Winners and Losers - SoCal Housing Market Update

Well, hello everybody and welcome to another Southern California housing Market update. My name is Stephen Meade with Domicile Real Estate, real Estate for people who love houses. We are calling this one Winners and Losers. And the reason why we're doing that is because we are seeing a divergence in the market that I think means there are certain groups of people who are at a relative advantage right now and certain people who are at a disadvantage. We're gonna talk about those two groups and, uh, go ahead and go from there. So let's get on the screen share here, and I will start and go through so you can see what it is that we are talking about.

Okay, so as I mentioned, we've got two groups of people, winners, and losers. So let's talk about our total active listings and what group of people is benefiting and what group of people is not. So, um, one of the things that you're gonna notice here is that we are still in a position with very, very, very low inventory, right? So, you know, if you look at this, this is where we were last year, under a million dollars. I mean, it, it is, it is almost at the point where we are at half the, it's, it's a little better than half the inventory, okay?

In our one to $2 million price range, things are a little better, but we are still off in that, in that, um, inventory. So, you know, kind of following our winners and losers theme, if you are a buyer between one and $2 million, and, and I would argue as you go up in that price range, you're more and more better off. Um, you are definitely in a better position than somebody who is a buyer in the under $1 million price range right now. So why is that? Right? And the reason that that is, is because frankly, there are not as many buyers in the one to $2 million price range, right?

Because who is buying one to $2 million? These are typically move up buyers, and we don't have a lot of move up buyers right now because they do not want to give up the interest rate on the home that they currently own. So if we look at our new listings in the last 14 days, I think that's kind of echoes the sentiment. I mean, we've seen a little bit of a rebound, right? Um, but these are still not great numbers. I mean, a rebound look at the rate at which listings were coming on the market last year, um, you know, that was a 50% increase versus where we are now over 3000 new listings under a million dollars every two weeks. Now we are at just under 2000. If you look in our one to $2 million category, again, just over a thousand new listings in the last two weeks, last year, where were we at?

Almost 2000 new listings. So again, you know, we're, we're definitely seeing a, a little bit, these are moving together, but I'm gonna show you some stats where they're not right. Where these under 1 million and over and one to 2 million markets are moving in a different space. So this starts to illustrate that difference. If you look at this, this is escrows in the last two weeks, we're starting to see that under $1 million category tick up in new escrows, we're seeing it tick down for our one to 2 million category. So these are moving in the opposite directions.

If we look at our absorption rate, again, you know, this tells us that both of these markets are facing a little bit lower absorption, but this under 1 million iss still very competitive, over 80%, but heading towards 70%. This is definitely a better spot for those buyers that are in that one to $2 million category. So if you're a seller under a million dollars right now, you, you have a pretty good gig, right? If you need either your selling due to, uh, you know, uh, a death or a divorce, or if you're selling because you are relocating to another area, uh, you're in a great mood.

But we're gonna talk about a third category of person. I think that's in a really good spot right now, but I want to get to the end before I do that. So if you look at our closed prices, what does this tell us It tells us that the market has basically flattened out on prices, right? It, it basically dove down, kind of hit a bottom sometime in that sort of January, uh, timeframe, and then the prices kind of rebounded up. Where are we right now? We are flat and look at where these numbers are, right? This is by no mistake, they're slightly less than we were at last year, but these are pretty close to the prices that we saw a year ago from today, right down here in our entry level, we are just a little bit lower.

We're just a little bit lower in a median. And then in our upper 75th percentile, we are again, just a little bit lower than we were at this point last year. From a price perspective, if we look at our percent still active after 14 days on the market, uh, that tells us another story, right? And that is, look at these homes. Remember, lower is more competitive on this chart. So if you're in this one to $2 million category, that level of competitiveness has largely stayed the same. But look what's happened here. We're definitely seeing that this under $1 million market, which has previously been pretty much in lockstep, has now suddenly a more competitive market than we were seeing in that one to $2 million price range. So again, if you're a seller under a million dollars, uh, you know, you're really in, you're really in a great spot.

And likewise, if you're a buyer in that one to $2 million range, you are also in a pretty good spot, relatively speaking right now, if we look at our close to list ratio, these things kind of dove down again. They hit a bottom here end of January, and they kind of went back up, uh, and now they're kind of leveled off kind of in this a hundred to 102% of list price on average. And again, we've got another piece of evidence that suggests differing markets under a million dollars and between one to $2 million, right? So under a million dollars, look at this days on market for new contracts, it's taken a dive. I mean, we're, we're almost back to 21 days on market for new contracts for under a million dollars, but it's actually leveled off and we've even risen a little bit back towards 30 days for our one to 2 million range. And you'll notice, you know, all this point last year, these were really close together, like these markets were tied.

This year things have been more volatile and we're definitely seeing that show up here. There are differences between these markets. Now, this is our three-way chart, right? And I'm, I'm particularly fond of this because, you know, this tells us a lot about what's happening and where the pain points are. 

And as I'm, and as I love to point out, what we're really looking for is this spread this difference, right? If we go back, uh, you know, this point last year we had a pretty narrow spread and then it sort of grew, right? Uh, and we had this really wide rift and then it kind of came back together kind of through the end of the year when these are together really fuels price growth. Now what you're seeing is the interest rates started rising here that pushed this payment index up.

It has leveled out a little bit and dropped a little bit, and then the rents have kind of started to be above this line and come a little bit close together. You know, in general, home prices move much more quickly than rents. Rents do not move nearly as quickly or as vol. They're not nearly as volatile as home prices, which has always kind of fascinated me. 

We can have a whole episode on that. But you see these starting to come back together a little bit. The magic number kind of seems to be within this 20% range. Uh, you know, right now where are we probably closer to that 25, 20 6%, uh, or, or rather 30, 31% difference. So these still have some coming back together to do, whether that be through either prices, interest rates, or rents going up. You see c p I kind of marching forward here as it does somewhat relentlessly, but slowly. And then if we look at our mortgage rates, we kind of see a, a story here.

They kind of hit kind of almost kissing 7% there just a little bit and coming back. So what are we gonna talk about the group of people that that really does have an advantage, right? And that group of people that has an advantage, I think right now is a group of people that doesn't think they have an advantage what people are selling something under a million dollars, but are also able to purchase something over $1 million, right?

This is our move up buyer group, and here's the deal on that, right? I, the reason that we don't have a ton of people doing this is because nobody wants to trade what is probably a three point something percent interest rate for a six point something percent interest rate. Um, it also requires a much bigger sort of monthly expenditure investment. But there's an old adage in real estate, and, and you probably heard some of the, the cheekier agents out there posting this on Facebook, and that is you marry the house, but you are dating the interest rate.

And, you know, most of us have an expectation in the industry, and I, I use this term expectation, none of us know for sure, and anybody who tells you they know absolutely without a doubt is lying to you. Um, but there is an expectation that at some point in the next 24 months, interest rates will be noticeably lower than they are today. 

And so if you are a smart buyer and willing to take maybe a little bit of a leap of faith, and obviously this depends on your own finances, exactly how much risk you're taking on. So don't, don't say Steven told me to do this. If you are willing to take a little bit of a risk on that, you can really kind of exit, exit the market on your sub million dollar house, right? And get very strong offers on it. You can have a little bit more negotiating power on buying something in that one to one to two range.

You're gonna take a higher interest rate than you want today. But let's look forward to this. What happens 18 months from now, 12 months from now, if prevailing mortgage rates are in the mid fives or right at 5%, right? What happens if that is the market conditions? Well, there's a couple things that are gonna happen. Number one, you're gonna be able to refinance and lower your payment, right? Uh, and you're gonna start paying off your principle faster. So that's one consequence. But what's the second consequence of that? In a very limited inventory environment, which is what we have now in what I, I don't see changing anytime soon that reduction in interest rates will fuel some price growth. And I think what we're gonna see when that happens is that means if you bought today in that one to $2 million category, you're gonna get the best of both worlds because you're gonna end up with a lower interest rate and you're gonna end up with today's pricing, not the 12 to 18 months from now pricing that may be fueled by lower interest rates.

So you also would've gotten top dollar for your house, uh, when you sold it in that under $1 million category. So I feel like there's a lot of benefits, right? You can, you can move yourself from a highly competitive market to be a seller into a little bit of a less competitive market to be a buyer in. And I think that's not a terrible spot to be. And if you're strategic about this, especially if you've been thinking about making a move, this is something that might be a benefit to you if you can stomach the higher payment on, on, you know, what will hopefully be a more temporary basis. You know, who's, who's the biggest, you know, loser right now, right?

The toughest thing right now is for first time home buyers under 1 million. Without a doubt that market is very, very competitive. Um, and we're seeing buyers, you know, who kind of went into this thinking, Hey, interest rates are up. I should, I should be able to get a good deal on a house or finding that they have to bid significantly over list price to get that.

I think we are gonna see that pricing needle start to move up on those homes just because there is such a lack of inventory and supply. And really prices are a determinant of the relationship between supply and demand. This is economics 1 0 1, uh, figuring out what goes into supply and demand. That's a little bit more complicated, but the principle really is there. Anyhow, that's all we've got for you for our Southern California housing market update. Uh, we're June 20th here. We're heading into 4th of July weekend coming up pretty soon, or not weekend, but 4th of July week.

If you are looking to buy or sell a home in Southern California, uh, especially Orange and Los Angeles counties, and you'd like to use our expertise, we would absolutely love to talk to you. Do not forget to like, subscribe and hit that notification bell. Uh, questions and comments. As always, we love them and we will see you again real soon.