Year in and year out spring is Southern California’s strongest market. Spring brings out the most buyers and the most sellers. And May 2022 is no different. Inventory is rising to meet the increased demand.
One way in which things are the same is, as I said, that inventory is rising which is great. Today, the Conejo Valley inventory has doubled from January 1. That’s no small feat, as we went from 90 on January 1 to 188. Hmmmm… doesn’t sound as impressive with numbers that low. A couple days ago I came upon an old blog post from September 2012 entitled “Houston We Have A Problem.”
In it I ask, “What happens if there are no homes to sell?” Mind you, this was written 10 years ago, before prices began their historic rise. Incredibly, I state there were 434 homes for sale… and I was concerned. LOL, right? Today we only have 188! So, looking back piqued my interest to examine 10 years ago and compare to today. The date is May 6, 2012 and the median days on market for a home in the Conejo Valley was 133 while the average price per foot was $266. Compare that to today, where the median DOM is 25 and the average PPF is a $544 (Check out what your home is worth here). Looking at this another way, homes are selling 82% faster today than in 2012 and the prices of those homes are up a whopping 105%! Something has got to give, doesn’t it?
Perhaps you’ve been following @CNBC and have taken notice that the stock market is in bear territory with many tech stocks having lost 50% of their value in 2022 alone! Inflation is running red hot, and is the highest since the 1980’s. There is still a pandemic, especially in China which is causing all sorts of supply chain problems and there’s an ongoing war in Ukraine that is driving food and energy costs through the roof. The Federal Reserve has taken notice too and rates have jumped nearly 2% in the past 2 months. We must be headed for a correction, right? Like you, I have concerns about months to come, but not so much about real estate.
Unlike most assets, the great thing about real estate is that even in times of great economic instability, real estate ups and downs don’t usually affect us. Let me explain.
After you buy a home, you don’t immediately turn around and sell it. On the contrary, you hold it. Whether that property rises or falls over the near term, is only significant if you are forced to sell. And since you only lose money in real estate when you sell for less than you buy, the solution is don’t sell even if prices drop. “Why, you ask?” Why would you? Even if you’re financially under stress, you can always get a renter if you had to. And of course, if past experience portends to the future success, prices will eventually go back up (Find us on social media here). Moreover since buyers today are putting 10%, 20% or more down, even if there is a short term correction, a buyer won’t even be upside down even if there is a substantial correction. So being forced to sell is unlikely.
Another great reason to hold is that real estate is a great hedge against inflation. Remember, a rising tide raises all boats and asset inflation does not exclude real estate. So having your money in real estate is a great place to shield yourself from inflation as well as economic collapse (Contact us here). As long as you can make the payment you’ll be fine, but even if you can’t and have to rent to someone who can, you can’t get hurt by real estate as long as you don’t sell for less than you paid.
Back to our concerns about an eventual correction in real estate values; are we on the precipice of collapse? Simple answer, no. Why? Too many buyers and not enough sellers. That said, there are rumblings; little things that pros like me can detect that suggest, the peak may have passed but that doesn’t mean a collapse is imminent. On the contrary, I don’t foresee a tangible drop at all rather that a plateau should be expected and perhaps from there some give and take on pricing.
Yes, it costs more to buy today both in borrowing costs as well as sales price, but there’s still too many buyers, in too strong a job market coupled with not enough housing, to prompt any of us to panic that we are ready to repeat 2008. No, that ship sailed and while there are some signs things are slowing, by no means is it slow.