Number One Question Answered In 10 Seconds

Good afternoon, everyone, Stephen Meade here with Domicile Real Estate. This is our Southern California Housing Market Update. And we're going to do three things. For everybody. Today, I'm going to answer the number one question that we get in less than 10 seconds. I am also going to share kind of a fun story with what we actually have going on. And then three, I'm going to tell you exactly the way things are right now in the market, so you can make better decisions. That is always what we are about here. Right is making good decisions. So let's go ahead and get started.

First things first, what is the number one question that we get? Number one question, right? When I'm at parties, when I tell people what they do, when they're just bored, and don't have anybody to talk to this is what people asked me more than anything else. And they say, Steven, why are prices not falling? Right? I think there's this feeling, especially with recent interest rate increases, that prices should be falling, your prices are going to be falling, and they aren't. Why are they not falling in any appreciable, noticeable uniform matter across the market? And guess what? I have a slide for that. I can answer that question. In 10 minutes here. Let me get back to our beginning. Here we go. This is it.

This chart, is the reason why prices are not falling. Look at where we were last year, Gosh, 7700 7800 listings for under a million dollars, where are we today, less than 5000. Even if you look in this one to $2 million market segment, we are off by a lot in terms of inventory, it just never grew this year, it never got to where it was last year. That is the reason why this is not terribly complicated. Real estate is a function of supply and demand, interest rates going up, they lowered demand, but when you lower supply, you do not fundamentally change that relationship and you do not change prices. Okay. So now that we've got that out of the way, we're, we're going to talk about storytime here just for a second.

And we're working with a client that we've honestly been working with probably about a year and a half. And this is, you know, a younger person, a couple with family trying to buy their first home. And you know, when we started this a year and a half ago, it was what single family homes can we get into? Then it turned into what townhouses can we get into and now it's turned to do? What condos are we're going to get into that work for us. And in the meantime, you know, this is a person that I think has been on a bit of a journey, right? These, these people have adjusted their expectations. And I think that whether you like the idea of that or not, I think that is going to be a necessity. And it's not just going to be a necessity here in Southern California.

You know, we look around there are new home builders building in the Boise, Idaho area for 758 50 for like 2300 square foot houses, right, this is in Idaho where it's cold, it snows there. And so I think we're seeing that a lot of these sort of out migration markets that did exist for people are simply not really quite the value by comparison that they once were. And so, you know, that's my challenge to people is to really think about what is it they want and you know, these clients that we're working with, I think they made the decision, they didn't want to be passive observers on the sidelines, right, always facing higher prices, always facing higher interest rates, always facing reduced availability. You know, they look for a single family home to rent.

And unfortunately, that market is also incredibly tight right now, which is another reason why our single family housing market has been propped up to some degree is because our rental market here in Southern California is also tight, especially for those single family homes, which is what people want. And so, you know, this person is making this decision, I'd rather do something that at least secures where we are and gives me some options down the road. And anytime we work with clients, I think that's always what I'm about is I don't want to commit any of our clients to a particular outcome or set of assumptions meaning I don't want us to develop a strategy that is predicated upon certain things happening exactly as we expect because life happens life does not work that way, right life, things change, things come up.

So having a strategy that's flexible and gives you options in the future is really, really important. And that's what we strive to provide. Okay, I want to keep going through these slides. Because, you know, I want to give you an idea of where the market is right now remember, I said, we're going to do three things I'm going to try not to ramble. So this is a little bit of an acute problem, right. And part of this is seasonal. And this is if you look at over the last two weeks new listings that have come up in the market, both in our under 1 million and our one to 2 million, these have taken a dive in. A lot of that is seasonality in California, and I don't know, I don't want to comment on other markets. But here, from the middle of August, until about the middle of September is a bit of a dead zone. Right it traditional logic is this is still summer, hot real estate market, et cetera, et cetera.

But in California, what we notice is you have a confluence of vacations, and back to school, and both of those things sort of greatly reduced both people buying homes as well as people putting homes onto the market, we tend to see things kind of rebound a little bit once we hit about the middle of September. So that's what I think is going on what you're seeing here. I don't know if I read too much more into it. What's interesting, though, is if we look at our under 1 million in new escrows, and last 14 days, yes, these have whittled down to kind of that peak in April. But these things are holding steady and even rising slightly despite record interest rate levels, right. This is, this is homes that have gone under contract in the last two weeks. So I mean, this tells me that especially that entry level people who want a home demand, that demand is very much still there. Now, our one to 2 million has eased off a little bit from its point two weeks ago, but it's still higher than it was earlier in the year.

So these are still pretty healthy numbers. I think also, when you look here, and you see this relationship, look at what was happening last year is we're heading into the fall, I mean, those higher interest rates last year, just kind of decimated demand. But we're not seeing that same thing happening this year. This is not the same market, despite the fact that interest rates might look similar last year, we are not in the same market at all. Now, if you look at our absorption rate, right, this is our quick and dirty. You see both of these categories we went up, that means that homes coming on the market are not replenishing, as fast really as the homes that are leaving the market, at least in terms of the rate of speed of change of those things. So when you see this start to get kind of above that 80% level, as we see your fraud or 1 million, I mean, gosh, that that is a competitive market. We look at pricing.

Again, standard disclaimer, pricing data is four to six weeks old, it is not current data, the 75th percentile end of the market, that is kind of that 1.31 point 4 million flat in prices, our median, this is kind of just under $1,000,000.08 $900,000. That is see prices up and our 25th percentile, which is our entry level that is seeing things ease a little bit, at least as recorded from six weeks ago. This is the group of people that are probably the most sensitive to interest rates. So I'm not entirely surprised by that, if you look at are still active after 14 days in the market, this is kind of interesting. Remember, a lower number is more competitive here, under 1 million has gotten more competitive, and one to 2 million has gotten less competitive.

This is very unusual to see these move in different directions like that. So is this an anomaly? I think we're going to need to watch this to see if this continues, you know, for I'd say if the next time we do these stats, we've got a you know, over a month period where this has happened, we're gonna have to talk about what does that mean? And what do we fix causing that our lists are close to list ratio is dropping a little bit, that's a little bit of more consultants, but it is still over 100%. Correct, it's still probably a little over 101%. So that means on average, people are still paying over list price for homes. And then if we look at our days on market for new contracts, so this is how many days on market for those homes that just went into escrow in the last two weeks. So these aren't the ones sitting these are the ones people are actually finding.

And we see that that days on market number rose a little bit and now it is pretty flat. It's really hard to make a case that anything around this 30 day mark is houses languishing on the market. Look at what we got up to towards the end of last year we accelerated towards almost to that 60 day mark. This is nothing like that. Again, we are not in the same market as we were last year and last fall. And then finally we've got the one that does give me a little bit of pause here. And that is that is our three way. And so just as a reminder, this really tries to reconcile how is CPI I rent on single family homes and payments on medium priced homes changed since June of 2018. We normalize them all the same point, you kind of see things rose up through 2020. But look at the size of this gap, right? And historically, we'll look back in last year, this gap cannot exist that long.

This really does make us wonder what's going on, right? What's going to reconcile this giant gap of, you know, this 40%, kind of, we got two spaces a little more than two spaces on the graph, you will notice that these single family rents have been going up pretty steadily too, but not at the level of this payment, we tend to find that the rents are a little bit more stable than the payments, right payments are subject to home prices and interest rates, you can see a pretty big change, you know, are we going to see a little bit of a little bit of rate relief, right? If you go by the Feds comments earlier last week, it doesn't sound like there will be much relief. But remember, the financial markets and bond yields are very much a confidence game. It's about expectations of not just the short term future, but of the long term future. I think a lot of bond traders feel like, you know, nerdiness alert here, I think a lot of the bond traders feel like the Fed fundamentally is looking for a goal that they can never get to. And that is the stated goal of 2%. Inflation.

I think a lot of bond traders feel like the Fed will completely tank the economy in an effort to get there and still probably won't make it as far as inflation, that that is just below kind of a structural level of inflation, and that that's not really attainable. So I think there's some fear that in the bond market, right that the Fed is going to keep chasing that. And that they will essentially keep just raising rates, and they will be in this for the long haul. My personal viewpoint is I think the Fed will have a bit of a come to Jesus moment, I think they'll realize that unemployment is you know, stuck low because of a lack of workforce, right, because of people retiring during the pandemic, and that it's, you know, trying to get that unemployment number up trying to get that inflation number really down towards 2%. I think they are gonna have a come to Jesus moment and realize that it's not necessarily an attainable goal.

And if it is, the lakes they'll have to go to to get it will not be worth it. So I do think that there's going to be a breaking point with the Fed, I just don't know when that's gonna be when is that come to Jesus moment going to be when is that going to happen? I don't really know. And if anyone does know, again, you know, my favorite phrase, if they knew these things, they probably wouldn't be doing a video on YouTube. If we I think that's pretty much all I have for you guys. This week. I hope you've enjoyed this if you want expertise and strategy with your real estate decisions, that's really what we specialize in here in Southern California. So from Los Angeles County, Orange County, specifically, those two, and you'd like some assistance on making really effective better real estate decisions. You know, this isn't a transactional business Ross. It's not just about buying things and selling things. It's about figuring out the winning strategy for your situation and then helping you execute on that. Anyhow, thanks so much for watching. Do not forget to like subscribe and hit that notification bell questions and comments. We love them. And we will see you again real soon.