It’s almost August and if you read my last post about the super strong, multiple offer driven Spring market, you may be surprised to hear that just a few months later the market is shifting a bit. The problem with describing these changes is that there will be exceptions in every neighborhood and price point, but for most sellers we are seeing a return to stable price points and longer marketing times. Many of my current sellers are experiencing less traffic than they likely expected or hoped for and are noticing more signs up, often without a “sold” attached. The media knows this too and we have seen the return of less than encouraging headlines. In fact, in the last week I have seen Forbes, Bloomberg and USA Today proclaim the following:
- “Chinese reversing their big Real Estate buying spree.” This actually started a while ago and pertains primarily to Commercial Real Estate, but the San Gabriel Valley isn’t seeing the same residential impact of foreign money that it did in 2013-2017.
- “Sales of new homes sink to an 8-month low even as prices fall.” This is for new construction and a National Stat, but it still raises eyebrows.
- “Southern California home sales crash in warning sign to nation.” My personal favorite! Crash? Closed sales were down 10% in June.
So, what is really happening in Santa Clarita and how might that affect your Real Estate plans? No hype or flashy headlines, just the facts. The following started at the end of May and is happening as I write:
- Inventory is up 30% in the last 60 days. Our spring average was about 450 homes for sale. Today we are at just under 700. For perspective a “normal” amount of inventory would be about 1100 homes. Still we clearly are seeing homes come up for sale and not go into escrow right away. In May, we had more homes in escrow than for sale. Today the reverse is true.
- When newer listings get interest, it is often one offer and not 2 or 3. More and more offers are coming in under the asking price which rarely happened several months ago. This makes negotiating the price up more difficult when there aren’t multiple offers. There are simply less buyers for the new listings coming on. Many have already bought (hence my advice to sell in February-May, not June-August), and many others are seeing prices they just can’t afford. In Santa Clarita, the median Income is $90,000 and the median price is $595,000.00. It takes 133% of the median income for a 20% down payment on that $595,000 home. It is also 43% of the monthly income. For many we have reached a point where they simply can’t or won’t pay today’s prices. Therefore, it is important to consider that unless something changes, a small correction to the market, wages increase, or interest rates come down; we will have a little slower market for now and stability in prices if not some modest reductions.
- Buyers don’t have the same urgency as in the Spring and (surprise!) in addition to making offers under asking are perfectly willing to walk away from seller counter offers they consider too high. Buyers are keenly aware of market shifts. They know when homes come on the market and don’t sell right away. They see the price reductions that are becoming more common as sellers realize they may have been ambitious in their initial pricing. We put a home under contract last week in which our buyer made an offer in May and 75 days later the seller came back and accepted his initial offer.
To sum up let’s remember a few things. Inventory is still low and low sales numbers are often a reflection of that. It doesn’t mean there isn’t still strong demand for quality homes and certain price points. There is. I sold a pool home for $550,000 over the weekend with 5 offers. That can still happen and will continue to happen when homes are marketed properly. However, a great majority of sellers need to understand that if their home doesn’t sell in a few weeks or with multiple offers that nothing is “wrong.” This is the new normal and simply reflects a more balanced market. Further, sellers will not be able to make demands the way they did in a hotter sellers’ market and need to understand that condition & price are key to getting sold. Many agents are uncomfortable telling their sellers about market changes that affect them if it isn’t obviously happy, good news. They won’t emphasize the importance of preparing the home to show its best, pricing it properly (not optimistically) or being honest about how buyers will compare it to the competition under current market conditions. Worse, they won’t explain why repairs might be required to get the home closed. That is a crucial mistake. Months ago, I would say “a hot sellers’ market can forgive a lot of sins.” Not today. Markets ebb and flow. Nothing goes up forever. Sellers should be prepared for it to take a few months (maybe more in higher price points) to sell and be thrilled if it is just a few weeks. Understanding where the market may be softer and less forgiving and being honest with a potential seller about what that means is absolutely critical today. Yes, the market is shifting. Remember though this is still a market that doesn’t have enough homes for sale in many parts of town. Knowing where that is true, and not true, is what good agents have to share with their sellers in navigating these shifts.