The Better Parts of Spring - SoCal Housing Market Update

Hello, everybody, and welcome to another selling Southern California Housing Market Update. It's Tuesday, April 25th. My name is Stephen Meade. I'm the managing broker here at Domicile Real Estate, we are located in Southern California, and this is our full Housing Market Update, I'm gonna go ahead and get right into it. But before we begin, just let me remind you that if you are looking to buy or sell residential real estate in Southern California, namely Los Angeles and Orange Counties, or especially if it is an architectural home, or you are a first time homebuyer, we would absolutely love to speak with you.

But let's go ahead and get started on a market update. We're seeing things be a little bit different and different in a good way. So one of the things that's happened this spring that's been very different than other Springs is, while the buy side has kind of come to life in a way that we normally expect, through March and April, that listing side has not really shown those same signs of life. In fact, we've had dropping inventory right up until this point, which is very unusual. Finally, we're seeing, you know, not quite a hockey stick here, but a little bit of a change in trajectory through some modest growth in the number of active listings. So some modest growth individual because otherwise, we are really at about the same, we're actually a little bit worse off inactive listings versus last year in 2022. At this point in time, you can of course see this arc over the last year where we that listing inventory grew, grew, grew kind of reached the zenith through the summer in the early fall and started falling in unlike last year really didn't start gaining any ground until now. And we're seeing again, both in our under 1 million and our $1.2 million categories, very modest listing growth. Now, what makes that happen, right is if we look at new listings, we see Finally, some growth and new listings.

But I want to point something out to you, right is that in the last two weeks, we had under 2000, homes under a million dollars hit the market and LA and Orange Counties. Last year, that number was about 3000. So that is really almost a 50% drop, or rather a 33% drop if we're going for this or last year was 50% higher than we are this year in terms of that inventory. And while it's not quite as drastic, we've seen something very similar that one to 2 million press category. So our overall level of listings coming onto the market is just considerably slower this year than it was at this point last year. But improving.

Now if we look at our new escrows, what do we see happening? And I'm going to tell you what's happening. If you look at this number, for under 1 million, what do you see it was low and hit a low point and then it jumped up and then it fell. And this is for under 1 million with the blue line. Look at our red line, which is one to $2 million in that same period, kind of a light, modest growth and maybe an ever so slight decline. And this really tells you something there's an important lesson in this chart. And it's something we've talked about a little bit before. But it's something that I think buyers and sellers alike need to understand what is of these price categories is quite a bit more sensitive to interest rates than the other. And the one that's more sensitive to interest rates is this under a billion dollars, whereas the one to 2 billion seems to seems to be much less reactive to the interest rates in the market.

So you know, if you're a buyer or a seller, understanding which side of this you're on, really makes a big difference in your strategy. Now, if we look, if listings went up, and new escrows either stayed the same or went down, what happened to our absorption rate? Well, it did go down. So in our under 1 million category, we are still in the high 80s. That is still a very competitive market. But we're down here about 70%. Right now from one to 2 million that actually isn't too bad, really. It's not too, too bad of a place to be in. Now, if we look at our close prices, and again, this is taking a look backwards, basically four to six weeks in the past. And what's happened exactly what your predicted, we said we're going to start seeing some of those price increases from about a month ago start to show up in here and that's exactly what they've done very heavily in this upper 75th percentile range, right. This is that 1.25 $1.5 million range, as well. well as in our median level, and even to some degree at our entry level in the market, as well. Now, if we look at our percent still active in the market, this is also another great sort of, you know, back in the napkin judge of market competitiveness. Well, our under $1 million market is still very competitive at this 70% level that really matches kind of where we were back in May of last year. But our one to 2 million is actually a little bit less competitive.

And in the last couple of years have been a little strange. Normally, as you go up in price, that market becomes less and less competitive, the more you go above the median price for an area, the less competitive that market is, generally speaking. So we're starting to see the separation. And I wonder if that is going to be a trend that we're going to really see going forward. If we look at our list to close ratio, again, this data is based on close sales, that means delayed for six weeks, we have actually crossed that threshold, and we are back over 100%. That means, on average, right listings are closing for over their list price.

And as I mentioned in the past, the way to read this is people want to think that this is a measurement, right of how healthy or unhealthy or whatever the market is, in and I'm gonna say it's I think that's kind of bullshit. What this is measuring is the difference between buyer expectations, and seller expectations. So this means when this number crosses over 100%, it means that there is a mismatch between what buyers are expecting out of the market and what sellers are expecting. And when this number goes over 100% It means that buyers are more motivated than sellers imagine they are and they are more willing to pay higher prices than sellers thought they were when the number is in here, when it is under it actually means that sellers are the ones who are a little overly optimistic. And you always notice this when markets are in a period of inflection. Right?

Buyer and Seller perceptions change at a different speed. I'm going to go off because I think this is important understand. So if you are a buyer, right, your understanding of the market is actually it's a pretty fast learning experience, right? Because you write one or two offers on houses and you weren't even close. Right, and you don't get them you discover that the market is not where you thought it was for buyers. So for a buyer, that learning curve is very quick, right? Your perceptions about the market start altering fairly quickly. But if you're a seller, things are different. Historically, sellers. They have a belief about the market that is usually one to two months in the past. And so if you've got a market that is dropping, that means sellers are over optimistic, right? Like they're they're still thinking about one or two months ago. But if you've got a market, it's on the rebound sellers are often slower to realize that that rebound, whereas buyers, they sort of adjust their strategy much more quickly. So that's something it's important to understand it. If you're a buyer or a seller be aware of that. If we look at our days on market for new listings, right, what does this tell us when the inventory itself might be rising slightly, but days on market continues to drop.

One of the things that that means is it means that there is a difference to buyers in old inventory and new inventory. So what this means is this means these newer inventory homes are getting snapped up more and more quickly. But we're still seeing some homes languish on the market longer. And that's why you're seeing that inventory number go up despite days on market for new contracts, because this isn't days on market for the whole real estate market. This is days on market for the homes actually going into escrow. Right, the ones that are actually being bought by people. We look here at our three way, which is of course always one of my favorite graphs. What did we see happen? Payments started going up. But guess what, so did rents during that same time period. In fact, you'll notice that there's a few moments like that. And we're kind of treading this line here, right? Where we're exactly a 20% delta between these two numbers. That's a little bit bigger than it's been in the past. But if you start to look here, right, even in May of this year, you know, we're actually seeing that difference isn't wildly huge.

And so when people tell me that they're worried about a market crash, this is probably the first place that I look because, you know there are signs that a market is fundamentally spec speculative in nature, right and what is a speculative market? Well, a speculative market is when buyers are buying for somewhat irrational reasons they are buying on the basis and the promise the belief faith and hope that prices will just shoot through through the roof, right? The fundamentals don't make a huge amount of sense because you have to remember that every homebuyer out there has a choice. And that choice is they could buy a house or another house if they're coming from a home, or they can be a renter, right? Like, it's gonna be one of those two things. So every buyer makes that choice. So when a market gets wildly out of whack, and speculative, what we notice is happening is that you will see this, like the difference between these two numbers will start to spread big time. And you'll see that this payment figure just starts to run away.

And in fact, we saw that in 2005 2006 2007, the first half, that is exactly what happened is you had this huge widening rift where rents weren't going up at all, but the payment on an immediate price Hall was, this market is quite a bit healthier, right? Like you can tell there's some tension, these are related, the demand and supply of both of these right is actually related to one another, and you can see them cross react to each other. Now, if we go here, we see kind of what's going on. Right? This is our prevailing interest rate graph. This is based on Freddie Mac's national numbers, and they report out once a week. So sometimes it is a few days, obviously, we crusted then we fell, right like we crested a year in October, November, then we fell Gosh, boy doesn't wasn't December looks like a pretty good time to have bought a house or early January looking back now. Then rates did a little bit of run up, they crusted, we got Silicon Valley Bank around in here, then they fell down, and now they started heading back up by the way rates ebb and flow. This is the nature of interest rates, they don't really just stay the same forever. So it will be interesting to see where that's gonna go, what's gonna be the size of this peak here? Are we going to make that run up to 7%? Or are we going to stop short and turn back down and reverse? Again? And I don't know. Because, as I'm fond of saying, If I could predict interest rates, I would not be doing real estate videos on YouTube, I would be sitting probably on a beach somewhere, probably Hawaii, maybe even Maui, Hawaii, sipping a drink. And I don't know, just checking my bank account balances because I'd guessed the market right on interest rates. So that's pretty much it. That's all I've got for you this week. You know, if you're a buyer and a seller, you really do want to pay attention to these things are what's going on in the ground.

I'd love to give everybody you know, a six month crystal ball, but I really don't have one. I don't feel super confident. I do stand by that for 2023. I think we're going to see at least on our southern California region here, a three to 5% jump from the beginning of the year to the end of the year in prices. I think that's going to end up being true. I don't I don't see a 20% year and I don't really see a year with declines either. Don't forget to LIKE subscribe, hit that notification bell. And again, if you are looking to buy or sell real estate in orange or LA County's definitely reach out to us. We would love to hear from you. Let's see. We'll see you again real soon.