GLIMPSE Into the Future

Yes, that's right, everybody, we have a glimpse into the future. What are those rare moments when the data gives us some insight and some context about what we can expect not only in the months coming ahead, but maybe even in the years ahead. Let's go ahead and get started. So thanks for joining us. My name is Steven Mead with domicile real estate real estate for people who love houses.

This is our Southern California Housing Market Update, we're going to run through some stats, we're going to talk about something really important because there's really one chart that just stands out this week. And then we're going to talk about what this means if you're a buyer, a seller or a buyer and a seller at the same time. So let's go ahead, we're gonna jump right into the stats. So taking a look here, at our first step, this is total active listings.

Exactly what we predicted would happen two weeks ago is starting to happen. And we see that that data is flattening out. Why am I scared about this? Look at where we were last year was 6000 homes under a million dollars. Right now we're just over 4000. We are near the low point from last year. And that's how we are starting off the spring. Similar situation here maybe a little bit better on our one to 2 million categories. Again, this rally in Orange County's new listings, guess what, this is exactly what we predicted it was merely a response to that end of the year drop. Now we are back and we're right in the same zone of the number of listings, we've always kind of had coming in line maybe even a little less this year than we've had somewhat in years past.

Hopefully that number will grow a little bit it did grow last year, kind of cresting in the summer here, same store and one to 2 million new escrows way, way up. Though these have not flattened out they didn't drop down nearly as much. So you can see where we're going. Right new listings has totally flattened off. New escrows. They have not flattened out right, they are continuing to grow. That is a recipe for a skyrocketing absorption rate, you can see over a million we're headed to 90% We are back over 70%.

For this one to tune in, I expect that these numbers will come back into this range really kind of maybe even hitting into the 90s. We saw that last spring, I don't expect this spring to be any different. This is our three way chart. Again, remember, this shows at the 25th percentile entry level, medium and 75th percentile prices. But this data is old. This is four to six weeks old that is based on contracts in the past kind of interesting seeing this number kind of going down a little bit. But remember, this is stuff this is the end of December contract negotiations, not beginning of January contract negotiations. percent still active after 14 days. This is another one that is showing a sign of a market that is getting more competitive. This one kind of puzzled me a little bit are listed close ratios dropped. I mean, there is a natural fluctuation but actually being under 100%.

We haven't really seen that since last spring. I think this might be a sign either that some sellers are getting overly optimistic about the prices. Remember, this close to list ratio. This is a function of where buyers think houses should be worth and where sellers think they should be worth. So this is kind of that relationship between what buyers think and what sellers think. days on market for new contracts, taking a nosedive already shorter than we were at this point last year. I think that is a harbinger of things to come, no surprise. And then we have what I really want to talk about this week. So this is probably my personal favorite chart, because I think this is very important to understand the way some of our forces in the market work together.

So this is our affordability of a median priced home indexed back to June of 2018. So gosh, that is almost six years ago now. And what this compares to is a payment index, which is the medium priced home at present interest rates. The CPI index, which as you might expect is the consumer price index.

You can see that kind of over time and then the yellow one this is kind of the secret sauce right? The yellow one is the rent index, and this is the median rent on a single family home. So what you notice here is you see as these grow times we started these all off at a 100%. So this is all relative back to then you see that there's kind of a bit of a natural gap between renting and buying. And honestly, this makes sense, right? You know, it has become more difficult to O'Mahony, but there's a certain gap, right? That we see. And when that gap gets really wide, it tends to come back together.

But we've had something rather dramatic happened. Look at this rent index. And this is what's providing a glimpse of the future. So we were going to title this, doing nothing is not an option. But I didn't think anybody would click on it, because that sounds kind of like bad news. But the reality is, this is the doing nothing is not an option chart. Because you might think that by staying out of the market, if you're a buyer and doing nothing, that you can just keep enjoying the situation that you've had. But the reality is that you can't, because your present situation, if you're renting is also a dynamic one, right?

Like, Nothing stays the same forever. By looking at how fast this has jumped up, I think this might be a temp, temporary, kind of a bit of a new year spike, we might see this ease off and look at how close these are together, we are almost at a point where the payment in rent, and the growth and the payment to buy have grown at the same rate over the last six years. That's crazy, right? Because you would expect in fact that the payment index might grow faster, because these people have all made money on their houses, right? Like, there should be a premium for doing that. And yet, there isn't right now, what this tells me is this gap is too narrow, right? And there are gonna be forces to spread this gap apart. Now, how does that gap get spread apart? Well, rates can go down.

And I think this is a little bit of a reactionary rent increase. But when we look at on our charter, there's a pretty big increase. This is a bit of a reactionary increase. So maybe ease off a little bit, but also see what's the other way that we can kind of get a more normal looking gap between these two things? Well, the more normal looking gap, right would be for this payment index to go up. And there are two ways for the payment index to go up, rates go up, or prices go up. We are standing on a spring with very limited inventory, what do you think is going to happen? And so when I look at this, this is just yet another sign that says we're going to have a very, very brisk spring, there's going to be something that will reconcile how close these two have gotten here, this payment index, and this rent index, it is not normal to have them be that close. And something is going to give on that. And I think honestly, a lot of this is going to be that there's a lot of room for that payment to increase.

So knowing that, by the way, actually, I think we forgot to do our to take a look at our interest rate here. So let me do that. Guess what rates rose and then they peaked and they kind of came down and then kind of leveled off and sort of the sixes don't think if you're a you know, if you're in a jumbo category, you can definitely get into the low 60s, high fives are able to pay points and take something like a seven one arm that's out there. I've seen it. Okay, let's talk about if you are a buyer, if you're a buyer, I don't think there's any good news that comes from you waiting, I think you should have bought in December, but we don't have a time machine. So the next best thing you can do is jump out of the market. Now, if that makes sense for your situation, right? I don't know about your job. I don't know about your family situation. I don't know about all these things, right. But in a vacuum, if we're just looking at the market, I'd say Now's not the time to sit and wait. And I feel even more strongly about that today than I did two weeks ago when I said the same thing.

Or if you watch our first time buyer market, what we said last week, I still totally believe that. Now, if you are a seller and just a seller, meaning you're not buying another property here in Southern California, I think for you, this is going to be a game of timing and it's going to be a game of scarcity. If you can do anything to make your property more of a rare commodity, meaning if you've got an extra large lot, if you have a particular architectural style, if you've got some other unique feature that you can emphasize, do that. I think the mindset of buyers here in the next say 30 to 90 days is going to be a little one like hey, we let you know the one like that come up again, we're going to need to do something now and not wait so you can take advantage of a seller of that I do not want to wait philosophy.

Now if you're a buyer and a seller, a seller and then you're going to turn around and buy something else. Again, you kind of have the situation where if you you know, you want to be opportunistic. You want to maximize what you're getting on the cell and make that progress as a trader as possible and then turn around and look for the ugly ducklings. I think that's really going to be a way to kind of arbitrage your situation to sort of take advantage of the best on the sell side and take advantage of the worst. On the buy side. I think a smart buyer is going to develop that kind of a strategy.

Okay, that's all we have for you this week. Remember Doing nothing is not an option and we hope we've given you that glimpse into the future. Please do like subscribe and hit that notification bell. And once again, comments and questions. We really do love those and if you'd like to work with us if you're a buyer or a seller in the Southern California area, especially Los Angeles and Orange County's definitely reach out to us we would love to work with you love to lend you our expertise. Thank you so much for watching. We will see you again real soon.

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