The Devil You Know

Well, hello, everybody, and welcome to another Southern California Housing Market Update. I'm your host Stephen Meade with Domicile Real Estate, real estate for people who love houses. This is November 7, I mean, gosh, I can't believe it that we are already in November. You know, last time we chatted, we were talking about our the heightened interest rates. finally starting to have an effect on the market, we saw inventory was actually rising. In a time that inventory is normally falling. And yet, here we are, with a market that seems to already be changing directions, once again.

And this kind of raises kind of an interesting question that I have in mind is why do people tend to stick with the devil they know, and I think a really good way to put this is this is like, maybe it's going to date me a little bit. But I think there's a there's a digital corollary today. And that is the idea of changing banks, right? How much trouble pain and suffering will you go through with your current bank before you switch? Now in the old days, it was a Yeah, to get new checks, you might have checks that are outstanding. Of course, today, it's things that are set up on auto pay, all these things that you have cards that are in your your debit card is into your digital wallet, all these things that you have to change to change banks. And the fact is people will honestly put up with quite a bit.

They'll put up with a lot of pain and suffering. And when they eventually make that switch, they think to themselves, why didn't I do this sooner. And really, there's a corollary to that in the housing market. I think a lot of people think that not making a decision is not making a decision, but really war making a decision. And that decision is to keep doing what you're doing, I think they feel will leave to have a choice, when in fact, they have still actually made a choice that subject to, you know, the pros and cons of all the choices that we make. Anyhow, let's take a look at what's going on.

I thought these results were a little bit surprising, but not when you consider that rates pretty much crested last week and have fallen a little bit since then. We've actually seen some improvement upon that front. And I think the market is reflecting those improvements. So let's go ahead and take a look here. Coming back to the beginning.

This is our total active listings on the market. And I've identified this for a couple of weeks now because I think it's it's worth noting and kind of interesting, and that is normally this time of year, I mean, inventory starts falling hard. In November, I mean, really, it just starts falling hard. until about the end of the year. And even even this year, it actually fell through the beginning of the year. But look at what we have going on here, we actually started to see similar rises through the end of September in October, though, look at all the curve, especially under a million dollars. This is flattening out real quick.

And I think part of that in the last two weeks is we are already seeing the results of those buyers who are getting just a little bit of relief, especially in that entry level category, a little bit of relief on the rates, and what are they doing, they are running out and saying let's not let this opportunity slip away. Let's get a home into escrow. So we go here, if we look at our new listings, this is something else we've got going on, is we are starting to see the number of new listings on the market starting to go down.

That's pretty typical. If you were to draw a line through here, you know, where are we about here off our peak or around where we were towards the beginning of the year, I think we're going to see these new listings really start to dwindle towards the end of the year. That's the effect that we saw last year. And they kind of bottomed out right around the new year. And we're starting to see a little bit of that too. With our one to $2 million pricing category that you'll notice the slope is not nearly as steep as it was last year. Part of me thinks that, you know, we have a bit of a situation where I think the rates rose so far, in October, that really we kind of lost that month of October, October is normally a pretty good month for sales.

In Southern California. Normally that's kind of a recovery kids are back in school people are done with vacations. Normally that month of October is really kind of a banner month. It wasn't this year. And so I think what's happened is we've just kind of delayed that people push some of those decisions. Now if we look at our new escrows, those are down to but they're not down by as much especially in that under 1 million category. And we're gonna see where that really is reflected is here. In that absorption rate.

We kind of bounced off that 70% bottom and we're heading back up under a million dollars. We're still at a really low point here for absorption rate in terms of our one to $2 million category, but I think even that's going to turn around and eight was something I want to impress upon people that you have to have some perspective. 70% is a relatively low absorption rate for us considering the last three years, but it's not a relatively low absorption rate. When you consider overtime, I mean a normal market, kind of what we call a quote unquote normal market, I'm not even sure what that is anymore.

Or if we'll ever see one of those again, but people historically call the normal market would become more than that 60%, maybe even towards a 50% rate. Right, you know, you just see that homes would be on the market a lot longer. We look at our closed prices, this is the one that surprised me a little bit. Strong entry level price growth, right? Remember, these are homes that closed in the last two weeks, which means these are homes that were negotiated four to six weeks ago, strong performance in the median as well. But these are both still below a million dollars, when you factor in both single family and condos.

And then our 75th percentile, basically a little bit flat. And that numbers really been flat. As far as you can tell, based on you know, back from May. But what I think is interesting is comparing where we were at this point last year, right? So let's take a look backwards, you know, we were right around one and a quarter million dollars, we are right near 1.3. Today, that is a pretty decent climb year over year. Look at where we are here in our median that has climbed our entry level has climbed year over year meaning if you were on the sidelines last November, and you said you were going to wait, you were going to stick with the devil, you know, that would not have necessarily been a wise move because not only are those interest rates higher today, but so is the price that you're paying for a home.

Now we live our percent still active after 14 days, under a million dollars, that is still climbed a little bit but we're lower than we were at last year. And it's flattened out for one to 2 million. What does this mean? That sort of reprieve and competition that might be starting to go away. And we're going back to a competitive market. If we look at our close to lowest ratio, we are still over 100% in both of our price categories. And then if we look at our days on market for new contracts, that has really persistently stuck around this 30 day mark, versus last year, when we're at 40 days, this is really that metric that needs to move significantly.

I know if we're gonna if we're going to see kind of the level of price softness that I think some buyers are looking for anticipating. Now if we go back to our three way chart, this is the one that you know, partly this doesn't necessarily reflect the interest rate drops in the last five days or so. And I'll explain that in a second. So, you know, realistically, we're probably down in the zone here. It's still a pretty big wide berth.

But what do you notice here is look at where we are, versus this point last year on rents rents have absolutely gone up since this point last year, and so has payments on a new home. So really, there was no escaping rising housing costs, right. And I think there is this bit of a misconception. You know, there's this misconception that if you simply declined to make a choice, you're somehow kind of locking in your present situation. And really, that is not true, unless you have a multi year lease.

The fact is, the market can and will indeed change on you. And you may find yourself not in the position that you want to be in kind of going back here kind of tour, final chart or mortgage rate chart. And again, you know, Where where are the rates right now they've actually even that we're probably in the mid kind of sevens. At the moment right now. I think that's about where we're trending on that national 30 year fixed 20% down measurement.

Anyhow, that's all I've got for you. Thanks, everybody for watching questions and comments. We love them. As always, don't forget to like, subscribe and hit that notification bell. And of course, if you are a buyer or seller of real estate in Southern California, we would love to lend you our expertise and we would love to chat. Definitely reach out to us. And that way we can lend you some of that wisdom and expertise and talk strategy. You deserve a winning strategy in a market like this. Thanks so much, everybody. We'll see you again real soon.