Wednesday, March 20, 2013

Inventory Update

I haven't posted in ages (I promised I would shut down this blog once I bought a house, which I did last year), but recently got a request to revisit the inventory situation in Long Beach and thought I would put some numbers to what I'm seeing on the street.

To wit: as of February, there were 447 homes for sale in Long Beach -- an abysmal 57.7 percent reduction from this time in 2012.

As you can imagine, this has created quite a feeding frenzy.  Median list prices are up 38.6 percent from last year -- nearly 10 percent of that since January 2013 alone -- indicating this reduced inventory is emboldening sellers.  But this boldness is being rewarded, as properties are closing for 100.1 percent of these greatly inflated asking prices.

As a result of this inventory squeeze, in my area I have seen absolute dog shit sell for huge premiums.  It's insane.  According to Zillow (so take it with a grain of salt), my house has seen an 18 percent increase in value since I bought it in 2012.  That figure sounds crazy, but keep in mind I bought well (I should hope so, given all the time and energy I spent educating myself about real estate and writing this blog) and Zillow's estimated price-per-square-foot is consistent with recent sales.

Not surprisingly, I'm starting to hear more talk of another bubble forming.  But before we start using the B-word, don't forget that lending has tightened significantly -- other than FHA peeps, there aren't a whole lot of underqualified buyers anymore.  My guess is this is a bubble, but a flight-to-quality bubble, meaning today's buyers have money, are planning to stay put and aren't buying just any old poo-pile with intentions to immediately flip.  Quality buyers seeking quality properties and stable quality of life.

If values go down from here (it's certainly possible if rates go up or inventory explodes, but I think rate increases will just scare more people into taking action, and in premium areas there are plenty of sellers dying to gobble up any additional inventory), I just don't think we're going to see a rash of foreclosures like we did in the aftermath of the Great Housing Bubble.

As far as inventory, I don't think even the most bullish person out there predicted the banks and government would have been able to keep supply so artificially repressed for so long.  I know I kept anticipating an "inventory tsunami," but at this juncture that seems highly unlikely.

I mean, it makes perfect sense:  Kill supply and demand skyrockets (and neighborhood values go up, making any remaining struggling homeowners suddenly above water).  So the .gov and banks should do whatever it takes to make that happen.  And as long as the powers-that-be can keep it up -- and honestly, why wouldn't they be able to at this point? -- this will be the New Normal.  Sucks eggs, but that's just how it is.

But what happens when inventory increases -- is the inverse true?  Will prices drop through the basement?

Not in premium areas, apparently.  Belmont Shore inventory is up a whopping 57.7 percent from last year (to be fair 2/2012 didn't have a lot of listings, but still) yet asking prices are up 45.6 percent.

"But El Bee, an asking price is just that -- it doesn't mean they'll get it."

You're right.  They're not getting those prices -- the sale-to-list percentage in The Shore is four percent HIGHER compared to last year!

Yowza!  That means people are getting full-asking prices and then some -- despite the increase in inventory.

Like I said, flight to quality.  With today's practically-giving-money-away interest rates and the significant reduction in prices from just five years ago, people are able to buy a lot more house for a lot less money.

I realize this is a pretty bullish post, and that as a newly minted homeowner I'm incredibly biased, but this is just what I'm seeing and hearing.

I'm very curious to hear what experiences you've had recently, especially those who are currently looking or have been outbid.

I miss all of the readers and killer input.  I hope all is well with all of you.