Spring Comes Early

Well, hello, everybody spring comes early this year to the Southern California home buying season. What does that mean? And why should you care? How is this gonna affect your real estate decisions in the next couple of months? Let's go ahead and find out. Let's get started. I'm Stephen Meade with Domicile Real Estate real estate for people who love houses. And this is our Southern California Housing Market Update. For Costco. Those can say podcast. Should we have a podcast right in the comments below?

This is our update for March 12 2020. For some big news today that we're going to cover, obviously, the CPI numbers came out, what does that really mean? How does that affect our market? And right now, so much of our market is hanging on interest rates, not just in the real sense, right, as in interest rates affect affordability, but also in the psychological sense. And sometimes that course can even be way more powerful. And so our CPI numbers came out today a little bit higher than expected, especially when you incorporate gasoline.

If you take fuel costs out of that, and you take shelter costs out down to more core numbers, it actually looks a little bit better. But this kind of reinforces the view that a lot of economists have recently adopted, which is they think the Feds could start reducing interest rates, either in the May, June or July timeframe, right. Like that's the question that we're talking about is when is it going to be within that zone? I think most people think it will start within that zone, lower rates towards the end of the year. But that actually has an effect on the market now. And we're going to talk about those results. Let's go ahead and jump into our stats.

And why is spring coming earlier this year. So So here's something interesting to tap and look at the shape of the curve of this graph, if you're looking back this point, last year, total active listings was falling. We hadn't started that rise yet, right? We didn't have that period of flat, and then it going up this year, things are different, we are already getting that spring rise in listings. Part of that right is because of the interest rates. But a another part of that is I think we've got a market that has had a lot of pent up demand and things are just getting started a little bit sooner. Also, we've had generally a mild winter, sometimes that affects things here in Southern California, as well.

If you look at our new listings in the last 14 days, that really tells you where is this rise in inventory coming from. And what's fascinating to me about this is look at this number versus where we are last year, and then look at this number versus even the high point of last year. Right if we're looking back in 2023. You know, that high point was really, probably May through July, when the most listings came on the market. We are already almost at that point for under 1 million. And we have exceeded that point for one to $2 million listing. So take a look at that. That's really interesting to see that this soon.

This early. My question is, where are these sellers going? Right, like what has precipitated this, we think there might have been actually a lot of sellers who've been waiting. So there might be some pent up demand on listings as well. Now, if we look at our new escrows, we actually do see an uptick in that too. But it's not quite the same as we saw last year. I think as soon as rates start to drop, you are going to see these numbers really kind of take a jump, I think we saw a little bit of a jump, you see a little bit of that hockey stick action going on. In the last four weeks or so in that one to 2 million category thing. That's because we got a little bit just a teeny bit of rate relief.

I think if we if rates if we get kind of some wholesale drops in rates, I think you're gonna really see these buyer numbers far outpaced the seller numbers. But what does that mean right now, right now, right now that means we have kind of an interesting situation, we've actually got some new listings coming up on the market, and we're hitting your absorption rate is about 80% under a million at about 70%. One to two. This is not hyper competitive. This is actually just a moderate seller's market. Obviously, depending on what kind of house you are looking at. If you are writing offers on the homes that always have four or five offers, it is still very much a competitive market for you to close prices.

Remember we are taking a look in that rearview mirror with this this is four to six weeks old. But again, look at even where these numbers are, you know these numbers fly around a bit, but you can kind of draw a trend line the trend is definitely of increasing prices. I think overall and I think we're gonna see these reverse again as well. When they finally start to catch up. We're just hearing about the homes that are desirable are really, really getting their price and getting multiple offers. Now still active after 14 days in the market. This is yet another way of kind of measuring market competitiveness.

We saw it sort of dropped down. But now it's kind of holding steady. And you'll notice this market is, if you're in one to 2 million, it is more competitive, really than we were at, you know, kind of in the peak months last year. But if you are looking under a million dollars, it is actually less competitive than it was during the peak months. So it's kind of an interesting story about one to $2 million category has really taken the lead. I'm going to jump off share for a moment. This is anecdotal. So obviously, I don't have any stats on this. And and maybe this is something we want to run right in the comments if this is something you'd be interesting to interested in learning about is the percentage of cash buyers we are seeing in these price ranges. Right.

I think, you know, before we had a lot of foreign money coming in a lot of investor money. Now one of the things that we are hearing about is we are hearing about that baby boomer wealth transfer, right. And that can come in the way of inheriting homes, but it can also come in the way of parents buying homes, all cash for children, we recently had an experience with that ourselves. So if you're seeing this in the market, we kind of take a look at the makeup that might be fueling some of those one to $2 million dollar sales that seemed to be kind of coming up here. So and why this market is remaining competitive in that higher price range, we look at our close to list ratio, we're kind of hovering just above 100%, kind of right around that 101% level.

And then we look on days on market for new contracts. Now this one is a little surprising to me, right under a million, we have already reached a point look at how much lower this is this year than last year. These homes, especially the good ones that are going in escrow like these are the homes that are getting the buyers, right, they are going under contract in less than 30 days, on average for under $1 million. Whereas we're seeing that number be a little bit higher than last year. From what a two minute kind of interesting, I think we want to watch that space, we might see that number start to reduce. What that could also mean right is that buyers are picking older inventory that wanted to category they're going back to houses that have been on the market for a while.

Now if we look at our three way chart, right, like I love this three way chart, because this tells us so much about what is happening in the market. I want to point something out that might not have been obvious to people, you will notice that housing has in fact outstripped inflation, right? Like, if we go back to this chart, we put all these numbers, we start them at zero together in June of 2018. And then we look how does the payment on houses change? How does the CPI change? And how does read change? Right on median single family homes. We look at these things together. You know, of course, you see that housing has outpaced inflation, right? It has gone up faster. But what I think is interesting to me is that while the payment and the read both of them tend to outpace inflation, even in the last year, right? Like they've been growing a little bit faster than inflation, not a wild amount, but a little bit faster than inflation. Most of this gain right? Where payments way outstripped inflation, most of that gained happened, really in the first three years, the pandemic and then it slowed down quite a bit.

But also, the other implication is, even if these numbers, let's suppose payments go up by 1%, more than inflation, right, like even a small amount more over time, over 30 years that you may own homes, that makes a huge, huge difference in wealth. So sometimes when we sit down with first time buyers, we ask them this question, would you rather put money in box A, that goes up by 3% or box B that goes up by four or 5%? Everybody picks four or 5%, right? Like you want to earn more on your money. But that really is the reality of being in a situation of owning versus renting, the owning payment will go up faster than the rent index, because it carries with it equity, earnings, stability, other benefits that you do not get when you are renting.

That is why that number go up faster. Also, we are in a constricted housing market. Finally, let's take a look at interest rates. Right? They came down a bit, kind of towards the mid sixes, then they sort of came up and almost kissed 7%. Again, we've gotten a little bit of relief. But really I think the market is on it. They want to know that inflation is a dragon that has been slayed. And I don't think that there is that certainty yet in the market regarding inflation. I think as soon as we get that certainty, regardless of whether the Fed is started to cut rates, as soon as it becomes certain that they are going to cut rates and soon that is when you're going to see those mortgage rates start to decline, you're gonna see buyers jump way into the market. And I think you're gonna only see a modest increase in sellers coming to the market. So why should you care about this that spring has come early? Well, the number reason the number one reason that you should care about this is because it means that this means shift the entire season a little bit sooner, right? I think we're gonna have a longer buying season this year, I don't think it's going to necessarily be a shift. The reason being is normally our market starts cooling off actually in August and September, people got vacations going back to school. However, if there are rate decreases happening, that will bolster that buyer demand during those time periods, and it will extend the selling season. So, you know, overall, what do we say?

There's not really a lot of upside to waiting to make a move right now. And in fact, if anything, there's there might even be some downside, right? If you're a buyer and you're sitting on the sidelines waiting for lower interest rates, yes, that will increase your qualification. Unfortunately, that is what you and 50% of the other buyers on the sideline will be waiting for doing you will greatly increase your competition. And you may not see a commensurate increase in listings. This increase in listings early on is a gift for the buyers who are in the market right now. That has extra inventory that they weren't expecting that they can take action on. Anyhow, thank you so much for watching. We love having you questions, comments. We love all of them. If you would like to work with us, we would love to work with you. So definitely reach out to us contact information in the comments. Don't forget to LIKE subscribe, hit that notification bell and we will see you again real soon.

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