Despite that age old real estate adage, there are more major real estate market movers than location. One particular market force we’ve been paying close attention to here in Los Angeles and across all of California is inventory. And the latest report from the California Association of Realtors only confirms that a tight housing supply is influencing both total home sale numbers and their prices.
While demand remains extremely high for a variety of favorable reasons, like the continuation of extremely low mortgage rates and the steady growth of California’s economy, there is a “dearth of homes available for sale on the market”. Housing market supplies are so restricted that when compared on an annual basis, pending home sales were down statewide yet again in March.
This marks the third month running in this downward trend. The Pending Home Sales Index (PHSI) decreasing 1.7 percent from 138.0 in March 2015 to 135.6 in March 2016. These numbers are based on homes which have already closed contracts or at least entered into escrow.
It’s important to consider seasonality when examining the PHSI and similar housing market indicators. If you only compared March’s numbers with the preceding month, you’d think that the housing market was growing at a healthy clip since the PHSI increased 12.7 percent from an index of 120.3 in February to 135.6 in March. But when you take into account seasonal real estate market patterns, primarily that the market is always lower in the winter months regardless of weather, pending sales are actually down 1 percent from February.
Regionally, pending sales were down across all of California. The Bay Area experienced the largest market contraction at 3.7 percent. Again, when only comparing month-to-month numbers, the report can be deceiving since all major regions experienced month-to-month increases in pending sales of double digits.
Real estate data is even better observed by zooming in further from the regional level to the local numbers. For example, while the Bay Area overall showed the largest drop in pending sales, certain areas like San Francisco and Santa Clara counties, pending sales actually increased year-to-year from 8.6 percent to 11.6 percent.
Areas like the smoking hot Central Valley have enjoyed the fastest pace of home sale growth for many months now. This latest PHSI report shows significant cooling in that region, as pending sales fell 3.5 percent from March 2015. Month-to-month they were still up 11.7 percent from February, but again that trend is less important than comparing year-to-year trends.
Here in Southern California there isn’t much of note to report, as pending home sales were essentially flat in March, down a slight 0.3 percent from a year ago. But month-to-month saw numbers jump 17.8 percent from where they were in February. Los Angeles County posted a modest annual gain of 1 percent, while Orange County declined by 4.3 percent.
BUT WHAT DO REALTORS HAVE TO SAY ABOUT THE MARKET?
C.A.R. also issued a separate report by surveying Realtors and other real estate professionals to try and determine market sentiment and help predict future market conditions. That survey contained some promising news for the spring homebuying season. Realtors enjoyed an increase in floor calls and listing appointments as well as client presentations.
These listing appointments and floor calls are up for the third consecutive month. While open house traffic trended slightly downward, it’s still positive for the entirety of 2016 thus far. In other promising news, homes that are selling are often doing so at above asking price. In fact more homes sold above asking price than below for the first time in Market Pulse survey history.
Let’s look at some more specific results:
• The share of homes selling above asking price in March rose to the highest level since July 2015 at 34 percent, indicating strong market competition for the thin supply of homes available for sale. Conversely, the share of properties selling below asking price shrank for the third straight month to a new low of 33 percent. The remainder (33 percent) sold at asking price.
• For the homes that sold above asking price, the premium paid over asking price declined for the first time in five months to an average of 9.8 percent, down from February’s 11 percent but up from 7.7 percent in March 2015.
• The 33 percent of homes that sold below asking price sold for an average of 9.6 percent below asking price in March, down from 12 percent in February and 11 percent a year ago.
• Half of the properties for sale received multiple offers in March, indicating the market remains competitive. Sixty-two percent of properties received multiple offers in March 2015.
• The average number of offers per property increased for the second straight month to 3.3 in March, up slightly from 3.1 in February and 2.7 in March 2015.
• With home prices leveling off in recent months, more sellers are adjusting their listing price to become more in line with buyers’ expectations. About one in five (21 percent) of properties had price reductions in March, down from 23 percent a year ago.
• Low housing inventory continued to be REALTORS®’ biggest concerns, cited by four in 10 (40 percent), while 18 percent indicated declining housing affordability, and 13 percent stated overinflated home prices.
• REALTORS® were largely optimistic about this year’s housing market, with the vast majority (83 percent) expecting similar or better market conditions in 2016.
So far in 2016, the song remains largely the same from 2015. Tight supply is keeping the number of homes on the market low, while affordability is continuing to dwindle due to stagnant wages and increasing prices. Conversely, with these low mortgage rates, it often still makes sense at very high price points to buy a home versus renting one.
Stay tuned to Luxury LA Homes as we will continue to examine real estate market trends on the national, regional and local levels.
If you’re interested in buying or selling a Luxury Home in Los Angeles, please contact us now at 323-829-8811 or email Susan Andrews at susan@luxurylahomes.com.
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