I recently was speaking with a past client and friend who asked, "Is it a buyer's market?" My answer was, "NO, not really." The inventory of homes for sale in the Los Angeles area has increased only a small amount from where it was a year ago. Currently there is a six month supply of homes for sale. The current inventory would have to go up another 50% for the market to become a true buyer's market.
It's not a seller market either. Less frequent are the days of multiple offers. Some homes are sitting on the market for over 90 days, usually meaning they are overpriced. Good homes, priced properly, are definitely selling.
The bottom line is; it's neither a seller's nor buyer's market. It is a market in equilibrium. In the Southern California market place a five to six month supply of homes for sale is considered equilibrium between buyers and sellers. It has been a long time since we have seen this type of a "normal" market.
The sub-prime lending market is the place where buyers with marginal credit scores, small down payments, or non-document-able income turn to get a loan. Today's news is often punctuated with doom and gloom about the sub-prime market. Many sub-prime lenders are in trouble today, because they made these loans to less qualified buyers, banking on the fact that the real estate securing these loans would continue to rise in value. These loans are riskier than conventional loans, because they have a higher debt rate. Some of the properties that have this type of loan are now in default, and will end up being sold or foreclosed upon.
Can the current real estate market absorb the number of foreclosures that are coming down the pipeline? Most of the articles that I have read seem to say, yes. While foreclosures on sub-prime loans have risen; sub-prime loans currently in default make up only a miniscule portion of the loan market. Presently, the Los Angeles market place is experiencing less of these types of loans going into foreclosure than the nearby counties of Riverside and San Bernardino. If the amount of foreclosures continues to increase, prices will soften, and the market will favor buyers.
What is the forecast for the balance of the year? Interest rates are not likely to raise a significant amount. As long as rates are low, buyers will be enticed to buy. Also present employment figures are strong, which tend to build buyer confidence. Both of these factors favor continued real estate sales. I would conclude cautious optimism is in order.
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