Market Update | Real Estate’s New Normal

posted on April 18th, 2017 | filed under: Buying Strategies, Market Update, NoCo SD Market Conditions, Uncategorized

Once upon a time, in a market far, far away, the National Association of REALTORS® decreed that six months of inventory indicated a “balanced” market. This was for the national market. In regional markets, your mileage would vary.

In San Diego, our mileage varied. A “balanced” market here was one-hundred and forty-two days of inventory from January 2000 through December 2006. That was a period of normalcy for the county.

Those days are long gone. During the Great Recession of 2007 through 2011, inventory levels spiked as sales plummeted and foreclosures jumped. Days of Inventory then averaged two-hundred and eleven.

Beginning in 2012, sales rose to normal levels, but inventory went down the drain.

There are three main reasons for the lack of inventory over the past five years, all of which seem intractable.

First, baby boomers aren’t moving. According to an AARP survey, 87% of baby boomers over the age of 65 want to stay in their homes. The main reason is to be near family and friends. Another reason is to avoid excess capital taxes. Selling a principal residence allows for either a $250K shield if single, or a $500K shield if married. Any gains over those amounts are taxed as capital gains. There are some ways around this, most of which involve setting up trusts. That is something you would need to discuss with your tax attorney and/or accountant.

Second, a significant number of the homes that were foreclosed on were bought by hedge funds and big private-equity groups who bought in bulk from the banks. Then, rather than flipping the homes, they rented them out to the families who had been foreclosed upon.

Frank Nothaft an economist with Corelogic, says in 2006 there were nine million single family houses in in the rental stock.  That number increased by three million in the following seven years, he said.

As a result, there were many fewer homes for sale, which helped drive up prices in markets around the country.

There is, yet, no sign these investors will be putting those properties back on the market.

The third intractable reason for low inventory is builders aren’t building.

Home builders say it’s new regulations that are holding them back from filling the void. CNBC reports that such regulations may cost builders up to a quarter of the price of a new home, and a recent National Association of Home Builders study found regulatory costs have increased 29 percent in the past five years. The builders also say labor shortages are holding them back. Finally, prices for land and materials are rising and there is a lack of finished lots in neighborhoods where people want to live. These price constraints create an incentive for builders to construct fewer, and more expensive homes, because under such high demand, they can fetch higher prices for each home they do sell, CNBC reports.

Starting in 2012, Days of Inventory, or how long it would take to sell all the homes for sale at the current rate of home sales, has averaged eighty-seven days in San Diego County. We haven’t been over eighty days of inventory since February 2016.

There you have it. The new normal: low inventory resulting in multiple offers and rising prices.

MARCH SALES STATISTICS

SINGLE-FAMILY HOMES

Year-Over-Year

• Median home prices increased by 5.5% to $559,000 from $530,000.

• The average home sales price rose by 1.3% to $679,314 from $670,622.

• Home sales fell by 1.3% to 2,071 from 2,098.

• Total inventory fell 20.3% to 6,592 from 8,268.

• Sales price vs. list price ratio rose by 0.5% to 98.6% from 98.1%.

• The average days on market fell by 11.2% to 37 from 42. Month-Over-Month

• Median home prices improved by 2.6% to $559,000 from $545,000.

• The average home sales price fell by 3.2% to $679,314 from $701,486.

• Home sales up by 41.9% to 2,071 from 1,459.

• Total inventory increased 1.2% to 6,592 from 6,513.

• Sales price vs. list price ratio increased by 0.3% to 98.6% from 98.2%.

• The average days on market dropped by 10.5% to 37 from 42.

CONDOMINIUMS

Year-Over-Year

• Median condo prices increased by 7.2% to $402,000 from $375,000.

• The average condo sales price rose by 5.8% to $472,150 from $446,181.

• Condo sales fell by 2.7% to 815 from 838.

• Total inventory fell 26.4% to 2,109 from 2,867.

• Sales price vs. list price ratio rose by 0.7% to 99.1% from 98.4%.

• The average days on market fell by 17.8% to 27 from 33. Month-Over-Month

• Median condo prices improved by 1.8% to $402,000 from $395,000.

• The average condo sales price fell by 0.2% to $472,150 from $472,874.

• Condo sales up by 43.5% to 815 from 568.

• Total inventory dropped 0.3% to 2,109 from 2,115.

• Sales price vs. list price ratio increased by 0.0% to 99.1% from 99.0%.

• The average days on market dropped by 21.5% to 27 from 35.

Total inventory is active listings plus contingent or pending listings. Active listings do not include contingent listings.

posted by Jeff DeChamplain

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Jeff DeChamplain