Is This The New Normal - FTHB Market Update
Hello, everybody and welcome to a another Southern California First Time Buyer Market Update. My name is Stephen Meade. I'm the managing Broker here at Domicile Real Estate. I am actually in Sacramento right now I'm up here for costs, you know, there's three, three times a year, that realtors who are kind of a little bit more involved, end up meeting up together throughout the state of California. The main meetings are usually in Sacramento, up here, and we meet with lawmakers and talking about ways to make more housing possible and housing more affordable, affordable for people and trying to improve the situation. One of the things they showed us was a set of new commercials, one of which was targeted towards first time homebuyers.
And I'm going to call something out. I think, you know, in the nature of being positive, and well intentioned, a lot of agents will go on social media and tell you that it is easy to buy your first home and maybe in some parts of the country, that's even true. But in Southern California, especially Los Angeles, Orange Counties, it is not easy. And in fact, I mean, do I'd say it's hard, right? But it's not impossible. It's really a huge accomplishment, if it's something that you're able to do. And I have the utmost admiration for anybody who reaches out to me, especially if they're doing it without having any family help.
They're not getting downpayment assistance, they're not having a family member co qualify with them. If you're in that group of people, and you're watching this, really, I think that you're somebody who definitely deserves a round of applause. And, you know, I think you're kind of an unsung hero in today's society. So with that said, we're gonna start we're going to talk about the market where it is, is this the new normal? Is this what it's like, for first time homebuyers out there and what we think is kind of going on and what's what's happening. So bear with me, we're gonna go ahead and get right into it.
Also, let me say before we jump in here, if you are a first time homebuyer and an entry level home buyer, if you're somebody, or if you know somebody who should be buying a home, definitely reach out to us, we would love to work with you. We're going to start off looking at our close numbers. And there's really some mixed, some mixed news here. So as I mentioned every single time, a couple things about this chart, this is based on four to six weeks in the past, because it's based on things that have just closed, which is transactions that were negotiated, right? And if you look, you're where were we at this time last year, we were at 775. Where are we this year at 725, that we just came back off 745. So I mean, really, we're trading in a very similar range. On the condo side of things we were actually close to where at 550, things have actually sprung up a little bit. The other thing I want to talk about in this chart is that this is what we call our first quartile. That is if you if you said the median is halfway between the cheapest and the most expensive house, that first quartile is halfway between the bottom in the midway.
So it's that first quarter, right that we're getting to to sort of approximate an entry level into the market. This is an entry level single family home and blue which is three bedroom, two baths and an entry level condo, two bedroom, two baths in the red line here. If we look here at the payment, I think this one's pretty interesting. You know, how do we compare versus a year ago? Right? If you're somebody who was hoping to buy your first home a year ago? How close are you to getting into that entry level home? Remember, this is based on 5% out and includes a mortgage insurance. It includes HOA fees. You know, here you're at $5,635 a month based on prevailing mortgage rates, where were we a year ago? Well, we were at 5437 right in that 54 $5,600 range. You know, really, I think this is a testament to saying that, you know, this is a zone that actually has a lot of stability. For our market kind of being in this payment range. This seems to be where there is a bit of a market equilibrium.
I know there's For a huge amount of discussion out there about affordability and can the market bear, you know, interest rates and prices. But I think really just kind of shows us that for the most part that the market can bear this, and it wants to be in this range. Now, if we look here, we're actually up a little bit, again, attributing to that higher price here on our condos at 4500 a month. And this range is pretty near. I mean, that's only about $1,100 difference, versus where we were last year $4,200. Now, if we look at our household income required, right, this is another one that I think is pretty interesting, especially when you take into account inflation, right? Your over year inflation is about I think, right now we're running year over year, around four and a half 5%. If you look, what is the household income required for that entry level, single family home, it is $138,000. At a minimum, where were we a year ago, we were at $133,000. We are actually lower when adjusted for inflation than we were a year ago slightly. So we're going to we're going to call that even. And it's about the same story here for our entry level condos maybe a little bit higher than we were last year when adjusting for inflation.
And I think this is actually really good news. If you're a buyer out there. What does it mean, even though this may feel like an incredibly turbulent market, and believe me, there are a lot of ups and downs in terms of demand and pricing. The reality is these payments, and this level of affordability has actually been in a pretty well defined zone here throughout the last 12 months. Of course, I would be remiss if I didn't look where were we in 2018. While we were at $88,000. You know, we're not quite double, but I mean, we're significantly up versus five years ago. That's true. I think I can confidently say to anybody, you should have bought a home in 2018, if you could have and if you waited thinking there was going to be some kind of better deals. That didn't happen.
But with that said, we can't go backwards. So if you're a person who's watching this out there, and you are playing this sort of self blame game, right? You're talking to yourself saying, Why didn't I buy at the beginning of the pandemic? Why didn't I buy in 2018? Why didn't I buy last year, right? That's not terribly constructive talk. You cannot unless somebody out there has got a time machine. I don't know about that. There's really no point in going back there. The only thing you can do is really look at your opportunities for the future. And that's something that we see a lot of times with our first time homebuyers is they almost never universally say, Boy, we wish we had waited to have a bigger down payment to buy more expensive house. No, what they say is we should have bought sooner. Right?
That's, that's the common refrain. Not that we should have waited any longer. So if you're sitting there on the side, right sidelines, think about that for a second. Now, if we look at our 14 Day absorption rate, you know, where were we you know, where were we a year ago? Well, we were at 81% and 78%. For our single family and condos. Where are we today? 87% and 83%. You know, we've really come full circle, right? Like there was that period, as we went into the summer, where these absorption rates are lower, you know, and especially, you had a lot of options as a buyer. Well, now we're back to about where we were a year ago. In terms of this meeting, you really have a lot in a lot of ways life doesn't give you second chances. But in this sense, if you're a buyer on the sidelines, leaving out you actually do have a little bit of a second chance here. We look at our total inventory. It's a little bit of mixed news. Our entry level single family inventory has risen ever so slightly, but I want to point out, look at how much lower we are than last year for these entry level single family homes. Last year, we were a little over 1500 units active and available in the market. This year. We are actually below that level of inventory at around 1300 homes. In terms of our condos, we are almost exactly at the same level of inventory as we were last year. We look at our 14 days still active percentage. This is a measure of market competitiveness. Lower numbers mean a more competitive market.
Our condos are a little less competitive, and our single families are a little bit more competitive than last year at this point. And finally, we're going to take a look at our weeks supply of homes right this is taking a look at inventory but referencing it to how fast are homes going under contract right meaning if nothing new came on the market, how long would it take to run out of houses? Right now for single family homes. We are at four weeks which is very similar to our number last year, which was 3.68 weeks. And for our condos we had five and a half weeks which is actually a little bit more than that. Last year, but really we're, we're trending in about the same level of relative inventory last year. And that really gets back to my point, this question of is this kind of the market we've received for the foreseeable future? And I think it is, we have a pretty strong lock in effect. And that's really preventing a groundswell of new listings come up. Normally, what happens is, when prices rebound a little bit, we see this influx of new listings, right? Coming in, people say, hey, my neighbor, I can't believe it, they got $1.1 million from our house, I'm going to put my home on the market, Maybe I'll get lucky, too. And the reason we're not seeing that is because these sellers are not just saying, Where am I going to go? They're saying, what interest rate is it going to be? Because why would you trade your 3% mortgage, for a five and a half, or six, or six and a half percent mortgage, that doesn't really make a lot of sense.
And so that's, I think one of the big things we're seeing is this pronounced lock in effect. Now I'm gonna give you a little bit of bad news of a scenario that I am worried about. And that is, if we go into the end of this year 2023, in the beginning of 2024, we do start to see some sizable interest rate reductions, right, talking about being more than mid fives, mid to low fives, or even possibly a little bit less. I don't think that's going to spur a huge number of new listings, but it is going to spur a huge number of new buyers. So I'm going to lay out two scenarios for you, right? If you are a buyer on the sidelines, right, right. Now, there's somebody says, I want to buy a home, you really have two choices, right? You can say I'm going to buy a home right now I'm going to start my search and get out there and look, or you could say, I'm going to wait until, let's say 12 months from now, right? Kind of first second quarter next year. If you end up buying right now, we know what the prices are, we know what the interest rates are. And hey, if interest rates drop, great for you, you'll be able to refinance and lower your monthly payment on the same house, right? They don't drop that they go up, you're locked in, you've got your payment, doesn't matter what happens. If you wait, right?
And interest rates go down, you might think well, that's great news, my interest rates are gonna go down, I'm gonna be able to afford more house. Not exactly. My prediction is that if we see those rates drop, it's going to cause a big increase in demand, and not a corresponding increase in supply. And we're going to get back to 10, to 20 offers on houses, and appraisal waivers and all these sorts of things that really are not a great position for buyers to be in. So that's kind of my fear of how things are going to play out in the next 12 months. 12 months is a long time. A lot of things can change between now and then. But you know right now, I don't see a huge benefit to waiting but I see a lot of dangers to waiting. So if you are interested in getting your home search started or finding out and figuring out a plan to become a homeowner, which is something we work on with a lot of people definitely reach out to us. Don't forget to like subscribe and hit that notification bell. Obviously, we love the questions, the comments. Don't be shy, and we'll see you again real soon.