You may have heard some doom and gloom about the real estate market. Maybe you haven’t. If you’ve been reading any news, you’ve probably heard the experts take both sides. Please keep in mind I don’t have a crystal ball and this month’s message is not a forecast.
In general:
- Homes that are move-in ready and priced at or under market, are still selling in the first week or two and sometimes with more than one offer. When there are more than one offer, we are experiencing 3-5 on offers on average as opposed to the 20+ typically received at the beginning of 2022.
- There still is a great deal of cash and motivated buyers in the marketplace, and while interest rates have skyrocketed, the banks are still lending.
- In most cases there is more of a disconnect in the perception of home valuation between buyers and sellers. It’s not uncommon for sellers to still be yearning for the higher prices of last year while buyers are discounting their offer price for what may or may not happen in the next six months.
The numbers:
At the risk of boring you and getting down in the weeds, I’ll geek out and share some statistics. The number of homes available for sale is down drastically from last year, and last year we did not have an abundance of homes for sale. Comparing the number of homes available for sale in September 2022 compared to September, Simi Valley is down 50%, Thousand Oaks 4.5% and the Conejo Valley is down 25%.
In order to see if the number of homes available for sale is relatively small or a glut, we need to understand the pace of sales. This is accomplished by comparing total homes for sale to the number of homes that sold the previous month. This calculation results in what is called the month’s supply of inventory. Any number under 3 is considered to be a seller’s market. 3 – 6 months of inventory is considered a neutral market, and any number over 6 is deemed a buyer’s market. In September, both Simi Valley and Thousand Oaks had 1.2 months of inventory, and the entire Conejo Valley was a bit higher at 1.6. So, we still have what is considered a “tight” market.
The number of homes available for sale is not anticipated to change dramatically in the next few years. The biggest reason this likely won’t change is something you already know, though it stands repeating. When mortgage rates starting coming down years ago, and specifically in 2020 and 2021, a great majority of homeowners refinanced their mortgages to rates under 4%, and many under 3%. As a result, it is proving cost prohibitive for a homeowner to make a marginal move, like getting one more bedroom, slightly bigger yard, etc. This is keeping homes off the market and directly impacts the “move up” market. Previous first time buyers are more likely staying put, keeping homes off the market for current first time buyers.
Home sales are always going to be driven by major life events, like birth, death, marriage, divorce, job relocation and retirement. What’s missing is the move up market.
What this all means:
It could be interesting to share a chart of 30 year fixed mortgage interest rates over the last 30 or 40 years, to demonstrate that 3% was a rate never seen before, and how 6-8% is an average rate. We could go back to the Jimmy Carter presidency and remember when rates were 18%. When Sandra and I bought our first house in 2000, I was thrilled to find out a 30 year mortgage was 8% and I happily locked that in.
It still stings. We got used to really low interest rates after we emerged from the banking crisis of 2008-2010, and those days are in the rear view mirror.