After months and months of record-shattering housing statistics, we are surprised to see latest staggering news – new listings across all Southern California counties are down in the month of May. We traditionally see a seasonal uptick in the number of homes hitting the market – in a normal year, late spring is when we get the largest inventory spikes. Here in San Diego, the average over the last 4 years (prior to COVID) we traditionally see a 5% increase in the number of new homes listed for sale. This year we saw a 10% DECREASE to April!!
This has only made the housing market even more challenging as the number of homes available for sale at the end April was down 60% to last year. We are at the lowest levels of inventory in that the San Diego Real Estate Market has seen in the last 10 years. Nationwide total housing inventory at the end of April was down 20.5% from the previous year — the lowest level since 2011.
We had anticipated a new influx of listings due to homeowners finally feeling safe putting their homes on the market due to COVID vaccination rates. And with their home values spiking, it’s a great opportunity to sell for the most their home has ever been worth. What we’re seeing instead is a decline in home listings as home sellers face the same issue that homebuyer are facing – affordability. If they sell their home, where will they go?
If you look at the stats for March and April, just about every home that was listed was sold quickly (in less than a week) for over the asking price – meaning nearly all homes listed were fetching multiple offers.
Home prices are still surging and we have yet to see any evidence of a cool down on price gains on the horizon. Last week, the NAR reported that median existing-home prices rose nationwide 19.1% and in San Diego the median home price has risen to a record $750,000 in May, up 28.2% from the same month a year ago.
Lawrence Yun, chief economist for NAR, expects that relief is on the horizon for the severe inventory shortage as more and more homeowners feel comfortable listing their homes for sale as the pandemic restrictions ease in addition to an increase in inventory expected as eviction moratoriums and forbearance arrangements come to an end. That has yet to be seen and with prices surging the way that they are, there is more to the story for a potential home seller than whether they feel safe showing their home. Unless they are planning to move to a less expensive area, they can’t sell their home for a better replacement, so many homeowners are choosing to remodel and “age in place” instead.
The Fed has committed to keep interest rates low regardless of what they expect to be fleeting inflation. As long as mortgage interest rates remain low, we can expect housing demand to stay strong. An increase in inventory will likely only lure the homebuyers who have resigned themselves to the sidelines in the midst of this frenzied market back into the ring which will likely prevent any major drop in the sky-high home prices we’ve been seeing.
We will not see the rumored “wave of foreclosures” – especially not in Southern California where nearly all homeowners have equity regardless of their ability to pay their mortgage payments. There is no “bubble” a la 2008. Because of that bubble and the lending safe guards that were put in place by the CFPB nearly all mortgage loans are held by highly qualified homeowners enjoying fixed low interest rates. There will be no “burst” because there are no speculative or shady circumstances at play. The short and the long of it is that we are seeing supply and demand at work exactly as it is expected to play out.
Low inventory and high demand are here to stay for the foreseeable future. Millennials are the largest generation in the history of the US and they have been restricted in their ability to buy homes over the last decade. They are now gainfully employed in stable industries and are enjoying financial stability and bulging savings, as a result of the pandemic, consumer habits shifts and government stimulus endeavors. Interest rates have been falling for the last 30 years and are likely to stay low – gone are the days of 15% to 18% interest rates as seen in the early 1980s.
As always, we will be here to continue to provide you with updates about the housing market and answer any and all of your questions. Feel free to reach out to us anytime.