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Review of all things Real Estate: What kind of market are we currently in?

I get this question a lot; are we in a seller’s market, a buyer’s market, or a neutral market? The follow-up question inevitably is, what is the market going to do? To that question, I generally respond that if I knew that answer with certainty, I’d be a rich man today.

Here’s what I do know however (let’s see if these statistics are meaningful to everyone). As of Friday afternoon, June 23, there were 108 active listings in 92028 across all categories (manufactured homes, condos, single family residences); this time of year, in a normal market there should be 303 total listings in our market.

There are 63 pending (in escrow) and, in the last 90 days, there have been 179 closed sales. What these numbers tell me is that there is life in the market, but it is hampered by lack of inventory.

In previous articles, I discussed that lack of inventory is helping to keep prices pretty firm (supply and demand). Another impact on inventory is that many of us took advantage of low interest rates when they were in the 2-3% and with current interest rates hovering around 7-ish% we’re not making any moves because where would we go?

So many of us don’t list our homes, even if they are too big for our needs. Okay, but as the numbers indicate, there is some activity albeit a limited amount due to limited inventory.

A report that is useful is called the Altos Report which, along with data, has a gauge picture with a needle imposed on a set of numbers from zero to 100 (kind of like the old fashion speedometers) called the Market Action Index. In the range from zero to 30 it is labeled buyer’s market. Above 30 to 100 is labeled seller’s market.

I don’t fully agree with that as there has to be some area that is a neutral market, and I would suggest 30-50 would be the neutral market range. Okay, so where are we?

As of Friday, June 23, the market index needle is 49, and it has been hovering between 48 and 51 for the past several months. I would characterize this market as a neutral-marginal seller’s market where there is the expectation of some traditional negotiation.

Sixteen months ago, the needle was at 75; a very strong seller’s market when we saw multiple competing offers above list price, sometimes above list price by a crazy number like 40% above list price and often with cash; and there was no negotiation except how high the price would go.

Purchasing a home with cash alleviates the requirement for an appraisal which is often the scary part for sellers who don’t want to give up on their lofty prices.

Other useful information in the Altos Report is median list price, price per square foot and average days on market. The 92028 median list price is $1,174,500; price per square foot of closed purchases is $415/square foot, and average days on market is 74 days. Days on the market is a key number because the longer a property is on the market, the impact is felt in the Market Action Index.

Those two statistics are very good indicators of where the market is heading. Another number of concern, since high purchase prices and mortgage interest rates have locked a lot of wannabe buyers out of the market, is median rent. In our market, the median rent is a whopping $3,648 which is a big number to be giving to someone else which is effectively making their investment a strong positive cash flow.

Back to the question, where is the market headed? As I stated last week, I believe we will see inflation get tamed which will help bring mortgage interest rates down. In turn that’ll put upward pressure on prices due to more buyers being able to qualify for financing thus increasing competition.

What that also means is prices are not likely to drop off the edge of the table. If we do head into recession (which now fewer economists seem to believe will happen) prices could drop, but our reality is prices right now are the lowest they are going to be, so my advice is to purchase what you can now (quit paying rent) because prices aren’t likely to decay.

 

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