“Bubble Watch” digs into trends that may indicate economic and/or housing market problems ahead.
Discussion: Frenzy home buyers in Southern California bought almost everything on the market this year.
Source: My Trusty Spreadsheet reviewed inventory data for existing residences in six Southern California counties, using numbers from Realtor.com complied by the St. Louis Fed, and closed sales transactions from DQNews.
The pandemic era has meant little selection for Southern California house hunters. The number of homes on the market in the first eight months of the year was 46% lower than in the “good ol’ days of pre-pandemic 2017-2019.”
Limited supplies didn’t deter shoppers. Close sales of existing homes in 2021 were up 19% from 2017-2019 – and were the biggest sales in 16 years to August.
Therefore, it appears that the tight supply of homes has yet to impact home buying momentum in Southern California.
how so? Let’s look at the math comparing eight months of closings and listings…
This year’s purchases averaged 21,903 per month in existing homes and condos purchased throughout Southern California. Over the same time frame, the six counties’ supply of homes on the market averaged 22,858 listings.
To me, that’s surprising — we’ve seen two-thirds of a year where there’s only an average of 955 more listings than the market closed.
As such, almost “sold out” because sales were equal to 96% of the supply. In the same eight-month period in 2017-18, sales grabbed only 44% of the average listing.
Let’s look at some of the key differences between before and after the coronavirus entered our lives and economic equations.
cheap money: We’ve seen nearly record low mortgage rates over the past 18 months, down from 3% for a typical 30-year deal. This is a big difference for 2017-19 when rates hit their most recent peak at around 5%.
An important question going forward: Will rates remain low?
Affordability: Transactions and inventory levels suggest the market should be able to handle more supply, but prices are 30% higher over 2017-19 and prices paid for homes 27% versus pre-virus times have increased.
How many Southern Californians are willing to buy today’s high prices?
Speed: The industry’s sales strategies responded to the limits of the pandemic with much-needed automation. Buying and selling accelerated, creating the need for less human interaction in the sales process.
Once the pandemic becomes a minor factor in our lives it shouldn’t change, yes?
Various players: The house-hunting game is seeing everything from a rise in all-cash buyers to “iBuyers” that make homes a relatively instant snap.
Are these groups in the market for the long term or just playing a game of bounce?
On a scale from zero bubbles (no bubbles here) to five bubbles (five-alarm alert)… Three Bubbles!
This “sold out” situation is more of a “something to watch for” pattern – the risk is more of a “who can afford it?” Versus “Who’s willing to sell?”
Of late home buying has become far more efficient for buyers and sellers. This new transaction speed certainly powers the largest number of sales since 2005. It wasn’t long before the housing bubble burst in the Great Recession.
Remember, the “efficiency” of the market can work both ways – increasing volatility.
Jonathan Lancer is a business columnist for Southern California Newsgroup. He can be contacted at jla[email protected]