Spring Broken? -- SoCal Housing Market Update: 3-28-23

Well, good afternoon, everybody. My name is Stephen Meade. I'm the managing broker here at Domicile Real Estate. We work mainly in Los Angeles and Orange counties. And of course, we are the firm if you love houses, which I hope you do, kind of something that's a little bit different this week, I think a lot of us have had this feeling that the market was starting to shift in an interesting way, I think the SVB banking things actually jolted the market a bit, and gave them a bit of a boost as mortgage rates dropped. And that's really kind of a big driving force. But we have this sort of thing that's been sitting in the background that really is probably the most dominant force in our market. And that is the lock in effect. And we're now starting to see what happens if you have the lock in effect, and an uptick in demand. And, you know, honestly, for buyers out there, it's not pretty for sellers, I think if you were afraid that you would completely missed your chance you hadn't. While it is not like it was at this time last year, it is still a very good market for sellers, if you are priced right in most price category. So let's go ahead, let's jump into our market update. It is March 28, we are just at about the end of the first quarter of 2023. Let's see how we're doing and what I think is going to be happening in the next couple of months. Okay, so what we're starting off with here is our total number of active listings in the market, I really like starting off with this graph, because I think this just kind of gives you a frame of reference. And you'll notice something very interesting. This is where we were last year and what shaped you see here, you see an upward slope that gained some steam through the spring and then peaks in the summer. And what do we have here, in our under 1 million category, we have a downward slope, that means inventory is going down.

And in fact, the scary part here is that inventory really, at least under a million dollars is not that much higher than it was at this point last year. So we're we're reaching a point where inventory may actually be worse than it was last year. If you're a seller, this is good news for you. Because it means you don't have a lot of competition going on the market. If you're a buyer, this means there was absolutely competition for those most desirable listings. Even in our upper end price range. Here, you see we have a little bit more inventory than last year, but really not that much. And you'll also notice this is also flat, or maybe even a slightly downward slope, it is not rising inventory. So these are very noteworthy things to understand in our market. If we look at our new listings that have come up, right, like this is our supply side of our equation. What is the supply of housing? You know, we got a little bit of a bump a few weeks ago, new listings, and now that's even tapering off in, you know, really, this is the graph that tells you why things are drastically different than they are last year. We were we are currently under 2000 new homes under a million dollars in LA and Orange Counties last 14 days. Where were we at at this point last year, we were at almost 3000. So you know, we're seeing very significant reduction in the rate that homes are coming on the market. And again, it's that lock in effect, people who have low interest rates, or people who are unable to afford the high interest rates of upgrading their homes. This creates a lock in effect, where you do not have nearly as many sellers as we are used to seeing in the marketplace. And this is a problem that's not a temporary one. This is a long term structural problem that really we're probably going to be facing for the next 10 years or so. I don't see this drastically changing anytime soon.

Here's our 14 days of new escrows though. And while we see a little bit of an uptick in our one to 2 million, look at what has happened over the last four weeks. In terms of our under 1 million buyers, we've really seen that demand tick up. That means the buyers are out there and they are writing offers on homes. And we're really seeing that out in the marketplace. You know, I think a lot of sellers have been conditioned that receiving multiple bids on your home in the first week is normal. It is not normal for that to happen in while at the peak of things I'd say you know, if you're a seller you expected to get 10 or 15 offers. I think today if you've got a home that is priced correctly and as a desirable product, I think you're seeing more than that two to five range. So it's not nearly as crazy but those buyers are indeed out there and they are writing offers on homes. And if you look at our absorption rate, right which is our how we record In sales, supply and demand, the rate that homes are coming out of the market and the rate that homes are going under contract. Under a million dollars, we are nearly I mean, we're in the mid 90s. Here, this is a hyper competitive market, if you're under a million dollars, and it's a desirable home, and in our one to 2 million, we're still at around that 80% level, which is a competitive market, maybe not hyper competitive in that upper price range. But if you look here at our closed prices, let's, let's take a second and really kind of analyze what's going on.

So if we look at our 75th percentile, right, these are the top quartile of homes. This number, you saw a steady kind of reduction in price over the last maybe 10 months. And then we hit this kind of bottom points and closings here at the end of January. So that really meant people who are shopping for a home at the end of December and this price range got the best deal. And in fact, that's actually pretty close to being true in all of our price categories. Right? If you were a shopper at the middle to end of December. That's that's really the sort of the low point of prices. But look at what has happened here in this upper price range, while people suddenly found some coins in those couch cushions and they are out buying in these upper price ranges. Even in our median. Look at what's happened over the last four to six weeks, we have seen us really reverse pretty much all of the price reductions we had seen. Since July of last year, we recouped all of that in the space of about six weeks. Very interesting. And even if you look here in our 25th percentile, we're a little flatter a little down in the last two weeks. But look at our low point, we have come up from that low point. And we're really kind of trading in those end of summer prices and values in our entry level price range, I actually think this is a little bit of a blip. And we're gonna see this start to jump up to remember those entry level buyers. You know that first quartile or first 25th percentile, those are the buyers that are the most sensitive to interest rate. As you go up, the buyers are less and less sensitive to interest rates. Now we live our percent still active after 14 days in the market. This is a measurement of competitiveness, the higher number is a less competitive market. Look at the trend, we peaked. And now it has been heading downward indicating a more competitive market.

And we're at about the same level we were at in May of last year. So this is a more competitive market. If you look at our list to close ratio, very similar thing at bottoms out here at the end of January. Remember, again, those are deals that were negotiated at the end of December, and it has started coming back up. You know, we've got our one to 2 million now across both counties is probably about 101% of list price. Do remember that, you know this is on average, if you this does not mean you can simply price your house $100,000 higher and somebody will still pay it. That's not what this means. But it means in general compared to market trends, it means that the market has now crossed over to a threshold where it is either at what seller and buyer expectations are aligned or in the case of one to $2 million range, we're actually seeing that buyers are expecting to pay more than sellers are expecting to get that's really what this is a measurement of is it's kind of reconciling. Where do sellers think their home is worth and where do buyers think the houses are worth when you're at 100% It means they both agree. When you are over 100% It means buyers value the more highly than sellers. And when you are under 100% It means that sellers are valuing their homes more than buyers. Our typical market is between 98 and 100%. So we are now crossed back into not a typical market. And then again, we see a another piece of data that is our days on market for new contracts. That number is falling again, you know, we peaked here around 5055 days. And we are now running around 35 days for under 1,000,036 days, and right about 30 days for new contracts on a one to $2 million listings. Again, you know, this is one of those situations where all of these pieces of data are pointing in the same direction, right? I'm fairly confident to say this is a market that is moving in the direction of getting more competitive, it is in the direction of prices going up. You know, all of this data is really congruent and indicating the same thing. Now we have the three Way and those of you who have been watching for a while. This is indeed my favorite graph. We are still waiting for some of those CPI numbers.

You'll notice that rents kind of jumped up and then you know we're a little soft and kind of rebounded a little bit. But we're really writing this number and we've been there for gosh You know quite a while now since 11 months, where rents are running at 140%, of where they were in June of 2018. That's what this graph is we have normalized everything. So this is kind of a since June of 2018, what has happened to inflation on the red line, what has happened to rents of single family homes as indicated on the yellow line, and what has happened to the payment on a median priced home, and that is the blue line. And if we look at our blue line, the reality is our blue line is not that much different than we have been at, since around this time last year, it is not drastically altered that much. This is a little bit wider of a gap, this gap between the rent index and the payment index, you'll notice I generally like it to be a little bit closer together within this 20% margin. And I think if rates go down, that actually will indeed up into some degree, or we'll start to see rents come up to meet it. But this is not a huge gap, like we saw back here, or in this zone, we were approaching kind of a 40% gap. You'll see this number fluctuates a bit mainly based on interest rates, but that payment index is a combination of prevailing interest rates, and median home price. Finally, we have our prevailing mortgage rates. You know, as you can see, we kind of did this big rise up towards the end of the year, then we fell fell steadily, we hit another little peak here. And then we started to fall. Again, this is kind of the sort of banking mini crisis, as you're seeing, I want to talk a little bit about interest rates and expectations. I think if anyone could predict interest rates, they would not be doing videos on YouTube, myself included. So you know, the general industry expectation is that we're gonna have some kind of a light recession, the Fed will stop raising and eventually, you know, sort of turn their course around and they'll start lowering some of those Fed funds rate. The reality is mortgage rates are really a function of what do people think about the future of inflation. So it's not necessarily inflation right now, but inflation over the next 10 years, because that's the average lifespan of a 30 year fixed mortgage is about 10 years. And so that's really what lenders are thinking about when they're pricing and where that market is, for mortgage rates. I do think there's a belief at this point in time that the Fed will get inflation under control that it will be tamed.

And that we will be able to return to kind of a long term, you know, something in that two to 3% range. And I think we're gonna see that's going to really keep those mortgage rates from jumping. I don't really foresee them jumping above 7%. I'm knocking on wood. As I say this, I could be totally wrong about that. But I think we're going to kind of bounce in this range. You know, today, FHA 30 year fixed rate mortgages are in the low fives, right. So, you know, people say the five percents are gone. Not true. They're still there, Jumbos are around the mid fives. And we're seeing conventional kind of in the high fives, low sixes, you know, I think we're gonna see things kind of playing in this range plus or minus half a percent from where we are mainly for the for the rest of the year, I don't think we're gonna see a huge movement too far in one direction. But I think we're gonna see some fluctuations. Little bit of business to take care of. So we are doing a webinar tonight, Today is March 28. We're going to do that at 5:30pm. This is for people who would like to buy their first multi unit property, with a low downpayment. So 30 minute webinar, and you don't have to show up on camera, it doesn't cost you any money. We've got a link down in there, in the sign up, link in the description, as it were on YouTube. If you're on Facebook, I think we're going to do a separate post for this too, with a sign up link, as well for that, again, it doesn't cost you any money, gets you a chance to ask questions, learned some things. And again, it's about 25 minutes, and then five minutes for questions. So not a super long webinar, but obviously designed if you have extra questions, you can reach out to us afterwards. Do not forget to like, subscribe and hit that notification bell. And yeah, thanks for being with us. And we'll see you again real soon.