As the housing market slowed in Southern California and across the country, sellers had to adjust their expectations.
Homes that would have received dozens of offers at the start of the year are only getting a few these days. Other properties receive none, forcing owners to lower their asking price and give up on their dreams of record profits.
Now some potential sellers are calling it all together. These decisions essentially limit the height of inventory that can climb, with broad implications for current owners and future buyers.
“It puts a floor on home values if people decide not to put their homes up for sale,” said Ralph McLaughlin, chief economist at real estate data firm Kukun, noting that fewer homes to choose from helps prevent prices from falling.
According to real estate agents, the reasons for the wait-and-see approach vary.
Some owners only want to sell if they can get a certain price which is now difficult in a market slowed by rising rates.
Others have a mortgage with the 3% and lower interest rates of the past and don’t want to give it up to borrow at 5%. Along with heightened fears of a recession, there is also the hesitation that accompanies any economic uncertainty.
“People who are still interested in selling are those who are going through life changes – babies, death, divorce, marriage,” said Lindsay Katz, Los Angeles agent at Redfin, the brokerage firm.
For Ara Kassabian, no deadline forces his hand. The 56-year-old software engineer eventually wants to sell his three-bedroom house in Glendale, withdraw the proceeds and retire to Portugal.
He had planned to do so in the coming months, but no more.
If he sold his house now, Kassabian estimates he’d be pocketing a few hundred thousand dollars less than if the market had remained warm – extra money that could have gone a long way in Portugal, a country that has become a destination for Californians looking for a more affordable lifestyle.
“If I wait a year, the market will probably pick up and I could get a lot more,” he said. “I’m not pushed into unemployment.”
Across the country, data from Redfin shows the total number of homes for sale in major metros was nearly 4% higher in the four weeks to August 7 compared to the same period a year earlier.
But the rise is largely due to homes coming on the market taking longer to sell. During the same period, the number of homes listed for the first time fell nearly 12%.
The same pattern — more homes for sale, but fewer new listings on the market each month — can be seen in Riverside, San Bernardino, Ventura and San Diego counties.
In Orange County, total inventory is essentially flat year over year, while new listings are down sharply.
In Los Angeles County, data from Redfin shows there were 7% fewer homes for sale in the four weeks ended August 7 than a year earlier, while the number of new listings fell by 30%.
In mid-May, before the market cooled drastically, the total number of homes for sale in LA County was down nearly 16% from year-ago levels, while the number of new listings was down 0.7%.
What happens next depends on a variety of factors, including the direction of mortgage rates and the economy as a whole.
Home price appreciation is slowing, but prices are still up from last year.
Some economists believe prices will continue to rise, but at a slower pace than in recent years. Others predict that Southern California home prices will drop mid to upper digits in 2023.
Where both sides agree is that the instinct to avoid selling in a slow market is a major reason why home values shouldn’t plunge the way they did during the breakout. of the bubble of the early 2000s.
Then a wave of forced selling at a loss — through foreclosures and short selling — sent the market plummeting and drove Southern California prices down 50% over two years, according to a gauge from the real estate firm. DQNews.
If unemployment rises, more people risk losing their homes to foreclosure or being forced to sell, putting further downward pressure on prices, said Redfin’s chief economist, Daryl Fairweather.
But she and many other economists say any economic downturn should be relatively mild, and tighter underwriting standards during this housing boom should limit forced sales if jobs are lost.
“The owners, unlike [right before] the Great Recession, are very financially stable,” Fairweather said, citing higher credit scores and down payments. “It would take a lot for them to be in a position where they have to sell.”
Another option for landlords is to rent out their property, an attractive alternative as the rental market is still extremely competitive.
Over the past month, Kevin Chen, a Southern California home flipper, listed about five houses for rent that he planned to sell until the real estate downturn squeezed his profit margins.
On some trades, he felt he would even have lost money if he had sold. One was a five-bedroom house in the Inland Empire town of Highland, which Chen instead listed for $3,150 a month.
About 15 potential tenants showed up at the open house, and several said the same to Chen.
“We were looking for something to buy,” Chen recalls. “And all of a sudden we couldn’t afford it anymore because of the interest rates.”