With the number of available homes to purchase at extremely low levels, there simply are too many buyers competing against each other despite high mortgage rates.
A Seller’s Market
When the Expected Market Time drops below 60 days, the housing market leans in favor of sellers. A three-bedroom, two-and-a-half bathroom, 2,100 square foot home
on a 3,700 square foot lot, built in 2003, was placed on the market on the second
Tuesday of March at $1,099,000. There was a steady stream of buyers during a
three-hour window on Saturday and a two-hour window on Sunday. By Monday
evening, more than 20 offers were submitted to the listing agent. The seller
countered all offers and asked them to return with their highest and best
price. The home closed during the second week of April at $1,145,000, an
astonishing 4% above its list price.
Not every home sells above the asking price, especially in today’s high mortgage rate environment. The sales-to-list price ratio for all homes priced below $2 million so far in April is 99.9%. For luxury homes, anything priced above $2 million (the top 10% of closings), it drops to 94.6%. The median time on the market is nine days, a little over a week. It would probably be even faster, but there are too many offers for many sellers to sift through.
The Expected Market Time, the time between coming on the market
and opening escrow, is a function of supply, the number of available homes, and
demand, a snapshot of recent pending sales activity. Typically, the inventory
slowly grows from January through March and then picks up steam during the
spring. This year, the inventory dropped from 7,907 in January to 6,778 today,
plunging by 14%. The 3-year average mid-April inventory before COVID (2017 to
2019) was 11,342, an unbelievable 67% higher than today. Demand has increased
from 2,325 pending sales to 3,964 today, a 70% rise. The 3-year pre-COVID
average was 5,893, 49% higher than today, its lowest level for mid-April since
2020, during the initial pandemic lockdowns. Demand readings are down because
of higher rates and fewer homes available to place into escrow.
Despite muted demand readings, the Expected Market Time has dropped like a rock. With the inventory dropping while demand expands, market times continue to fall. It was 102 days in January and has sunk to 51 days today, plunging by 50%, its lowest level since May 2022. The housing market feels hot when the market time dips below 60 days. Buyers can no longer take their time. Housing lines up in the seller’s favor, and home values are sticky and no longer falling even with mortgage rates in the mid 6’s. When a home is accurately priced, and in good condition, it acquires instant attention and sells fast. When market times drop below 40 days, the housing market feels insane. All homes priced below $1 million, 70% of current demand, are below 40 days with a combined Expected Market Time of 34 days. This is when sellers get to call all the shots, home values are rising again, multiple offers are the norm, sales prices often exceed their asking prices, and homes last only days on the market.
Buyers entering the market today are blown away at just how fast homes that are in good condition and priced according to their Fair Market Values are flying off the market with dozens of offers to purchase. Open houses are bursting at the seams. In some cases, inspection and appraisal contingencies are once again being waived like they were when mortgage rates were below 3%.
Today’s 51-day Expected Market Time means that housing has once again dipped below the level where the pace is hot. It was 34 days in 2021, and 32 days last year, when home values were skyrocketing higher. In 2017, the Expected Market Time was at 49 days, and in 2013 it was at 39 days, the only years before COVID that reached a hotter velocity for housing.
There is very little available for buyers to purchase right now below $1 million. Anything that does hit the market is inundated with showings and plenty of offers as long as the home is in reasonable shape and the seller is not stretching the asking price. There is nothing spectacular about the number of buyers looking to purchase today. Today’s insane pace is not a function of juiced demand. The issue is that there are only 6,758 homes available today in the middle of April when there are typically around 11,300 (the 3-year average between 2017 to 2019). The lack of FOR-SALE signs in every community is why today’s housing market feels insane for the vast majority of housing.
Housing insanity has returned to Los Angeles County, and it will not change anytime soon.
March Luxury Sales Report
