2013 - The year of Vanishing Home Inventory
This might just be the year we all look back on as the year of vanishing home inventory in the Carmel Valley San Diego housing market. Nationally the low inventory levels for single family homes, and real estate in general, have been getting a ton of press.
So what is really happening and how does it affect Carmel Valley San Diego real estate prices? Inventory levels in the Carmel Valley area of San Diego have been edging lower now for almost a year and they show no signs of increasing anytime soon. The chart below shows the relationship between what inventory has done and subsequently what has happened to prices.
So what is going on with inventory and why are there so few homes on the market in Carmel Valley San Diego? Inventory started dropping in the winter of 2011-2012, this is a normal seasonal phenomena. What wasn't normal is that in the Spring of 2012, when most sellers would begin to list ahead of the busy summer season, inventory never came to market. As the chart show it remained flat through the summer and then tailed off hard in the Fall of 2012. We are sitting at inventory levels we haven't seen in the Carmel Valley area since 2006. Where is the inventory has gone is a complicated explanation because there are many factors at work. Let's take a look at what is going on in the market place.
Home Prices Were Beaten Down
After the financial crisis hit the real estate market took a big hit. People began to lose their homes as they defaulted on their mortgages. Banks began to foreclose and as they did that they beagan to take home inventory onto their books commonly called REO (Real Estate Owned). As the speculated numbers of houses on the banks books grew it began to be called "shadow inventory" by the media because nobody really new the actual total all mortgagors were holding. As defaults grew and the numbers of displaced homeowners grew so did the demand for places for them to live and the demand for rental properties grew.
Enter the Investors
As the number of what became know as distressed properties grew it started to affect home values for everyone. In cities or neighborhoods where there were a lot of distressed properties (foreclosures or short sales) it wasn't uncommon to see home values drop 30 - 60% depending on what county of California you lived in. These lower values eventually kept sellers who might have been in the market to sell basically "off" the market and as demand for rentals grew they decided to just rent and wait it out to see if they could get a higher price for their home down the line when values recovered. The net effect of this was properties that would have been offered for sale were now no longer available because they were rented. At he same time invesotrs flocked in grabbing properties a rock bottom prices and renting them out. For the first time a many years these deal actually "penciled out" and the investors could not only get a return but the promise of getting some appreciation down the line on a sale was very real. This allure has been so strong that even large hedge funds have jumped into the game buying hundreds if not thousands of bargain priced homes.
With all the complications that came with the "robo-signing" debacle and the judiciary versus non-judiciary foreclosure proceedings in many sates the overall number of foreclosures have dropped. In a recent article in the Wall Street Journal titled "Inventory Takes Center Stage as Foreclosures Fade" they cited that REO inventory fell from 19.6% to 11.5% between January and November of 2012 alone. Couple this with the fact that banks have moved to reduce their exposure to REO by packaging and selling the inventory to investment groups along with the increasing trend in opting for a loan modification or a short sale and you have a recipe for inventory reductions. The short sale market has again been dominated by investors especially in the under $400,000 dollar price point with most deals going for cash. I've personally tried to write deals in this price point for well qualified and pre-approved financed buyers with little or no success.
Happy New Year
With the coming of 2013 we will have to wait and see how all of these factors work out and how, ultimately, the inventory situation ( still at very low levels as of this writing) will affect prices in our local markets. One thing is for sure they aren't making anymore coastal property and the desire to live in Del Mar or Carmel Valley with all of its benefits (climate, education, out door activities, etc.) should in many ways tip the old supply and demand scale toward continued positive appreciation in home prices, especially if inventory levels persist through the summer. If you own a home in the area and need or want to sell you are moving into a time frame where the momentum is shifting back to that of a sellers versus buyers market. Likewise if you are considering buying the time is right now to jump into the market before prices move back to 2006 levels and especially while mortgage rates are still and very low levels.
This is not only my view of what is happening it is shared by many experts as well. Only time will tell which direction prices will head as we move into the historically busy summer season.