January 13, 2020 / By Steven Thomas
For years, there have not been enough homes on the market, and the start to 2020 is especially pronounced.
Low Supply: The active inventory is extremely low to start the year, down 34% compared to the start to 2019.
Life is a time crunch. Inevitably, important errands are left to the last minute. It’s happened to everybody at one time or another. With Valentine’s Day on the horizon, it will happen again. Many will head to the grocery store on February 13th and make a bee line to the greeting card aisle, only to find twenty other procrastinators hurriedly looking for the best card. Squeezing between the crowd reveals a half empty shelf with the best cards undoubtedly already taken. The whole ordeal is frustrating.
Similarly, buyers this year are just as frustrated. The Orange County housing shelves are half empty. It is tough being a buyer looking for a home in today’s market. The year started with 3,692 homes, the third lowest start in decades behind 2013 and 2018. There were 5,565 homes to start 2019, 51% more than January 1, 2020. There were a lot more choices a year ago, but not today.
The trend of the supply problem dates to the beginning of the Great Recession, 2008. Ever since then, fewer and fewer homeowners have placed FOR SALE signs in their front yard. This trend is hardly a blip on the radar screen; instead, it has continued for twelve consecutive years.
Price is determined by supply and demand. For kicks and grins, imagine that demand remained the same. When the same number of buyers are interested in purchasing a home, yet the supply of homes drops considerably, it essentially becomes a bidding war where the highest bidder wins. As a result, prices rise. Essentially, that is what has happened during this housing run that dates to 2012. In 2012, demand spiked; however, there were not enough homes on the market to satiate the voracious appetite for buyers to buy. Home values have been on the rise ever since, slowing considerably last year because of muted demand. With the return of historically low mortgage rates and an extremely anemic supply of homes, the bidding wars are back and so is the return of appreciation.
ADVICE FOR BUYERS: be realistic from the start. Offer the FAIR MARKET VALUE for a home and most of all, pack your patience.
ADVICE FOR SELLERS: be realistic in pricing. Too many over-exuberant sellers initially overprice their homes. Homes do not rapidly appreciate. So, price accordingly. A wise strategy is to price a home at its FAIR MARKET VALUE. The better the price, the more activity a home generates.