Low resale home inventory leading to lower sales volume

Burn That Belly said:
But there's so much $600K-$1m homes at the Great Park. How can that be?
Click to expand...

There are only 5 active listings in GP under $1m and only 2 of those are 2-level properties so I wouldn't call that a lot. Remember those 3-level condos are tougher to sell.
 
short-term effect = stronger upward pressure on sub $1m home prices

long-term effect = less sub $1m homes as more cross over into $1m+ territory

?
 
USCTrojanCPA said:
Burn That Belly said:
But there's so much $600K-$1m homes at the Great Park. How can that be?
Click to expand...

There are only 5 active listings in GP under $1m and only 2 of those are 2-level properties so I wouldn't call that a lot. Remember those 3-level condos are tougher to sell.
Click to expand...

You know BTB... anything to pump up attached properties in Eastwood.
 
The thing is this argument has consistently been made since 2011 whenever sales volume takes a dip.  NAR will always, always blame inventory levels.  It's never due to jobs or affordability or anything else.  (Well, sometimes they blame the weather too.)

So having seen this pattern repeat for eight years now, it's hard for me to accept that low inventory is causing the drop in sales.  We have had low inventory during months when sales are rising as well.  It's not like inventory suddenly spikes up and then sales go up, followed by a sudden drop in inventory and a corresponding drop in sales.  I'm betting a statistician would find very little correlation between these two numbers (controlling for seasonality).

So my view is there might be an inkling of truth to the low inventory argument, but it's mostly spin.  Realtors need to explain away bad numbers.
 
Liar Loan said:
The thing is this argument has consistently been made since 2011 whenever sales volume takes a dip.  NAR will always, always blame inventory levels.  It's never due to jobs or affordability or anything else.  (Well, sometimes they blame the weather too.)

So having seen this pattern repeat for eight years now, it's hard for me to accept that low inventory is causing the drop in sales.  We have had low inventory during months when sales are rising as well.  It's not like inventory suddenly spikes up and then sales go up, followed by a sudden drop in inventory and a corresponding drop in sales.  I'm betting a statistician would find very little correlation between these two numbers (controlling for seasonality).

So my view is there might be an inkling of truth to the low inventory argument, but it's mostly spin.  Realtors need to explain away bad numbers.
Click to expand...

That's why you look at total sales and number of months of inventory on the market (I've mentioned that this is a leading indicator of where prices might be heading in the future). There could be several reasons why you see low resale inventory on the market...anything from sellers not seeing prices high enough to sell, sellers not being able to afford to move up to a bigger/more expensive home, sellers renting instead of selling their homes, sellers not having enough equity to sell (short sale), sellers thinking that there will be future price appreciation in the near future, and/or strong market demand. I can't speak for markets outside of Southern California, but from what I see in the LA/OC and even Irvine area there is a lack of resale inventory with many entry level properties get multiple offers (both from owner occupant buyers to investors to FBCs). Days on market (DOM) is also another indicator that I use of market strength or weakness.

So yes, in our case with good demand sales volume will decrease if there is a decrease in resale inventory.  Another data point for you, there are less active resale listings on MLS today in Irvine than there were last year and the months of inventory on the market is also lower than last year. So yes, data can be lead to different conclusions but I look at several data points before I make a decision on what I feel is going on. Said another way...if you don't have inventory you won't get any sales volume but you need a lack of sales volume to increase inventory.
 
Burn That Belly said:
USCTrojanCPA said:
Liar Loan said:
The thing is this argument has consistently been made since 2011 whenever sales volume takes a dip.  NAR will always, always blame inventory levels.  It's never due to jobs or affordability or anything else.  (Well, sometimes they blame the weather too.)

So having seen this pattern repeat for eight years now, it's hard for me to accept that low inventory is causing the drop in sales.  We have had low inventory during months when sales are rising as well.  It's not like inventory suddenly spikes up and then sales go up, followed by a sudden drop in inventory and a corresponding drop in sales.  I'm betting a statistician would find very little correlation between these two numbers (controlling for seasonality).

So my view is there might be an inkling of truth to the low inventory argument, but it's mostly spin.  Realtors need to explain away bad numbers.
Click to expand...

That's why you look at total sales and number of months of inventory on the market (I've mentioned that this is a leading indicator of where prices might be heading in the future). There could be several reasons why you see low resale inventory on the market...anything from sellers not seeing prices high enough to sell, sellers not being able to afford to move up to a bigger/more expensive home, sellers renting instead of selling their homes, sellers not having enough equity to sell (short sale), sellers thinking that there will be future price appreciation in the near future, and/or strong market demand. I can't speak for markets outside of Southern California, but from what I see in the LA/OC and even Irvine area there is a lack of resale inventory with many entry level properties get multiple offers (both from owner occupant buyers to investors to FBCs).  So yes, in our case with good demand sales volume will decrease if there is a decrease in resale inventory.  Another data point for you, there are less active resale listings on MLS today in Irvine than there were last year and the months of inventory on the market is also lower than last year. So yes, data can be lead to different conclusions but I look at several data points before I make a decision on what I feel is going on.
Click to expand...

Hrm. I think everybody feels like zubs. Nobody wants to sell their rental homes. I hear one particular neighborhood alone (not EW of course) are 1/3 renters -and- there's no incentive to sell because umemployment is at all time low so everything feels copacetic.
Click to expand...

I tell you this, most of my up-move buyers who don't have to sell their current home have me rent it for them. I've even had a few clients relocate to other areas for new/better jobs and they've opted to rent their homes instead of selling them.
 
USCTrojanCPA said:
I tell you this, most of my up-move buyers who don't have to sell their current home have me rent it for them. I've even had a few clients relocate to other areas for new/better jobs and they've opted to rent their homes instead of selling them.
Click to expand...

Curious, how do they define how they "don't have to" sell their current home? What kind of DTI are they generally taking on to rent it out instead of rolling over equity. I know risk tolerance plays a factor but we are in similar situation. DTI for us would be around 30%.
 
Rizdak said:
USCTrojanCPA said:
I tell you this, most of my up-move buyers who don't have to sell their current home have me rent it for them. I've even had a few clients relocate to other areas for new/better jobs and they've opted to rent their homes instead of selling them.
Click to expand...

Curious, how do they define how they "don't have to" sell their current home? What kind of DTI are they generally taking on to rent it out instead of rolling over equity. I know risk tolerance plays a factor but we are in similar situation. DTI for us would be around 30%.
Click to expand...

Good question...they don't have to sell their current home because they have enough liquidity for the downpayment without selling their current home and the home is either cash flow neutral or cash flow positive in terms of renting it.  Most all of my Irvine buyers are fairly conservative, meaning that they buy 10-25% below their maximum approved purchase price so their DTIs are most likely between 30-40%.  Here's how a lender gives credit to a borrower if they are looking to rent out their current home (only if the borrower has 30%+ equity in their current home and are "upgrading" to a new home)...

Lower of market rent or actual rental amount x 75% = rental income credit

Rental income credit - total monthly expenses for the home = monthly income added to income OR monthly expense added to monthly obligations to calculate the DTI

Rental income
 
Rizdak said:
USCTrojanCPA said:
I tell you this, most of my up-move buyers who don't have to sell their current home have me rent it for them. I've even had a few clients relocate to other areas for new/better jobs and they've opted to rent their homes instead of selling them.
Click to expand...

Curious, how do they define how they "don't have to" sell their current home? What kind of DTI are they generally taking on to rent it out instead of rolling over equity. I know risk tolerance plays a factor but we are in similar situation. DTI for us would be around 30%.
Click to expand...

Everyone's risk tolerance is different, but if you can be either cash flow neutral or even positive, and you have enough money for a downpayment without having to sell the home (or take out a HELOC), then I'd say hold onto it, rent it out, and enjoy someone paying off your mortgage as it appreciates in value.

It may not always work out, but I think the historical rate of appreciation in Irvine is somewhere between 5-6% (please correct me if this is wrong), so if someone can pay your carrying costs for you, you might as well hang onto it.  Also, selling real estate is expensive (around 6% of the sales price due to commission and closing costs/fees), so just another reason to buy and hold.
 
Jantoven said:
Rizdak said:
USCTrojanCPA said:
I tell you this, most of my up-move buyers who don't have to sell their current home have me rent it for them. I've even had a few clients relocate to other areas for new/better jobs and they've opted to rent their homes instead of selling them.
Click to expand...

Curious, how do they define how they "don't have to" sell their current home? What kind of DTI are they generally taking on to rent it out instead of rolling over equity. I know risk tolerance plays a factor but we are in similar situation. DTI for us would be around 30%.
Click to expand...

Everyone's risk tolerance is different, but if you can be either cash flow neutral or even positive, and you have enough money for a downpayment without having to sell the home (or take out a HELOC), then I'd say hold onto it, rent it out, and enjoy someone paying off your mortgage as it appreciates in value.

It may not always work out, but I think the historical rate of appreciation in Irvine is somewhere between 5-6% (please correct me if this is wrong), so if someone can pay your carrying costs for you, you might as well hang onto it.  Also, selling real estate is expensive (around 6% of the sales price due to commission and closing costs/fees), so just another reason to buy and hold.
Click to expand...

I agree totally with Jantoven. It has been working well for me in the last several years of buy and hold. Go long with Irvine and grab on the dip.
 
Currently $/SQFT is between 460-$500 in most newer communities for properties under $1M.

Wondering is $550-$600/SQFT realistic number in Irvine, in next 3 years maybe?

My current 3 bed condo is touching close to $470/SQFT. I am wondering whether to sell it and roll the equity into a bigger place or keep renting it with appreciations in mind.
 
the.irvine said:
Currently $/SQFT is between 460-$500 in most newer communities for properties under $1M.

Wondering is $550-$600/SQFT realistic number in Irvine, in next 3 years maybe?

My current 3 bed condo is touching close to $470/SQFT. I am wondering whether to sell it and roll the equity into a bigger place or keep renting it with appreciations in mind.
Click to expand...

Actually, smaller detached condos are getting over $500/sf and some attached condos are getting to $500/sf in newer areas.  I could definitely see pricing heading to mid $500/sf across the board in 2-4 years.
 
USCTrojanCPA said:
the.irvine said:
Currently $/SQFT is between 460-$500 in most newer communities for properties under $1M.

Wondering is $550-$600/SQFT realistic number in Irvine, in next 3 years maybe?

My current 3 bed condo is touching close to $470/SQFT. I am wondering whether to sell it and roll the equity into a bigger place or keep renting it with appreciations in mind.
Click to expand...

Actually, smaller detached condos are getting over $500/sf and some attached condos are getting to $500/sf in newer areas.  I could definitely see pricing heading to mid $500/sf across the board in 2-4 years.
Click to expand...

Martin - where do you see homes in the $1.4M to $1.6M range being in 3 years?  Specifically, new construction?  For example, if a Lennar home in Cadence Park is roughly $1.5M now, what would an equivalent GP home be in 3 years?
 
paydawg said:
USCTrojanCPA said:
the.irvine said:
Currently $/SQFT is between 460-$500 in most newer communities for properties under $1M.

Wondering is $550-$600/SQFT realistic number in Irvine, in next 3 years maybe?

My current 3 bed condo is touching close to $470/SQFT. I am wondering whether to sell it and roll the equity into a bigger place or keep renting it with appreciations in mind.
Click to expand...

Actually, smaller detached condos are getting over $500/sf and some attached condos are getting to $500/sf in newer areas.  I could definitely see pricing heading to mid $500/sf across the board in 2-4 years.
Click to expand...

Martin - where do you see homes in the $1.4M to $1.6M range being in 3 years?  Specifically, new construction?  For example, if a Lennar home in Cadence Park is roughly $1.5M now, what would an equivalent GP home be in 3 years?
Click to expand...

Oh man, that's tough to there's way more inventory in the $1.5m+ market than there is in the $600k-$900k market.  I think that the lower end will appreciate at a higher % annuals but I would think that even the higher end should be at least flat to slightly up as long as we don't go into a recession and continue to have a good economy and jobs environment without an interest rate spike. It's hard to say where prices are going to be in a few years from now, but I know this...if you buy today and you hold on to your home for 7-10+ years your home will be worth more than it cost today (we can look at todays prices compared to the bubble prices of 2006-2007 as an example).  I also believe that the closer we get to the full build out of Irvine, the higher the likelihood that prices will continue moving higher as new home buyers get pushed into the resale market.
 
You must log in or register to reply here.
Back
Top