Is the market REALLY slowing down?

One year ago our valley was in the midst of the biggest surge in prices seen in over 8 years. This year, in the midst of the “Spring selling season,” we aren’t seeing the same robust appreciation…but are we really slowing down that much? I wrote in January that a lot would depend on if new listings came on the market and sat, instead of being absorbed by waiting buyers; and if so prices would be flat. You simply can’t push prices if there aren’t buyers waiting to purchase that are motivated and confident to pay a new, higher price. Well, the amount of buyers in the market place is clearly lower than a year ago. Homes are taking longer to sell in certain price points. Many publications are reporting that year over year sales are lower, for 8 straight months now. But our inventory is NOT rising. Homes are being absorbed as they hit the market, and if they take a little while to sell, usually a price reduction or two results in an offer. I would suggest then, that though we may be in a more “normal” market in which prices can’t be pushed like a year ago, the lower sales figures are due more to a LACK of inventory than a lack of interest from potential buyers. The best way to explain what is really happening behind the numbers is to give specific examples. This week the LA Times wrote a front page story explaining how the market was hot in the million plus dollar market (citing Manhattan Beach as an example of increased sales to mostly cash buyers), and slow in the under $300,000 single family home market. They used a building inventory in Redlands as an example of that. The poor Redlands seller was quoted as having to reduce prices twice down to $300,000, and still no takers. The article suggested that this was an example of the rich, flush with cash, enjoying a strong sellers market with their million dollar homes at the coast, and the blue collar bread and butter seller being stuck with a lack of buyers due to income stagnation and tight lending guidelines. This may be true but I can assure you that in just about anywhere in Southern California, the $300,000 single family home, even the $400,000 single family home flies off the shelf! In fact whatever price appreciation we have in 2014 (and we will have it), will be driven by this price point. This is happening everywhere and certainly in Santa Clarita. For example, the $400,000 home I just listed in Canyon Country. In 10 days there were 31 showings and nine offers. It will sell for 3-4% over list price. Same scenario with a 2 bedroom detached home in Valencia. Priced at $325,000, it will close at $338,000 to a cash buyer. Both of these represent significant increases over a year ago and are driven by one thing – lack of competing inventory. There wouldn’t be dozens of showings and multiple offers if there were enough homes! So when you read about slow downs, reduced sales from a year ago and the like; remember it may be due to inventory shortage just as much as tougher lending guidelines or a lack of buyers. I also suggested in January that the last 6 months of 2013 saw a dramatic slowdown in the upper price ranges. Many sellers in the over $750,000 price point saw the strength of the spring and priced their homes at higher price points…just as the market slowed down in the second half of the year. In many cases they had showings but no offers. They simply overshot the mark for the market at that point in time. In reviewing a dozen of these homes, when they came back on the market this year (in most cases at the same price point, not much lower), all but 3 have sold. Why? Simply stated, this price point clearly does better in Spring. Move-up buyers, relocation buyers and buyers that want to move around the school year mostly purchase in March/April/May so that they can move in May/June/July. Though there are a few more homes for sale in this price range than a year ago and they do take longer to sell than a year ago, results so far are mostly encouraging. This year we have seen the 2 highest sales in Sand Canyon in over 5 years, 4 of the 5 customs in Westridge sell & there is currently nothing for sale in Southern Oaks. What is clear in this price point, if you are a potential seller, is that buyers are more informed (and pickier) than ever. If you have put a lot of money into your home, it is likely that prices can be pushed. If there are other homes on the market like yours and they have superior features you will likely need to price under those homes to get a buyer. A home in Westridge recently illustrates this. It was completely re-done and the competing sales in the Masters tract were between $85,000-975,000. They priced it at 1,095,000 and had two offers in the first week. Why? It was simply because the two potential buyers had seen the inventory and knew this seller poured several hundred thousand dollars into their home on upgrades that buyers value. The buyer was willing to pay top dollar for top quality and this is happening all over town. So while we clearly aren’t Manhattan Beach with lots of cash buyers waiting to buy, we are seeing quality homes met with a solid response in the market. When I read the LA Times article this week, it occurred to me how confusing this market can be. Candidly nothing that was described in the article pertained to Santa Clarita, or I suspect, many parts of Southern California. One of the most important ways I report what is happening to you is by meeting weekly with the other top agents in town at our network meeting. We share information – lots of information – to gauge what is happening in different price points and different parts of town. Last week, one of the agents describing the super popular Woodlands tract exclaimed, “I can’t believe that home sold for that price.” This is an area she specializes in and even she was surprised! Similarly, 4 months ago, most of us were pretty shocked by how slow the second half of 2013 had been, when the first half was so incredibly strong. I mean, it changed that quickly! So keep the following in mind:

  1. A smart agent knows where the buyers are, before you put your home on the market.
  2. A smart agent knows exactly how your home compares to the competing listings, before you put your home on the market.
  3. A smart agent knows where the holes in the market are and where you can push prices.
  4. A good agent will tell you the truth after a month or two without success. Price is likely the issue if you haven’t received offers. It just means the market for your home, at this time, may not be able to be pushed.

The good news is that 2014 is actually stronger than we might have thought in January. Buyers are out there and waiting for new homes. The lack of inventory is why the number of sales are down, not because of a lack of interest or available loans.

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