LOW SUPPLY is the #1 reason the market is NOT going to crash anytime soon.
Like many areas of the economy, home prices typically move in relation to the dynamic between supply vs. demand. As I write this in June 2021, home inventory is at record lows, but home sales are still closing in record numbers, leaving many buyers fighting for each home. The number of homes on the market now is at just 35% of the 5 year average, while demand is up almost 8%. (source: Reports on Housing). I'm witnessing buyers offering 5-15% above list price in some areas to try to secure their home, often waiving key buyer contingencies like inspection and appraisal. Market absorption is at record highs, with very few few homes left sitting on the market. Low interest rates combined with a desire to have more space (or more useful space) are fueling this unprecedented buying spree, and there is no relief in sight!
HIGH DEMAND is another reason the market is NOT going to crash anytime soon.
As millennial homebuyers enter the market in un-precedented numbers, from where do we expect their home supply to come? Our biggest homeowner population, the Baby Boomers, aren't selling in high enough numbers to fulfill the buyer demands of the millennials, not to mention other home-buying generations! Anyone over 55 in California can now move their tax basis even if they purchase a more expensive home (thanks to Prop. 19), but that's not adding any inventory to the equation, further exacerbating the supply/demand problem. New homebuilders aren't able to keep up with buyer demand, and rising lumber prices aren't helping the homebuilding process either!
Like many of my recent sellers, people are leaving California for a variety of financial and political reasons. California recently experienced its first negative net migration in years, but the numbers are not likely to be great enough to add a significant number of California homes to the market. By the way, if you're considering a move out of state, I wrote a short piece a few months ago with a link to a great map comparing the tax rates, home prices, and politics of the most popular out of state migration destinations HERE.
With such a strong sellers' market, you may be surprised to hear that contingent offers are creeping back into fashion (where your purchase is contingent on selling your home) though not in every neighborhood! Additionally, there are an increasing number of loan programs to bridge the funding so you can buy before you sell. Let's talk about your dream house or neighborhood and make a plan to get you there!
Foreclosures are NOT coming to the market to cause a market crash.
Although many homeowners opted for mortgage forbearance during the pandemic, only 35% of those who signed up are still in forbearance, with the other 2/3 having settled up and exited the program. More importantly, nationwide the average homeowner has over $200,000 equity in their home, so even if every homeowner in forbearance decided sell, the equity position protects them from any kind of distress sale (short sale or eventual foreclosure). Those who can are refinancing, likely adding an insignificant number of homes to the market following pandemic challenges. The OC Register recently reported that the average Orange County homeowner added a further 19% of equity value this past 12 months (source), further insulating local homeowners from any fear of negative equity. If you're considering buying or selling a home soon, let's talk about your short and long term goals as all signs are pointing to prices NOT coming down anytime soon.
So, beware of the click-bait headlines that would have you think that buyers are willing to pay any price for any home, and that we're somehow also on the brink of a market collapse! The numbers simply don't support a real estate crash, and there are still buying opportunities even during this competitive market. I look forward to discussing your specific plans and goals with you. In these challenging times, I appreciate your friendship, support, and referrals more than ever.
(949) 677 3618
Posted by Matthew Fletcher on