! And yet…
Homes are sitting unsold, but inventory is low, what the heck is going on? Back to Stranger Things and the alternate universe… it would appear, we are in an upside-down world, where low inventory (supply) is not driving the pace of sales nor price of the homes sold higher, rather it’s the lack of buyers (demand) that is pushing them lower. But if the economy is strong and unemployment is low, then it must be a seller’s market. If it’s really a seller’s market or at least on paper anyway, why are interest rates at near historic lows? A 30 year fixed rate mortgage in December 2018 would have cost you 5% while today, just 8 months later, it’s at 3.5%. Clearly the bond market is signaling a recession or an economic slowdown, is forthcoming. Yet unemployment is at 3.5% lowest, ever. Many retailers (not mall retailers) are reporting strong earnings and growth, indicating a strong consumer and the stock market is near its all time high. It is indeed a world of contradiction. Just last week I showed a relocating client (Contact Tim here) no fewer than 20 homes spanning from The Hollywood Hills to Ventura. We drove 285 miles in a day and a quarter. We ultimately found a place that had reduced over $200,000 in Woodland Hills, wrote an offer and he bought it. And although I was able to find some pretty cool homes in certain areas of Los Angeles, I was not able to show him a single home (up to $1.4M) in Toluca Lake, Studio City, Sherman Oaks or Encino, that wasn’t under the freeway, backing the bus line, on a major thoroughfare where backing out of one’s garage at rush hour was an impossibility or in some form of disrepair. (Click here to find your dream home) They were all on some lousy street or undersized or in mediocre condition for the price. For those of you who don’t know this area, there are literally thousands upon thousands of properties we could have seen had any of them been on the market, but there were few available. This is a real estate market where buyers can’t find homes because inventory is low, yet prices are declining. Why? Because the product that is available, no one seems to want at their current list price. Meanwhile sellers ask, “Why am I not at least getting an offer?” And this after reducing their price several times. But this may be changing.
The showing volume on my listings (Check out my incredible listings here) has just this week picked up a bit. Some of this is undoubtedly due to school starting and August (the worst month of the year for selling homes in So Cal) is rapidly coming to an (thankful) end. Or perhaps it is this simple fact: when there is a shortage of supply, the existing inventory reduces to a point where eventually supply gets bought up and as that happens prices will firm and then rise. Because despite what the buyers say or do, at some point the basic economic tenet of supply and demand takes over and the buyer that writes the offer and gets the nervous seller to accept an offer less than they thought they’d ever consider, will look like a genius.
Yes, this is Stranger Things alright, but just as with the show, eventually reality is bound to set in.
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