We’ve been getting calls from primarily two types of clients; the clients who are worried that prices will go down and they will loose money, and on the other hand there are clients who are excited about a potential price drop and want to get out there and grab the good deals. However, it is my belief at this time that prices will not go down and here is why.
Health Crisis vs. Housing Crisis
The first thing I’d like to point out is that we’re in a health crisis, not a housing crisis. We came into this health crisis with a strong healthy housing market. The unfortunate fact is that whenever people think of “recession” they think of the 2008 Foreclosure crisis, however only 1 out of the last 5 recessions was there actually a housing crisis. So don’t get it wrong… we are in a health crisis, not a housing crisis.
Prices are a function of Supply and Demand
Supply and Demand determines pricing of everything in this world! Here in San Diego, we are 98% built-out which means that very few more homes can be added to our city. We can really only tear down and redevelop existing properties at this point. This lack of supply ups our property value. We also attract people from around the world wanting to settle here and so the demand is high and the supply remains low. That should keep our prices stable for the short term.
Another good indicator of a strong market is the amount of “month-to-month inventory” available, so if we were not to add anymore homes for sale, how long would it take to sell everything off? As of last month, our supply dropped massively to 1.6 months. The characterizes our market as currently a sellers market, meaning tons of demand and low supply of property. Even if this inventory level rises to 6 months worth of inventory, it would be be considered a healthy level, which means that due to this abnormally low supply, prices will not go down. A buyers market on the other hand, would have inventory worth around 8 to 9 months.
How Much New Inventory has Arrived in April?
Since the April 1st, we’ve seen 5722 new listings coming to the market; these are regular figures for the season. However, 4772 homes were sold during the last three weeks, and 3312 homes going to escrow. So inventory will increase but only 10% which would take us to 1.9 months of inventory. Still a very strong sellers market. Rather than this affecting prices, we think this is required to slowly turn the tides and bring the inventory levels back to normal and out of such a strong sellers market.
Here is an interesting stat… 53.8% of American homeowners have 50% or more of equity in their homes, which means that a majority of the homeowners have their wealth deposited into their property. What that tells us that the majroty of homeowners will have access to cash if they need it by accesses their equity. They can refinance their home to pull out equity, or go out there are get a home equity line to help pay off expenses. Then finally they might very well sell their homes but we think it’s unlikely to see any fire sales made out of desperation considering they will have other ways of obtaining their equity vs just selling.
I don’t have a crystal ball to gaze into future of prices and can’t know for certain but I do feel that the above factors are all a sign of a strong market and apart from a few desperate deals being made, the market will stay stable. If you have any questions feel free to reach out to us here are True Local Realty!
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