Going Backwards, AGAIN
Hello, everyone, and welcome to another episode of our SoCal First-Time Buyer Market Update. My name is Stephen Meade with Domicile Real Estate, where we are on a mission to help California's renters become a homeowner. So if that is you, or if it is anyone that you know, definitely recommend this video. So what did we put the title on this? Are we going backwards? Again? And I think the answer to that is yes, in terms of what is good for first time or entry level buyers in our Southern California market. And why am I saying that?
Well, we saw some improvements for these buyers. And now it looks like two weeks later, we're going backwards, we're taking some of that away. And I think I have a reason why that is happening, a theory that I believe even more strongly in today than when I first offered it up probably about six months ago. And that is that when we ever we have an interest rate, Bob, there is a period of time, usually two to five weeks, where buyers are a little bit shell shocked are a little bit unsure. And that creates kind of this environment of a soft market for those two to five weeks, then people really recognize the new normal, and things start to get competitive again. And I have another reason for that, too, that I'm going to talk about as we go through everything.
But let's go ahead and get started. So we are looking at our closed prices. Now remember, again, that these are prices based on transactions that were negotiated right, negotiated four to six weeks ago. So on average, this date is five weeks old. And what we do is we try to take a look at something that approximates that entry level into the market. And the reason why we do that is because entry level buyer dynamics are often different than other whole market analytics. And so what we've done is we've looked at kind of a mythical three bedroom, two bath home, which is here in the blue line and an entry level condo, which is a two bed two bath here by the red line.
And what we do is instead of looking at the median home price, right for LA and Orange Counties, we look at the quartile. And basically, if you had a ranking of 100 homes that have sold from least expensive to most expensive, a median would be the 50th most expensive home. And the first quartile would be the 75th marks most expensive is just kind of halfway between the bottom and the middle. And as we look here, we've actually seen a little bit of relief on this entry level side, right? Like we've seen prices, they kind of came up here from that 690 right towards being in the year and they're kind of bumping on a ceiling a little bit. And we've also seen a leveling out here on our entry level condos.
Now bringing this to a point of relevance. Right, let's go take a look at what are the payments that we're looking at on this. And remember, we calculate our payment based on 5%. Down. This includes mortgage insurance includes property taxes, and HOA fee in the case of our condo, so we're at 6207 for that entry level, single family home and 4983. For that entry level condo, those numbers might sound really scary. But remember a couple of things that are important when comparing this to rent. Number one, most important thing to remember is that these payments include a decent amount of principal reduction that is money that is going to reduce the loan amount, think of it like a long term savings account, like giving money to your 401 k.
The second thing to remember is that if you can qualify for a $6,207 a month payment, there's a very good chance you are beaten up being beaten up pretty heavily on income taxes without enough deductions. So you will have some changes to your tax liability potentially significant changes that might even up to $1,000 a month. So you know definitely bear that in mind when looking at these numbers. Now if we break this down to what kind of income is required for these payments, right? If we look at this, we're around Gosh, just a little bit over 150,000 is the required household income for our entry level single family home assuming no other debt and $122,000 for our entry level condo. Remember though this is based on 5% down if you're a hired helping the buyer, obviously your income qualifying will be less and remember this is based on a household. So for example, this could be one person making $100,000 a year and another household member making 60 that would qualify you it could be two household members making $80,000 a year.
Obviously there are a lot of different permutations on that. But let's shift gears and talk a little bit about what is going on in the market and why we're saying that things are going and backwards and not in a good way necessarily for homebuyers and what we think is going on. So if you look at this, this is our absorption, right? Right, this is talking about the rate that homes are coming onto the market versus the rate that homes are leaving the market by way of going into escrow. And if we look at that any number above 80% is a very competitive market, we see that entry level single family home is shot back above 80% here and kind of gone up and our condo market is leveled out a little bit, but still in a very competitive 77%. You know, I think many people would have thought the interest rate bump would have pushed these numbers down. Why didn't it do that? Let's go on to share here and kind of talk about this as an aside Why? Why is it that the market is not softening like we think and my theory on this is that we have a number of buyers, I'm going to call them shadow buyers, because that sounds really cool, even though, to be honest, there's nothing not spectacular about them.
These are people right, and let me back up a second. When economists talk about demand for housing, what they are normally talking about is people who are in the streets with money in the pockets, driving around looking at houses getting ready to write offers, right, and that is one measure of demand. That's the obvious demand, right? People who are out there every weekend going to open houses they are writing offers, they are planning on buying a house. But there is a second group of people that is gigantic in our market right now. And that second group of people are what I call the shadow buyers or shadow demand. These are people that are just on the sidelines, right? And should there be any softening in that market, those people are going to rush into it, right to kind of pick up the slack. And I think that's what we're seeing happening in this market.
The second, there's a little bit of softening, there's this group of shadow buyers ready to start coming in to keep that marketing from softening very much at all, and it's kind of propping things up. So I think that's the reason why we're seeing kind of this effect where you'll see interest rates go up, and we don't necessarily see a big drop in realized demand. So if we look at our total inventory, that kind of is another clue and what's happening right here. So if you take a look, where were we last year, right? This was the beginning of the decline. But a couple of weeks ago, we had a nice little bump, about a month ago in inventory, I mean a bump up here for both our entry level single family home and our entry level condo. But those bumps unfortunately have not been long lived, they are now fizzling out and starting to reduce. If you look here, we kind of skate through the early fall. And then as soon as we hit November, things just really kind of decline until they pick up in the new year. That tends to be how our inventory works.
We never got much of a big gain this year. And it looks like we're starting to turn that corner for that gentle decline, which deepens as we get towards the end of the year. I wish I had some better news on that front, but I don't. So you know, what, what's the overall message? If you're a buyer here, I think if you're sort of waiting for this magic moment where it's suddenly gonna be easy to buy a home, I don't think that's coming. By the way. Funny interaction on Facebook earlier today. Someone mentioned, wow, back when interest rates were lower, they could have afforded a home, maybe they should have bought a home 40 years ago when the interest rates were more affordable.
Well, guess what, wait until the end of the video, I've got a little funny, second part of that story that I am going to share with you. So we take a look at our 14 days still active. That's kind of another measure of market competitiveness, lower is more competitive, guess what? We have not softened where we were last fall. So even though rates are where we were last fall market conditions are not. And that is why we're not seeing kind of the wholesale price reductions that you might expect to see. And then finally, we've got relative demand, right? This is measuring, you know, if we, if we said and suppose that no new homes came on the market, how long would it take to run out of the houses we have?
A lot of times the car business they call this days of inventory in the whole business we've measured weeks, but we are five and a half weeks for our entry level single family home that is actually declined but still a little bit higher than it's been through the spring. So there's a little bit of relief. there if you are a would be homebuyer and our condo, we've got a decent amount of relief here at just under seven and a half weeks. We haven't seen those numbers. Since February of this year. Of course, it's still not nearly as good in terms of inventory as it was last fall where were we last fall on October 10 and nearly 12 weeks of inventory respectively for those single family homes and those condos.
Okay, so I told you the first part of a story, someone on Facebook mentioned wow, I wish I would have bought a home when I could back four years ago when interest rates were more affordable. Well, guess what? I have some news today where our interest rates a 30. year fixed is around seven and a quarter to seven and a half percent, we'll say in the low to mid sevens, where we're interest rates in 19 8340 years ago, well, in 1983, the average mortgage rate for the year for a 30 year fixed rate mortgage was 13.24%, nearly double what it is today. So there's two lessons to learn from this. One, things could be way worse. So if you're a buyer saying, I don't know how they can get any worse, while I've got news for you look back through history, but ways they in fact, can't get worse. But the other thing is to have a little bit of a sense of perspective, as well.
And understand that while I'm not exactly enthused with rates that are over 7%, I also know that this is not a situation that will last and in the grand scheme of things, it is probably not really that bad. By the way, just to let everyone know, less than a decade after those 1983 rates, they were significantly lower in the sixes, you know, over going in the half so things do get better. If you are a person who is out there thinking I would like to someday own a home in Southern California. I'm guessing that a lot of you for watching this video or if you know someone that should be thinking about buying a home, we would love to connect with you. There are links down below in the description for you to go ahead and do that. Don't forget to like subscribe and hit that notification bell so you know when we have new videos that come out, and questions and comments. Of course we love those too. And thanks so much for watching as always, and we'll see you again real soon.