Bubble Watch: Southern California Homeowners Eager To Sell As Price Appreciation Slows
The trends
More choices for house hunters is translating to fewer buyers willing to pay up.
Let’s start with supply. ReportsOnHousing has detailed the rush of sellers by tracking what’s for sale within broker listing networks. As of May 30, the report found 36,335 existing homes, an 18% uptick in a year, listed in Orange, Los Angeles, San Bernardino and Riverside counties. That’s well above the average inventory of 31,979 at this time of year since 2012.
As for values, the Real Estate Research Council of Southern California since 1943 has tracked local home-value movements. Appraisers twice yearly re-evaluate a set of 308 single-family homes across seven Southern California counties, gauging price patterns. The council’s index for the seven counties found that in April local appreciation was running at an annual rate of 5.3%. That’s down from an 8% average since April 2013 and 6.4% a year ago.
Dissection
Perhaps the most worrisome trend is what’s happening with ReportsOnHousing’s metric for demand.
House hunters have not been as active as sellers. New escrows opened in past 30 days — that’s buyers signing to buy — totaled 13,715 in the four counties. That’s up only 0.9% in a year. Buyers’ demand for local homes is running below the late-May average of 14,671 since 2012.
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This supply-demand imbalance isn’t good for “market time,” ReportsOnHousing’s selling speed measurement. It tells us that, theoretically, a typical seller can expect to wait almost two more weeks to get a typical Southern California home from listing to escrow.
The latest reading was 79 days — up 12 days in a year. History suggests sellers hold the advantage when market time is under 90 days. But this is a noteworthy slowdown. Market time has averaged 67 days in late May since 2012.
How bubbly?
If you could tell me WHY house hunters are pulling back when the job market is strong and mortgage rates are back to near historical lows, we could accurately grade this bubble-ish evidence.
So I’m guessing here: On a scale of zero bubbles (no bubble here) to five bubbles (five-alarm warning) … I see this as THREE BUBBLES … with a huge warning label!
Yes, demand seems to have stabilized. New escrows had dropped on a year-over-year basis for all but one period from November 2017 through March. So meager gains are a bit comforting.
But if potential buyers think the cooling appreciation will soon turn to depreciation, they may wait for the hoped-for seller discounting to begin. And that delay alone could make price-cutting a self-fulfilling wish.
Of course, if/when prices are significantly falling … these same bargain hunters will likely get skittish about ownership and further put off a purchase. That’s when a minor course correction for prices could turn into something far uglier.
Author: Jonathan Lansner
Source: Los Angeles Daily News