Why Aren’t Homeowners Selling?
Property Radar recently issued their Real Property Report for California for the month of April 2016. Overall, April home sales were down 8.3% year over year, the lowest since 2008. If you will remember, 2008 was the peak of the housing meltdown and many homeowners in Orange County had suffered job loss and tremendous equity drop due to sinking property values. So, it begs two questions: what happens to property values when people don’t sell, and most importantly WHY aren’t people selling?
The first question is a simple case of supply and demand. When homeowners choose to stay in their homes instead of upsizing or downsizing, it creates a shortage of supply. Historically, the supply of homes on the market averages a little over six months, meaning that it would generally take six months to fully sell the existing inventory if no new homes came to market. Currently, we are averaging less than four months in Orange County. What is the result? With limited supply, home prices continue to go up.
Property Radar estimated in April that California home prices, on average, went up 6.8% year over year. However, this is a double-edged sword. Homeowners are certainly pleased to see their values increasing and approaching pre-2008 levels, but it also creates an affordability issue for Orange County residents, especially First Time Homebuyers.
The second question as to WHY people aren’t selling is the tricky one and I’m not convinced that there necessarily is a concise answer.
Some say that homeowners still think we have a depressed housing market and simply don’t know that it is a good time to sell. I’m not sure I buy this one because it seems most everyone I speak with seems keenly aware that values have come back and get regular value updates from local agents and the on-line portals.
Another view is that homeowners still feel like the country is in trouble and lack the consumer confidence to step out into the market. Okay, I guess I kind of understand that, but then where are all of the buyers coming from? We have lots of buyers, but very few houses to buy. Many of these buyers have sold a home and need to buy another. It’s no longer the case that it is just flippers or out of state/country cash buyers snapping up homes, it’s mostly families and professionals purchasing their home in which to live.
Others may think that it is a post-melt down philosophy that has changed. Perhaps after the crash, the seller’s mentality has changed. Perhaps moving up to the larger home just doesn’t seem as important as it once was. Perhaps having more millennial aged children living at home for extended periods has caused a shift in behavior.
Whatever the reasons, there has definitely been a shift in seller behavior over the last several years resulting in very limited inventories in the market. As we head into the spring selling season, I think we will start to see some increase in inventory, but I think buyers are going to continue to have to move quickly to get the home that they really want.
Here is a link to the Real Property Report if you would like to read the full report: https://www.propertyradar.com/blog/real-property-report-california-april-2016