The common lament, in Pasadena Real Estate, is the appalling lack of homes on the market. In fact, the inventory of available single family homes fell more than 45% in the last twelve months and more than 72% in the last two years. The reasonable person wonders-
What does this mean to me?
If you are a buyer it means fewer homes to choose from, naturally. It also means multiple offers on the homes you like.
Sellers- by the numbers you are in the cat bird’s seat. Homes are selling faster, and for more money…. but not every home sells, price is still a factor. Homeowners who ignore market values in their offering prices are passed over by buyers wary of “paying too much”.
Can you back that up?
Sure, let’s get into the numbers.
Inventory of single family homes fell 45% from February to December 2012- a new low of just 118 homes for sale in a city with 54,000 homes. To put a little perspective on just why this number is shocking- the last time we felt the inventory pinch was in 2005. At that time we had approximately 300 homes on the market. Shocking.
February’s inventory has risen to 144 homes on the market; it is the start of the spring home selling season.
As expected, new contracts have started to rise, jumping over 30% from the previous month- there are more homes to buy, and the buyer’s appetite is very strong. Closed escrows are flat, reflecting a seasonal lull in the number of new contracts through the winter and holiday months.
What does this mean for prices?
Months supply of inventory is a way to view the dynamic relationship between amount of inventory and the number of buyers willing to buy. It is also an indicator of where prices should be going. More than 6 months inventory is a buyers market and prices should trend down. Four to six months is a neutral market, and anything less than four months is a seller’s market and prices should be going up.
February has just two months of inventory.
So, prices are going up?
One way to look at prices is the median price- this tells you which way the winds are blowing for the overall market. The winds are blowing in an upward direction- gaining nearly 10% in the last quarter. However, this merely tells the story that more expensive homes are selling than low priced homes. This is not due to a real rise in absolute value- just a severe lack of inventory in the lower priced segment of the market.
Average price is a little more interesting- average price rose from $721,00 in October 2012 to $895,000 in February 2013 – slightly more than a 20% gain. However, in Pasadena, we need to be really careful with averages and medians. Our fair city was a small but very influential number of affluent neighborhoods. A few super high end sales can completely wrack average price numbers.
That is why I like average price per square foot as a gauge of an individual home owner’s value trends. The metric tends to smooth over the various price segments. The average price per square foot is trending fairly neutral ($421/sf in April 2012 to $425/sf in February 2013 for a 1% gain), but it is NOT flat. The last 6 months have seen a rollercoaster effect.
A Note of Caution
I tell you ALL of this to show how unpredictable prices are, right now. Overall it is clear, there is upward pressure on prices. However, 191 homes went UNSOLD in the last several months, and they were removed from the market. That is 191 homeowners that could not attract an acceptable offer despite the lowest inventory and highest buyer demand in years.
This illustrates the fact the buyers are resisting homes that are priced well above reasonable ranges. At the same time we have lots of anecdotal evidence that buyers will engage in multiple offer situations- even bidding wars- over homes that are well presented and priced within expected ranges. Homes that outperform all expectations of price are almost always the result of a bidding war.
A wise homeowner will study these trends carefully and craft a strategy that will leverage this dynamic and exciting market.
Or, you can call me. I am happy to help.