Tuesday, November 17, 2020 / by Maria Zuniga
The process of buying a home has always been complex, but the intricacies of the current market have made it even more frustrating. The short viewing windows, instant response times and multiple-offer bidding wars may leave you feeling like you just want to give up. But there is hope! Don’t give up on that Dream Home!
At first glance, today’s market has historically low inventory as traditionally measured, but there’s more to it than it seems. Here’s why - the appearance of low inventory is driven by the rapid sale of inventory. Your new home is out there, you just need to be prepared and patient! This is the 1st in a two-part series. “Multiple Offer Madness: Understand the Metrics,” and “Get Your Offer on the Top of the Pile.”
First, let’s take a look at the metrics.
Below are the Los Angeles County Single Family statistics for September 2020 vs September 2019.
In this chart there are a lot of numbers and industry terms, but we will break it all down for you below!
For brevity, all comparisons below will be “September of 2020” (9/20) vs “September 2019” (9/19)
Take a look at the following lines on the chart:
Line 9: Months’ Supply of Inventory (MSI) - available inventory divided by closed sales per month. This is one way to gauge buyer demand, which is historically very low today with an average of 2.8 months at the current sales rate (9/20) vs 3.8 months (9/19), a 20% decline. A balanced seller/buyer market is considered to have 6 months of inventory. So, on any one day (or month), the number of houses for sale is quite low. Why?
Line 4: Days on Market till Sale (DOM) - Shows 28 days (9/20) vs 38 days (9/19), a 26% decline. Note this means that houses that reach the market go under contract much faster than has been typical. This is critically important to understanding how to be successful in a home purchase.
Line 8: Inventory of Homes for Sale (IHS) - Shows 9808 available (9/20) vs 13656 available (9/19) which is a 28% reduction! This looks like inventory is low, and from one point of view it is, but there is another way to look at this.
Line 2: Pending Sales (PND) - Shows 3537 (9/20) vs 3963 (9/19) an 11% decline. This means fewer houses are in escrow at any one time! Why? This statistic is very deceiving! Read on!
These statistics may look bad for buyers but there is a silver lining and a hidden opportunity!
We know interest rates are at generational lows, increasing buying power.
Demand has accelerated as people look for more “elbow room” in the context of Covid.
The Millennial generation is entering prime home buying age and has been pushed forward in time regarding purchasing due to the two aforementioned factors.
These facts have had a significant impact on the housing market, as these statistics attest.
What does this mean as a buyer? Let’s answer that after another look at the chart.
Line 7: Percent of List Price Received (%LP): Note 101.3% (9/20) vs 99.6% (9/19) about 2% higher. Evidence of bidding “wars”!
Median and Average Sales prices are next.
I always hesitate to put too much weight on median and average on anything. As I have said many times, “If your right hand is frozen solid and your left hand is on fire, your median temperature is normal and on average you are comfortable!” Still these next two lines are indicative of trends but can’t be used to value any one property or neighborhood.
Line 5: Median Sales Price (MSP) - Note $810000 (9/20) vs $680000 (9/19) a 19% increase! Price changes vary dramatically by neighborhood and price range, so this is just a guide, but it does show more evidence of bidding wars.
Line 6: Average Sales Price (ASP) - Note $1,197k (9/20) vs $956k (9/19) a 25% increase in one year. This does not mean any one property has increased 25%, but is rather just another statistic that is a bit artificial based on level of action in various higher vs lower priced markets.
Now the good news! The market is much more active than it appears, and this is good news for buyers that have the fortitude to keep trying and the foresight to be completely ready to go when the right opportunity arises! Why?
Line 3: Closed Sales (CS) - This is big! Note 4537 (9/20) vs 3932 (9/19) a 15% increase!
Line 1: New Listings (NL) - This is also big! Note 6005 (9/20) vs 5722 (9/19) a 5% increase.
So, what does it all mean and how does this knowledge help you be a smarter and more capable buyer?
It is quite clear that the reason the inventory is low at any one time is because properties that reach the market go under contract and close escrow at a much faster pace than has been historically the case. At any one moment the available unsold inventory is low, and demand is driving prices up.
However, critically, the FLOW OF INVENTORY TO THE MARKET (L1-NL and L3-CS) is in fact GREATER in 9/20 than it was in 9/19!
This means the opportunity to see and buy the right home is even better now than it was last year pre-covid!
The critical factor in success is not lack of opportunity but instead it is total preparation as to both financial full pre-approval and complete market education since your buying opportunity does exist, if fleetingly. To be a successful buyer you must be ready at a moments’ notice to look at newly arrived inventory and you must have the confidence to make the right offer almost instantly. Only total preparation and full education can give you that confidence.
Our mission is to get you completely set up financially, educationally and emotionally to have the confidence and the capacity to “pull the trigger” on the right property and to get your offer to the top of the pile (see Part II in this series). We have been successful for our buyer clients many times in this Covid market and we will create success for you as well!
We are available to discuss the specifics of your situation at your convenience. Please reach out so we can start the process for you.
We look forward to helping you achieve success in acquiring the perfect new home of your own!
-Dave and the Salzman Team
Keep an eye out for Part II – “Get Your Offer on Top of the Pile”