Is Cash Ruining SoCal Housing?

Hello, and welcome back. I think our title says it all our cash buyers ruining home buying here in Southern California, stick around, we are going to discuss that and more. Let's get started. My name is Stephen Meade. I'm the broker here at domicile real estate, a real estate brokerage located here in Southern California real estate for people who love houses. And we're talking about our whole Southern California market update today.

I'm trying to give an idea of what's happening, letting you know what's going on, and really a topic that has been kind of brewing for quite some time. And we're seeing it in the results. The Question one is, do I think cash buyers are ruining home buying? No ruining is maybe not the right word, very strongly affecting, I have a theory and I believe they are and we're starting to see this in our data. And in our results. Let's go ahead and get started. And I will tell you and show you what I am talking about. Okay, so we've got our screen share is being a little bit problematic here, but I can indeed fix it.

So just give me a second here and I will get that fixed. And we will get that set up. Give me a second here. I think I know what I've got going on. So perfect. Just bear with me one second. We're gonna edit this out probably in our YouTube version. All right now I think we are in a good spot. We can do this. There we go. And now we actually have our stats here. So let me explain why I think cash buyer is having a profound effect on home buying right now. So starting off, let's go with some good news. Right. I always like starting off with good news.

Good news is our inventory picture is better than last year, homes that are a million dollars, about the same number and rising and one to $2 million homes actually a decent maybe even we'll say like a possibly a 10% improvement over where we were last year. This is good news. If you're a buyer in this market, it's something to celebrate. However, all is not entirely Well, look at what we've got going here. We had a big jump in listings both in affordable entry level properties. And then as well as in those one to $2 million, kind of move up next level type properties. Right.

This is for LA and Orange Counties. This records the new listings in the last 14 days. Good news, both of these numbers are better than we were at last year. Bad news is both of them are showing signs of kind of petering out. And it looks like their peak numbers may not be that much better than last year's peak numbers imply perhaps that what's really happening is that spring is just here a little bit sooner. We're just seeing that uptick in inventory that jumped the new listings just came a little bit sooner than it did last year.

New escrows This is our first sign that we actually have some market movement, right. I think if you would ask anyone, you over the last year with interest rates going up, what did they think was going to happen in the housing market, they thought there was going to be an adjustment, something that would favor buyers, but there hasn't been nearly the adjustment that anyone expected. And we can see that in these results here. These are the new escrows that have come up in the last 14 days. So this is the number of homes that have gone under contract. If you look here, under a million dollars, that number is rising.

But if you look here under one, one to $2 million, not only is that number rising, it is rising more quickly. $301 million number and it is quite a bit higher than the number last year by quite a bit higher. I mean, we're talking like almost a 50% increase. So what gives, who are these buyers? Where are these buyers coming from? And just to clarify here, when we're talking about cash in the marketplace, we're not specifically talking just about cash buyers, right or all cash buyers. Historically, those have been a lot of investors right coming in, especially with foreign money. We're seeing not only we're seeing those buyers are still out there, we're seeing a new kind of all cash buyer.

This is the owner occupied cash buyer, or the buyer is a pseudo investment cash buyer, right. So that might be somebody who is buying a home for their kids to live in while they're going to college. Right. It's an investment, but not exactly. And then the third way that we're seeing cash really kind of entering our marketplace is we're seeing it in downpayment assistance. And this also has a profound effect on our market, right? Like if you are a homebuyer, for example, and interest rates have gone up, but you are able to double your downpayment with essentially money that is being given to you.

Right, that that really mitigates those heightened interest rates and lessens the effect that that would have on the market. I think that's why we are seeing especially in this one to 2 million category, we are seeing a lot of cash, maybe, you know, where's this money coming from water I think this one is coming from, I think a lot of people are realizing stock market, you know, is having a great run, but maybe it's time to diversify a little bit. Real estate is scarce, they are not making more land, single family homes are becoming scarcer. Essentially, I think we're starting to see some people doing that cashing out their RSU units when they're available for sale, we're seeing a lot of those things factor into the so number one is we're seeing this huge growth in new escrows in that upper price range, which is a little unusual, given the market conditions.

Now another reason that I think patch is starting to play a factor in this market, is if we look at our absorption rate here, if you look over the last year, there's a pretty big difference historically a year ago, between the absorption rate of those under $1 million properties and those one to $2 million properties. And I think this is attributed to a lot of the cash that is coming in, is coming in and sort of those either buying it for our children as a gift outright giving them additional down payments, all of those things are pointing to kind of more of fluid buyer purchases. These are not strictly investment, cash buyers, right? These are cash buyers with a purpose, even when they're merely just contributing money for that downpayment and look at what has happened.

Look at how this gap in demand has narrowed considerably between under 1,000,001 to 2 million, historically, that one to $2 million market is a slower market, and yet it is not acting like it right now. Finally, if we take a look at our closed prices, right? If anything, you see that that market of the last year was pretty flat. And then now in the last gosh, maybe since about last four months or so, look at what's happened. Bigger gyrations and the trendline is definitely up in that 75th percentile. First, we see our close price trend lines are up for both the median here as well as for the 25th percentile, kind of our entry level segment, as well. So guess what, what's happened, what we predicted has happened, prices are up everywhere over last year.

Now if we look at the still active percent, right, we see another interesting effect. Historically, there has been a divide between under 1,000,001 to 2 million, that under $1 million market has been more competitive. Remember on this chart, lower means more competitive, and look at what's happened since gosh, probably about the end of November of last year's look at how close these still active percents are for both of these market segments. Being that one to $2 million market get more competitive, has been very, very interesting to watch and wondering, what is fueling that extra level of competition, I think it is cash entering the marketplace. And then if we look at our list to close ratio, again, we see numbers that have been largely similar, this may be a momentary jump, but look at this heading towards 102%.

On that over, over what are that one to $2 million dollar category versus that under 1 million category. This means buyers are bidding up what kind of buyers can more likely afford to bid up a transaction, especially those all cash buyers because they do not have to get an update and obtain an appraisal. And then finally, if we look at our days on market for new contracts, again, typically, we do see a little bit of separation. These are definitely coming together again, and we're seeing even this upper price range. We're seeing this stick right around that 30 day mark, this is still a very competitive market. And if you're wondering, rates are up, they've remained up, the Fed is saying they're not going to drop as fast as anybody said, Why are we seeing such a competitive market still existing? That's it.

And then finally, we take a look here at kind of our three way chart. This is one of my favorite charts. I'm a huge fan of it. We've got red, which is our CPI index, right? And this is all trending back to June of 2018 trending back there, we see that that inflation numbers come up this kind of yellow marker, this is our rent index. And you can see this is absolutely trending up as well. We do have a pretty heightened gap here. You know, normally we'd like to see this like a 20% gap. And you'll see there have been times when it's widened quite a bit in fact, at what point last year when rates spiked. It was very, very wide.

Why are we seeing this gap kind of remain in this kind of elevated state? Well, the big reason that we're seeing that, I think is again, that that cash is really mitigating the effects of interest rates is lessening, whether it's a buyers all cash, and they really don't care about the interest rates, right, they can take a cash out refinance at a later date. Or if that's just somebody who's getting an additional down payment, both of those mitigate the effects of higher interest rates on the market. Yet, the one thing that really is not affecting, or that is not being helped by all the cash in the marketplace, is the number of sellers coming onto the market, right? That additional cash increases the number of buyers who are in the marketplace, that does not increase the number of sellers. And that is why we're seeing kind of a pretty big disparity between that payment index, and that rent index, all these things are contributing, as you can see, under prevailing mortgage rates, you know, they kind of spiked back up a little bit, and then it kind of leveled and slightly decreased.

They're really just hovering under that 7% level. I think that we've got, you know, what's really happening with that, I think we have a lot of buyers that are kind of on that wait and see approach about this. But we're seeing more and more of these buyers getting tired waiting, saying, hey, this could be a while. I don't want to upset my life plans, our family plans, all of these things. We don't want to upset those for an indeterminate amount of time.

We're just gonna go ahead and move forward. And if rates drop Great, we'll be able to lessen the payment on that house. If they don't drop. We're just gonna get into the market so we have something and a hedge against those rising home prices. Anyhow, thank you so much for watching. Do you think cash buyers are ruining home buying here in Southern California? Right in the comments below. Questions, comments, as always, we love them. Don't forget to like subscribe and hit that notification bell. And of course if you are looking to buy or sell any real estate in Southern California. Absolutely. We would love to chat and help you and lend you our expertise. Thanks so much for watching. We will see you again real soon.

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