I hope you are all doing well.
Today, I’m going to try to answer a question that I am most frequently asked these days:
“Are real estate prices down?”
It is a great question because people follow the news, and since mid-February, the stock market is down significantly, and now we hear about oil prices going below zero, because there is too much supply of oil, and not enough demand, due to shutdowns around the world, travel on airplanes down over 90%, more people working home and not driving cars and general reduction in demand for oil.
Which leads us to the question about real estate prices. Real estate, like stocks and commodities, responds to supply and demand.
Back in our last recession of 2008, which is in many people’s recent memory, where prices of real estate plunged anywhere from 30 to 60% depending on the location, we had a different supply and demand picture than we have today.
Mostly, the supply was different. Did you know that in the 2008 and subsequent year recession, there was a 15 month supply of inventory in many markets in North America?
In some markets, such a condos in some cities where condos were overbuilt, there was 30 months inventory.
But in many markets, where there was a combination of single family homes and condos, there was a 13 to 15 months supply of homes for sale.
This means if in a city 200 homes sold per month, there were 2600-3000 homes were for sale.
Now, if you were seller in that market, what would it take to sell your house? You’d have to lower the price of your home until it became attractive enough for one of the 200 buyers a month to choose yours among the almost 3000 homes for sale.
Compare that to now. We have currently in the city of Long Beach 434 homes actively for sale. In the last 30 days, 207 closed escrow (sold). In the last 30 days, 131 went under contract. You can see from these numbers, that we currently have about 2 to 3 months worth of inventory on the market. In such a market, there are still very few homes for sale, especially at the lower price points, compared to the pool of buyers, and therefore, when a home comes on the market, it gets sold, without a lot of price reductions.
A closer look does reveal that the number that went under contract last 30 days, 131, is lower than the number of closings in the last 30 days, 207. We will have to monitor that number to see if it goes up or down or stays constant. It is suggesting that an average of 4 to 5 homes are going under contract per day.
The number of active listings is going up slightly, but still below their historic levels of between 500 and 600 homes for sale.
Anecdotally, we are finding that houses (single family houses) are selling well in the $500,000 to $650,000 price range where the pool of buyers is high, and the number of homes for sale are particularly limited. I have several listings that have sold with multiple offers, and when we are working with buyers, we often have to compete with multiple offers. Even homes that are priced higher but in neighborhoods that are very desirable are getting multiple offers.
All in all, it is early in the process and while number of home transactions have declined over the past 5 to 6 weeks, prices have held quite steady, due to the low inventory levels. It remains to be seen if prices will go down in the future, or if they will hold firm or even increase due to the continued demand for housing in our area.