It was last April that I shared that something very unexpected was happening. Inventory was dropping and we saw buyer confidence rise to levels that we hadn’t seen in years. Everyone expected 2012 to be another year of decline, but that did not seem to be happening. It was 9 months ago that I confirmed the trend with you and shared that as soon as distress sales made up less than 30% of our inventory, appreciation would have to occur, even if we still had lower priced short sales and foreclosures on the market. It was last summer that appreciation became obvious, especially in the lower price points. 4 months ago I offered specific examples of “regular sales” at prices more than 30% higher than recent distress sales and suggested some agents were testing the market to see what was possible. The Tesoro home that I mentioned in that post (priced at 735,000 versus model matches on the same street that were short sales priced at $500,000), will close escrow tomorrow-at 725,000! The point is this-no one that invests themselves in the Real Estate business would have told you at the beginning of 2012 that this would happen. No one. Last summer I cautiously shared that appreciation had to occur based on the numbers, and I had to force myself to write it! It just didnt seem possible. I point all of this out because today we are in a market that many experts are suggesting is just as hot as 2006! Some are suggesting that we are creating a new “bubble” based on such rapid appreciation. I don’t personally believe that (this market has far less inventory, far less speculation, far more affordability and most importantly far more qualified buyers purchasing), but the reality is that this is the toughest market to be a buyer in that I have ever seen in 23 years of selling homes. There simply isn’t enough for sale, and competition can be fierce for quality homes. This has led to appreciation, especially under $600,000 that even 5 months ago, no one would have thought possible. In fact, what is happening right now is mind blowing, especially in the lower price ranges. It pains me to tell first time buyers that we really have virtually nothing to show them if they are under $250,000 and hardly anything of quality under $350,000. 18 months ago we had plenty! In the upper price ranges however, this is not necessarily the case. Today’s post then will break down four different price points and explain what is happening in each. Also, a note of caution. This rapid appreciation is caused by 3 things-cheap money, low inventory and strong buyer confidence. If the low interest rates go away, what we are seeing right now in appreciation will cool off immediately. For now though, the numbers are shocking.
Let’s start with our market in Santa Clarita under $ 400,000. In our entire valley there are 88 active properties for sale, not nearly enough. The condo market especially has been on fire. I listed a ONE bedroom condo for 165,000 in Valencia that had 5 offers, sold for 185,000, with no appraisal. It had to sell with no appraisal, as many of our sales do these days, because the most recent closing of that model was $137,000. This week I listed a 3 bedroom Peachland condo in Newhall for 165,000. Historically these are not the easiest properties to sell. Recent sales are under 150,000. In 4 days we have 7 offers and are currently at 180,000. In fact there are only 14 properties available in our valley under $200,000. That’s it. So the offers we are getting not only remove the appraisal contingency they often come with these incredibly personal heart felt letters begging the seller to pick them. Sounds like 2006 to me. This part of our market, because there are so many buyers in it and so few available properties will take the 30% appreciation of the last 6 months and probably continue for awhile. Lots more appreciation potential here.
The $400,000 to $600,000 market has also experienced strong appreciation, but it is about 15% in the last 6 months, not 30%. Still, that is a lot and is helping people that were upside down 2 years ago, refinance because they now have equity. Certain parts of town-Valencia, Castaic, Stevenson Ranch and newer Saugus have really seen some great sales. We sold a home in Hillcrest park Castaic for 450,000 that had a model match sale at 395,000 last fall. This range doesn’t necessarily have the crazy multiple offers of the under $400,000 range but it does happen here too. With less buyers and more homes for sale between 400,000 and 600,000 (currently there are 119 homes in this range available), sellers need to be realistic about what is and isn’t possible. Still, smart agents that know where there are holes in the inventory and buyer demand that is going unmet. We are pushing prices and getting it. Popular areas like Westridge are seeing this because there is literally nothing for sale under $600,000. A recent 2010 square foot duplex in Bella Ventana went under contract at $550,000, $80,000 higher than last fall.
The $600,000 to $800,000 market is trickier. Many agents have put homes for sale over 675,000 in Saugus that are just sitting. Similar with over $600,000 in Canyon Country, though Fair Oaks Ranch, which had just as many foreclosures for awhile as Tesoro Valencia, is really rebounding nicely. With only 42 homes for sale in our valley in this price point, new construction is sold out all over town and prices are up about 12% since last fall. My sale in Stevenson Ranch on Hood Way at $765,000 represents the highest price per square foot in years, and is well over $100,000 higher than it would have been last summer. This is the price point though, where a home doesn’t necessarily sell in a week or two, like under $400, 000. Because of this, agents and their sellers often wonder if they are too high if they haven’t sold in 6 weeks. Especially if the offers received are well below asking, or there are no offers at all. The Hood sale was like that. Virtually every agent tried to explain that it wasn’t worth more than $700,00, and based on the comps, they were right. But this was a remodeled home with a huge yard, and I knew somebody would pay for it. This is where daily study of the market is critical. If you know you have something special, and there really isn’t anything else for a buyer to choose, eventually you will get it. If competition comes on the market that is lower priced and just as good, you may have to adjust. I had many agents tell me we would never get over $700,000 after submitting their $675,000 offer, but the sheer volume of interest told me otherwise, and it closes next week. There are others all over town that represent no less than 15% appreciation in less than a year in this price point.
The upper end is the toughest to quantify. It is REALLY based on quality of upgrades, size of lot, privacy and location far more than the lower ranges. There are 59 homes for sale in this range, many of which have been sitting since last year. Still, I recently sold a home on Marlowe Court in Stevenson Ranch for 935,000 when there are model matches around the corner listed in the 600’s. Why? Because of a huge lot, views and quality of upgrades. When that one home closes, there will literally be hundreds of people that can refinance that might not have been able to in the last few years. Sellers in this price point though often don’t understand why the market is not as strong as in the lower ranges. It really comes down to far less buyers (demand) and usually there are more homes they compete against (supply). When there is nothing to compete against, pushing the price is possible. This just occured in Robinson Ranch, with the first sale well over one million in a few years and a custom in Westridge going for over 3 million.
So what happenns from here? Who knows. The inventory remains under 300 homes, which as I have said before, almost has to mean continued appreciation. Real Estate Analytic Companies have come out and explained why based on their analysis, most markets are still not signifigantly over valued, suggesting the potential for a bit more increase. Still, the first half of the year typically appreciates the most, often followed by a flat second half of the year. It happened repeatedly in 2000-2004. Of course this never happened with only 300 homes for sale-2013 may well continue to sizzle.