A Rising Inventory: The active listing inventory had its largest gain since April of last year.

There have been years where sunny Southern California sees very little rain. Sometimes those years accumulate, and the drought becomes severe. Unfortunately, this February was the driest February on record, dating back 127 years. Southern California only received a “trace” of rain. Normally it rains nearly 4 inches during the shortest month of the year. When it finally did rain on March 3^rd, the precipitation was a welcome relief.

The supply of available homes has been experiencing its own severe drought, dropping to levels not seen since records were properly maintained. At this point, any additional FOR-SALE signs hammered into the ground are a welcome relief. In the past two weeks, that is precisely what occurred in San Diego County. The active listing inventory rose significantly for the first time since last October, rising from 2,175 to 2,309 homes. The addition of 134 homes was the largest increase since April of last year.

Other than the entry market, every price range experienced a rise in the number of homes available. The largest increases occurred in the hottest price ranges. Home prices between $500,000 to $750,000 increased by 53 additional homes, up 10%. From $750,000 to $1 million, there were 77 additional homes, up 24%. Between $1 million and $1.5 million, the price range increased by 6%, and for luxury homes priced above $1.5 million, it went up by 1%. That may not be a lot of extra homes, but for buyers, it is welcomed with open arms. In the entry market, homes priced below $500,000 dropped by 18 homes, or down 4%.

Undoubtedly, for the countless buyers struggling to find a home, the extra inventory is a healthy step in the right direction. It is a new trend that should continue until it reaches a peak later in the year. In San Diego County, the inventory typically does not peak until July or August. This year, it may peak even later in the year as mortgage rates are anticipated to rise from 3%, where they stand today, to as high as 3.75% by year’s end. Higher rates will decelerate the housing market and many sellers will languish on the market for a much longer period of time when they overprice. This will ultimately delay the peak. It will remain a Hot Seller’s Market, just not as nutty.

The inventory typically rises during the Spring and Summer market, but that is only part of the story behind the new evolving trend. Demand normally rises in the spring, but this year has been flat for the past month. Escalating prices, pending and closed sales fetching values grossly over the list price, and way too many multiple offer situations are starting to influence the psyche of some buyers. The current environment is sidelining some buyers after being on the losing end of multiple attempts at securing a home.

In California, for the month of March, nearly two-thirds of all closed sales sold above their list price. Multiple offers and above list sales prices are now the norm. Watching values quickly rise after writing a dozen offers can be disconcerting. Demand, a snapshot of the last 30-days of pending sales, remained relatively unchanged, up 14 pending sales, now at 3,366. Demand typically increases by about 9% from mid-March through mid-April. This year, it only increased by 1.5%. With pending sales likely to peak soon, the housing market can catch its breath as the inventory rises and homes linger on the market just a bit longer than they have been.

As a result of an increasing supply of homes and a slight increase in demand, the overall Expected Market Time (the time between hammering in the FOR-SALE sign to the opening escrow) increased in the past couple of weeks from 19 to 21 days. Currently, the increase may not be that detectable within the real estate trenches, but over time, as more homes accumulate on the market, the market will continue to slowly decelerate. Housing will move away from its crazy, nutty, grossly overheated pace, to a more normal, Hot Seller’s Market. That is a market where sellers need to do a bit more prep work and careful pricing is mandatory.

A Note to Sellers: It is a great time to get ahead of the curve and accurately price a home right out of the starting gates. Overpricing a home is not a sound strategy. Sellers want to expose their properties to as many potential buyers as possible. Accurately pricing permits a seller to obtain as many offers as possible. Multiple offer situations allow offers to be pit against each other and, ultimately, it maximizes the price obtained on a home. Later this year, as the market decelerates, overpricing can lead to fewer multiple offers situations and may even result in remaining on the market without success.

A Note to Buyers: Yes, the current market can be very frustrating, but waiting until more homes come on the market down the road is not the answer. With home values rapidly appreciating and mortgage rates slated to increase as well, buyers who sit on the sideline will ultimately pay more when they reenter down the road. Higher values and higher rates equate to a larger monthly payment. The market is frustrating, but staying the course and continuing to pursue paydirt is the wisest course of action for a buyer in today’s housing market.

The increase in the inventory, whatever the reason, is a much-needed welcome relief to the drought in the supply of homes. This is a new trend that will persist for the next four to six months. There will finally be more choices for buyers.  

Courtesy of Steven Thomas, Reports On Housing.