The Year Without A Spring Or Summer

Hello, everybody, I hope you had a great Fourth of July holiday yesterday. Today is Wednesday, July 5 2023. My name is Stephen Meade with Domicile Real Estate real estate for people who love houses. And this is our Southern California Housing Market Update. And kind of a creative title for this one, I was looking through our data from the last two weeks and kind of came to just really an interesting conclusion about the market. And that is, we definitely didn't get a spring home buying season that I don't think we're really going to get a summer home buying season.

Let me explain. Let's go ahead and take a look at the numbers. Okay, for starting off here, and we're talking about active listings, I think this really hits the point home, look at the shape of where this is, since the beginning of the year, look at what inventory is done for one to $2 million homes, it is barely changed at all in that price range. And for our under $1 million category. All that has happened is our inventory has really just deteriorated. We've had a couple of little false starts here. But nothing has really materialized you know, I think this is the inventory level, we're going to be stuck with we're going to have that sort of a winter inventory level throughout the rest of the summer.

You contrast this with where we were a year ago, I think that really just hits home, you know, we're on this upward trajectory that we kind of hit that plateau into the fall, I don't really see any of that happening. Our inventory numbers are just where they are at we have you know what I call sort of the lock in effect. And that's mainly as a result of kind of the usual suspects, right, prop 13, property taxes those key people in the properties. But now we have a new one, which is low interest rates, if you have a 3% mortgage, you do not want to sell that home.

Even if you're going to upgrade your home, you're more likely to keep that one at 3% as a rental. Okay, so let's look at our new listings. Now, obviously, a little bit of this is skewed by the holiday weekend, we see kind of both of these numbers and under 1,000,001 to 2 million. Definitely dropping, I think there is a good part of that is the holiday weekend, we'll see a little bit next week have a jump up. I personally have a listing that we are waiting on launching until next week, so I know I'm in that category as well. And if we look here at New escrows, we kind of see a similar thing. But as is pretty common. The buyers don't stay away during holiday weeks, nearly as much as the sellers do. And we see an upswing in that absorption rate, right?

That is that relationship between homes coming onto the market and homes going off of the market. And, you know, you see we're kind of at these sort of elevated, you know, levels here, where were we last year, I mean, these absorption rates dropped pretty low as that inventory built up when those rates first jumped. But now, what are we seeing we're kind of find this sort of comfortable zone here.

Unfortunately, you know, close to a 90% absorption rate is not really a comfortable zone for buyers, that means homes are really flying off the shelves about as fast as they are coming on. Things are a little bit better in that upper price range, but not by much. Now, if we look at prices here, we might have a little bit of good news for buyers. But remember, this chart is, you know, this chart is anywhere from 30 to 45 days in the past because it is based on properties that have closed, meaning those are contracts that were negotiated four to six weeks ago.

So if you look here at our upper end, or 75th percentile, we see a slight rise in prices. If you look at the 25th percentile entry level, those have held pretty steady, maybe dropped a little bit. But that median zone, that middle zone, that's the one that really seems to have taken a little bit of a hit and dropped just a little bit. Of course, if you're looking at these charts, you see there was in fact a low point in the market right around in January, that would have been a great time to have bought and things have recovered since then. If you look at these numbers, compared to where they were a year ago, the 75 percentile, we're almost at the same point.

We're a little bit lower on our median and our entry levels again, almost at the same point. So you know, for those people were waiting for, you know, a little bit of a big market crash to happen. It didn't impact you know, it recovered to a large degree right, probably 50% of those drops in price, maybe even to two thirds have recovered. If we look at our percent still active after 14 days in the market, remember lower is more competitive. And we see both of these numbers ticked up but they are still way lower than we were at last year and that should tell you something especially if you are looking at those properties that are the ones that everybody likes, you will find the competition

And it may not be 20 offers, but it still may be five offers on a property as well. If you look at our list to close ratio, this one I actually thought was pretty fascinating, right? And I think this really tells the tale of interest rates in our one to $2 million category. Yeah, people are going less over list price on the sales. But in under 1 million look, we have dropped down to right about 100%. Now, what I think is especially interesting about that is that this is a measurement when you really, really think about what is the close price versus the list price really mean? Well, it is measuring what do sellers think their home is worth? versus what is the buyer perception of the market. And here you can see buyers and sellers under a million dollars in agreement, I think many under $1 million sellers are listing their properties quite a bit higher. I think that is explaining that that that seller perception has gone up.

I think here the red line, this one to 2 million, I think these are this is a place where sellers still think interest rates are high, and my home isn't worth as much as it normally would be. If you look at days on market for new contracts, you can see here that it did rise a little bit in both categories, but not really huge amount. I mean, we are still under 30 days fact, you know, under $1 million. I mean, we are in the low 20s. Really, this is still a very competitive market, and there are not enough listings available. Finally, we have our three way right and and I'm a big fan of the three way chart and something we talked about two weeks ago, as I said I was I was going uncomfortable with how big this gap was between these two. So just as a reminder, what are these, the red line is sort of an inflation index.

The blue line is our payment index on a median priced home. And our yellow line is the rent index on a medium priced rental, single family home and we index these back to June of 2018. So we sort of we put these all back to your have these changed in relation to one another. And, you know, one thing I don't like is when this gap gets pretty big between buying and renting that indicates that something needs to change. Well, what did we see that something did change a little bit, rents have been creeping up kind of on single family homes, right, since they're a little bottom. And then we've also noticed that this payment index has come down a little bit to bring these a little bit closer together, I think that is heading in the right direction.

So I fear that what's really going to move this as either if interest rates decrease a little bit that's going to drop this or if we see this rental line start to move up a little bit. So finally, we have one more charted as our prevailing mortgage rates. You know, we see we kind of this pattern here where we we kind of almost kiss 7% and bump off of that, you know, kiss those high sixes we've dropped a little bit. But I think you know, the Fed is saying some things, I think that are scaring some of the bond investors things like we have a couple more rate increases in us.

We're not really sure when we're going to start lowering. I think that has really kind of tempered this and it's keeping us into this mid to upper sixes range for prevailing mortgage rates. Well, that's all I got for you everyone. I hope you enjoyed this questions, comments. We do love those. If you are looking to buy or sell a home in Southern California, namely Los Angeles and Orange counties. We would absolutely love to work with you and lend you our expertise and represent your interests. Don't forget to like subscribe and hit that notification bell. We will see you again real soon.