I wrote a couple months ago that this was a seller’s market, and the buyer’s just don’t know it yet.  And today’s Case Shiller report suggests there may be changes afoot in our housing market: it may be heating up.  I suppose most will attribute this to the decline in interest rates, which is traditionally a catalyst.  I’d like to suggest something different.  I’d like to suggest, wait for it… it’s a supply and demand issue.  There’s an old saying many have attributed to Mark Twain, no not “Buy land because God ain’t making anymore,” though that is a good one; rather it’s ‘Figures won’t lie, but liars will figure.”   Let me explain.

Case Shiller’s numbers of course are backwards looking.  When a market is in decline or slowing, those figures are behind the actual changes.  When the market is accelerating, well it’s also behind the times.  In other words, Case Shiller is helpful but old data.  So Case shows us today, that over the past month the closed sales from contracts written back in July and June (30-60 day escrows), were slightly higher in price than the previous month.  From this they draw the conclusion we’re heating up and suggest the decline in interest rates since the first of the year may be the reason why.  The figures don’t lie, prices are up a little.  They did note however that the big cities of NY, SF and LA showed little to no gain, and Seattle actually declined.  A mixed bag as it were.  Good if you live in Tampa, Phoenix or Charlotte and a “Meh” pretty much everywhere else.

In my business, I sell throughout greater Los Angeles and Ventura County (Contact Tim Here). And like any large metropolitan area, the data varies wildly from town to town, neighborhood to neighborhood.  Since I tend to do most of my work along the LA/Ventura line, I’m going to use that data as I’m most familiar with it.  Specifically today, I want to use Calabasas to make an example.  Many of you may only know Calabasas as where the Kardashians started, but it’s actually a really interesting place to call home.  Being that it is the closest east you can live but not be in LAUSD, it has a certain panache.  Great schools and big homes, many behind gates, will do this for you… Calabasas and the adjacent celebrity filled horse property community of Hidden Hills isn’t very large to begin with, so it doesn’t take a whole lot to bend the data.  If I were a lying figure bender, to channel Twain, I’d point to the fact that there are a ton of homes in excess of $2M and based on the absorption rate of 11.8 month’s inventory, it’s a buyer’s market.  Pretty hard to argue that.  Looking at all over $1M that figure drops by more than half to 4.8 months, still a buyer’s market per California standards.  But when you look more closely you find that in the $1-2M price range, inventory drops down to 2.1 months; clearly a seller’s market.  Even more dramatic is the fact that out of 139 active listings, there are only 38 under $1M which equates to less than 2 months inventory.  Yet, when we look at those $1-2M listings we find an average cumulative days on market of 74 and average price reduction of that active inventory of nearly $200,000.  Huh?  With those numbers we have to wonder:  Is it really a seller’s market, because if so, why are some homes just sitting?

Here’s the deal, and this is true across most of the markets I work, there isn’t a lot of inventory, but the inventory that is available is not what the buyers are looking for; at least not at their current listing prices.  For this reason we are seeing substantial price reductions and extended days on market.  The supply is not consistent with what is in demand.  Circling all the way back to Case Shiller however, things may be heating up but I’d suggest not because of interest rates. (Search for homes here.)

I am noticing a two-fold shift.  The first is that inventory is in decline.  This is seasonal and of little surprise, unless you are of the “we are heading into a real estate correction” camp where you’d actually expect an increase in inventory as demand wanes.  But it’s not, and for this group the declining inventory is a surprise.  The second thing I am seeing is that buyers are actually writing offers, low offers, and sellers are actually taking that opportunity to negotiate and are accepting far less than their asking prices.  This is what I’ve been counselling my buyers to do: write an offer you think the property is worth regardless of asking price and see where the seller is at.  That’s what you do when a home is sitting and appears to be grossly overpriced.  This is in contrast to waiting for a price reduction.  Some sellers will be insulted and not respond, but you’d be surprised that many are coming back with substantial price concessions.  But here’s the rub, while I’ve been encouraging my buyers to write, guess what?  Others are doing the same thing and as a result homes that have been sitting and sitting, are suddenly in multiple offers, because the sellers of the overpriced inventory are negotiating and making deals.  One house we wrote $200K below ask, then the seller countered $110,000 below ask.  We were told it might even go for a little less, but then another offer came in above us and game over.  This has now happened on 3 offers in Calabasas in the past week for two different buyers.  Prices are correcting but that’s pouring fuel on the fire of an already tight market.

If you actually read this far, bravo, I’ve thrown a lot at you.  Here’s the thing, if inventory is declining and overpriced sellers are finally coming to the table and negotiating and those units are being absorbed, in the absence of substantial new inventory and in the face of steady demand, guess what’s going to happen?  Just as Case Shiller has suggested, the market is heating up and that means prices will rise, because the numbers don’t lie.

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