The I Word - SoCal Housing Market Update

Well, hello everybody and welcome to a another seller Southern California Housing Market Update. My name is Stephen Meade with Domicile Real Estate real estate for people who love houses and love the real estate market or you wouldn't be watching. We're located here in Southern California. So if you are in Southern California, we'd absolutely love to work with you for your real estate services. Let's go ahead and get started and talk a little bit about the I word and the I word is inventory or lack there of and why we're having this persistent issue and why this is really the dominant force, right? I think most people when you say the I word you're thinking interest is in interest rates. But I can promise you while interest rates are important, the reality is our market is really dominated by the complete lack of inventory and the lack of upcoming inventory. Right.

It's not just that we don't have any inventory, but that the expectation is that there is not going to be any inventory. And scarcity is an incredibly powerful force in real estate, I think it's maybe even more powerful than location, right? I think when people feel like this is their only chance to get something or they're not going to be able to get something in the future or there's not enough homes to go around. These are very powerful motivating factors for buyers and sellers alike. So let's go ahead and get started. We're going to talk about maybe how we can outsmart this problem a little bit. But I think we need to understand what exactly is the problem first. So let's go and get started. So problem number one, what is our total active listings in the market? And guess what? There aren't that many. And I pointed this out a couple times before but you know, take a look here. Look at the slope of this line last year, what was going on in June of last year, more inventory, we were getting more houses, it was rising and cresting over the summer, what was happening in our one to $2 million market again, rising? What's happening right now? Well, it rose a little bit. And now it's kind of fizzled out for both our under $1 million category and our one to $2 million categories. And this is LA in Los Angeles County data combined. A lot of our clients, you know, they're on these border areas, you know, maybe they're in Anaheim, maybe they got to Whittier, you know, if you're if you're in these markets that are closely related, they are contiguous markets, for the most part.

So this is kind of problem number one, I mean, here it is with inventory. Not only is it not growing, but it's also less than it was last year. So two problems. Now, if we look at our new listings, admittedly, a little bit of this is going to be skewed by a holiday weekend that we just had. But I think the problem is deeper than that. The reason why is we go back two weeks with this data. And typically what happens when you have a three day weekend, right? Like Memorial Day, for example. The week of Memorial Day, people do not put those homes on the market, the week after Memorial Day, you get a lot of those homes on the market that people were withholding. Right. And so doing this, we're actually taking a look back. Right. And and there's no there wasn't this corresponding huge bump to make up for that. This is one of the reasons why we need two weeks smoothing by the way so that we can at least kind of smooth out some of this. Now, if we look at new escrows, for our under a million that's down to and that primarily is interest rates, right, not as many homes are going under contract. But I think part of that is also there's just not as many homes to buy.

And you'll look at our one to 2 million that actually went up a little bit, you know, we're actually at a healthy point, right? This is the most transactions we've had since the beginning of the year, and that one to $2 million dollar category. Now, if we look at our absorption rate, right, this is that that quick and dirty, how many houses left the market because they went under contract and how many came onto the market as new listings. You know, as you can see, under a million dollars, we are absorbing 90% of those homes, you know are going right, that doesn't leave a lot of room. That's a very tight market. And even in our one to $2 million category, we're over 80% That is a competitive seller's market. And if you look at our prices, and again, my usual disclaimer rate, these prices are based on four to six weeks ago, contracts that were negotiated, right? What was what was true four to six weeks ago. Interest rates were less by the way, and look at where things are closing. I mean, these really are if you look at this arc here of prices over the last year, we are we are getting close to back where we were a year ago. So prices did decline and then they bounced back in the spring and look where we're ending up. We're not that far off. And then In fact, I would argue not that far off in our 75th percentile, that is our, you know, these are homes that are kind of between that one and a quarter and one and a half million dollars, our median here, which is between eight 900. And a million, that number is almost back to where it was our entry level though our 25th percentile, that is still down a little bit. But you see, the shape of these curves really is the same. For almost all of these right, we started off at a point, interest rates went up, prices slipped a little bit, and then they bounced back in the new year when people got used to things.

And they realized there just weren't that many houses to buy. If we look at our 14 day still after that tells a slightly different story, right. And I think this is important to point out this difference. So this takes a look at everything that came on the market in the last 14 days. And how many of those are still there, right that are still available for one reason or another. Higher means a less competitive market. And that's what we saw happened last year. Lower means a more competitive market. Look at what happened here, under 1 million basically track the same the whole time, and then the under 1 million market got way more competitive, and then bounced back. And what you're seeing there is that this under $1 million market is way more competitive and way more sensitive to interest rates than the one to $2 million market. So if you are a buyer, right or a seller, this is something that you need to understand is that over a million dollars and under a million dollars are not the same markets, especially not right now. If you look at our close to list ratio, we are back on average, over 100% of list price is where homes are going, you'll notice we did dip down to run 97 and a half percent even a little lower for one to 2 million, and then things have bounced back. So again, kind of more of the story, right? Things deteriorated the last half of 2023.

And then they bounced back not completely. But in a lot of ways things are getting closer. This is our days on market for new contracts. So these are homes actually going in escrow. And we see that that number again, rose and hit a peak towards the end of last year and that it has been declining. And now it's kind of steadying around this 30 Day market that is still a very, very competitive market folks. And then we've got our we've got our three way chart, and I'm gonna I'm going to tell you something about this. That's important. Where does our mortgage figure come from? So our mortgage figure that we use for calculating these payments, we use a number that is published by Freddie Mac, once a week. And what we saw was really, some very precipitous interest rate increases, maybe in the last two weeks, those have actually eased off a little bit. So this number is maybe not quite representative. One of the things that I frequently talk about here is this notion of this gap, right? If we started back in June of 2018, and we normalize the payment and the rent on a single family home, how are these moved relative to each other. And you'll see there is a relation to these things, right, there's a gap, sometimes that gap does get wide, but then it narrows back again, you know, there's a zone really that this likes to be in. And if you're up here, this zone is definitely getting out of whack. These are not where they need to be the yellow number, again, is rents on a single family home relative, right, what is the premium for buying what is the payment premium that you're seeing, and this is starting to kind of get out of control a little bit, I think we are going to see this number kind of ease back. Traditionally, what we've seen is things kind of in this 20% zone, I think of things do exist farther apart from this for too low.

And that is when your market starts to have kind of some issues going on, right? Like some things that we get, we get afraid that we're going to see either, you know, some kind of I don't want to use the term crash, because I don't think that's accurate. But some type of correction that has to happen if these numbers stay wildly apart for too long. But as you can see, we've had bigger gaps before and then they narrow. I think once these interest rates, these post debt crisis, interest rates kind of eased back, we're going to see these get a little bit closer. And then finally, we've got our prevailing mortgage rates, right. Again, this is based on a on a weekly figure that we take, it's actually a little bit better than this today. But you see as these rates headed towards 7%, that makes those payments go up and get higher. We go back here. That's what kind of drives this payment index, not just the prices which have also gone up at the peak, but the interest rates as well. And I think if we see this kind of normalized back to the mid sixes, you're going to see a little bit of an easing on this chart, as well. Well, that's all I got for you everybody. Questions, comments, we love them. As always, if you are looking to buy or sell a home in Los Angeles or Orange counties, and you'd like to use our expertise, we'd absolutely love to help you with that. Definitely reach out. Don't forget to like, subscribe and hit that notification bell and we will see you again real soon.

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