In my April post titled “Where are all the Homes?”, I finished by suggesting that the next 3 months would tell us a lot. Well, it is exactly 4 months later and what might have been a temporary cycle is now an unquestionable shift in the market. To recap, a year ago there were 1100 homes for sale, 6 months ago it was about 800 and in April we had 630. Sensing there might be a late “spring selling season” with lots of homes coming on in May-July, I suggested “wait and see”. Today there are 410 homes for sale in the entire Santa Clarita Valley, the lowest number I have seen since I started tracking in the 1990’s. Until this year I speculated that because of the relatively high number of short sales and foreclosures in our valley, it would be at least 2 more years to get them through the system and normal appreciation might follow. I no longer think that. Besides what I see in the field (multiple offers on most of my listings, agents begging me to tell them about my listings first for their buyers etc), the inventory is now so low that appreciation will naturally have to follow and in some areas already is. I have been testing list prices at 5-15% higher than recent sales, and in almost all cases we are selling or at least getting offers. Interestingly this is happening in many other areas that took the up to 50% hit in values that parts of Santa Clarita did. Las Vegas, Phoenix, Florida-all of these areas had, at one time 5 to 6 times the number of homes for sale that they do today, same as Santa Clarita. All three of these areas have experienced appreciation-in some cases up to 30%-from a year ago. We don’t have that yet, but here is what is happening now and why I encourage potential sellers to take advantage of this crazy supply-demand situation.
First, the number of foreclosed properties is the lowest it has been since the crisis began. At one time foreclosures were almost 30% of our inventory, today they are about 7%. When properties do go to foreclosure sale, the investor buyers snatch them up and banks don’t take them back. These so called “flip properties” then get a nice face lift and come on the market as “regular sales”. Often, because they are usually very nice, they sell for as much as any other property in the tract. So instead of a beat up “as-is” foreclosure we have a nicer move in condition property at a price that can be 20-35% higher than the bank would put it up for. This one trend alone is starting to give appraisers the “comps” they need to bring in values at higher prices and will continue.
Second, any lender will tell you that lending guidelines today are the toughest they have seen in 20 years. With that said, they also believe that because the market is improving and confidence is growing, more reasonable conditions lay ahead. This week I saw a new loan program in which someone could short sale their home (with no late payments) and get a new loan with 15% down right away. No 3 year waiting period. Because a lack of qualified buyers and buyer confidence has been a huge factor in the declines of the last 7 years, this is a trend to watch closely. In fact, I can tell you that in the lower price points there are likely 5-10 buyers for every new listing all preapproved, all eager to buy. No exageration. Buyer confidence is no longer an issue and if you watch the media, what used to be 50-50 negative-positive is now much more toward the positive.
Third, if you combine the lowest interest rates in my 21 year career with prices that are still in many cases 30-40% below the peak, you have the highest affordabilty index since the 1990s. Bouyed by this, buyers are willing to pay a little more than recent sales because even at a slightly higher price, the payment is the same because the rate is lower. If this continues, along with improvements on the employment front, appreciation should follow.
To conclude then, we have a completely unexpected market shift in 2012. A supply that hit 2500 homes in 2008 is now at just over 400. If you want to buy a condo in Stevenson Ranch under $350,000, there are exactly TWO to choose from. TWO. In Valencia, there are 22 in an area large enough to support three times that many. I put a short sale on the market in Valencia at $345,000 (The price of the last sale in the tract) and had 8 offers ending at 390,000. No appraisal contingency, of course. Move up buyers are realizing now is the time but are forced to sell and rent, waiting for a decent property to come on the market. Believe me, I have them in apartments and homes just waiting to buy. Just this week I have seen 9 new listings, all standard sales at prices higher than they would have been 3 months ago. For those that are still worried about “shadow inventory”, foreclosure radar lists 1279 properties that are in default in Santa Clarita. If every one of them came on the market (and less than 30% will), they would in most cases be absorbed immediately, many by the investor flippers described above. Potential sellers, pay attention, your time may be now.