In my last post I commented that the reason why prices wouldn’t noticeably appreciate this year was due to distress sales, especially short sales, preventing that from happening. I suggested that as long as we had a lot of short sales, and percentage-wise they are about 50% of our inventory, that “prevents” the normal appreciation we might see. Real Estate is always a supply and demand business and today’s post is going to suggest that something unexpected is happening with supply right now. It is too early to tell exactly what this lack of supply will mean long term, but in any other climate it would be a clear mandate that appreciation was imminent. Of course, after the last 6 years, no one wants to predict anything until it is 100% OBVIOUS. Stay with me here though on some trends that have me more encouraged than I have been in years. Let’s start with pure statistics. Today, in valley of well over 200,000 people we have 630 homes for sale. That is down from 780 6 weeks ago and from over 1100 homes a year ago. Realtors rarely agree as a group on much, but on this I get 100% agreement in my office and in my network groups-everyone has buyers that they can’t find anything for. When they do, multiple offers, sometimes over asking are occuring. This is especially true in the lower price ranges, but it is happening anywhere that demand exists and supply doesn’t. I just sold a home in Northbridge Valencia for $735,000 when we haven’t had a sale close to that in 2 years. Finally, to put that 630 number in perspective, the lowest I have ever seen our inventory was in 2003 when it dipped into the 500’s. The highest was about 2400 homes 4 years ago. You don’t have to be an economist to know that if this stays, appreciation HAS to occur.
So why aren’t prices going up? Well, it could be suggested that they are. The home in Northbridge suggests that, but we need a lot more than one home. The reasons why they will still have trouble rising are three fold. First, loans are challenging, not just because of tougher credit and income requirements, but due to appraisals. I just put into escrow a home in older Saugus for $390,000. The comparables are low to mid 300’s. Normally, I would shoot for a high down payment buyer, or a cash buyer, so appraisal can be removed. This is very uncommon though in this price range and for a buyer that wants to live in the home. Cash buyer investors don’t pay top dollar for homes like this, and buyers who simply want to live there rarely have enough cash to waive appraisal. A classic catch-22. The second challenge is that there still is not enough demand to show a clear trend for buyers overbidding and causing prices to rise. Buyer confidence is much higher than it was even a year ago, but there still aren’t enough buyers to clearly drive prices up. Third, the homes that are newly listed, especially the bank owneds and short sales, are priced at or below the most recent sales, not slightly above. Myself and a few other agents are taking our “regular sale” listings and, if they are nice, pricing them higher than recent sales and hoping to get it. Then we hope to get the appraisal in. Enough of those sales and the market will noticeably start to change.
The next 90 days are going to tell us a lot. If inventory stays this low, something has to give. I have had plenty of potential sellers tell me that they want to wait for prices to rise, and I get that. I still believe that is likely a few years away but consider the following. Normal 3 month supply of listings for our valley would be about 1300 homes. We have half that number. The foreclosure “wave” everyone keeps thinking will happen, most people that should know, ackowledge is unlikely. Between robo-signing settlements, the real discussion of principal reduction for upside down buyers, the large holders of properties (Fannie, Freddie, Bank of America) talking of renting them instead of selling them and the fact that foreclosure inventory has dropped 4 years in a row, it seems that isn’t going to lead to a lot more homes. Lastly, and this is key, many people that short sold in 2008 and 2009 are now credit worthy to buy again. Those numbers of potential buyers (more demand), will continue to rise. These are typically highly motivated buyers and the more we have, the sooner the decline stops. As I have suggested, the market will likely bump along for the next 2 years. There will be some great sales that suggest possible appreciation and some poor sales (almost always distressed sales) that suggest we are not out of the woods. The more of the great sales, and the more sellers will get off the fence and test the market. We can argue if we have hit bottom or not. We can’t argue that we just don’t have enough homes for sale….