Inventory shortages hampering local markets as fall begins
With the traditionally quiet end of summer behind us, Bay Area Realtors are gearing up for what could be a busy fall selling season. But according to many of our local offices, one obstacle standing in the way of a solid market isn’t a lack of buyers – but a lack of inventory. There just aren’t enough good, well-priced homes for sale to meet buyer demand.
Considering the downbeat national housing market news coverage, you might think that more homes on the market is exactly what we don’t need at this time. But the Bay Area is different from much of the country. In many of our markets, buyers are continuing to snap up homes that are seen as good values. The result is that a number of listings are attracting multiple offers and many buyers are frustrated by lack of supply. Agents only wish there were more homes on the market.
I know this defies logic. After the financial crisis in Oct 2008, I was thinking it would probably be a much slower market for several years. However, I thought it might be due to homes not selling. I never thought that we would have the kind of demand we see today and that weaker sales numbers would be from a lack of inventory rather than a lack of buyers.
It’s been widely reported that places like Palo Alto have a shortage of inventory. But the problem goes beyond the heart of Silicon Valley. Even outlying regions of the Bay Area could use more homes to sell, whether they are entry-level properties, move-up homes or even high-end Preview listings.
Active inventory is down 34.5 percent in the East Bay in September from a year ago, 44 percent in San Francisco, 49 percent in Santa Clara, 35 percent in San Mateo, 25 percent in Santa Cruz, 39 percent in Monterey, 42 percent in Marin, and 39 percent in Sonoma. In most cases, the average sale price has held steady or even gained.
My guess is that a lot of potential sellers are sitting on the sidelines waiting for a number of issues to sort themselves out, whether it’s the direction of the housing market or the volatile financial markets. While the housing market was quiet as we closed out summer, the stock market has been anything but. This past week was particularly bumpy as the major indexes fell 3-4 percent on fears of a new recession and European debt contagion.
So where does this all leave us?
Despite the volatility of the financial markets we’re not seeing current buyers walking away. Given the global economic headwinds buffeting the financial markets, we’re likely to continue experiencing volatility for some time to come. Still, I think most homebuyers in the Bay Area are looking past the week-to-week gyrations of the stock market and focusing on the long term. If anything, the recent dip in the stock market makes real estate all the more attractive as a long-term investment option.
On the seller’s side, my sense is that we’ll start seeing more people coming back into the market to list their homes this fall, once they begin seeing the real demand that’s out there for well-priced properties. This is particularly true for those sellers who have lived in their homes for a number of years and, despite declines in prices in recent years, stand to walk away with significant gains when they sell.
One final note: As every Realtor knows, it can be hard enough to hold deals together in this turbulent market without added obstacles. But recent national reports say that mortgage financing and appraisal hurdles are increasingly knocking deals out of escrow and possibly holding back a housing market recovery.
Time magazine reported that 16 percent of all sales contracts failed in July because the buyers could not secure a mortgage, up from 4 percent just two months earlier. In other words, one out of every seven contracts is going down due to problems that buyers are having getting mortgages.
Difficulty in securing financing isn’t the only hurdle facing buyers. Low appraisals are also blocking sales, according to a recent article in the Wall Street Journal. According to the Journal’s reporters, real estate appraisers, who were criticized by some for being too generous in their property valuations before the housing market fell, may be going overboard in the other direction.
In talking with my offices around the Bay, this doesn’t seem to be a significant problem for us yet. But it’s worth keeping our eyes open to the potential. The last thing we need at this time are more roadblocks to home sales.
While it’s important for lenders and appraisers to be cautious and prudent given the problems of the past, they also need to make sure that the pendulum hasn’t swung too far in the other direction. The recovery of the housing market is too important to throw more hurdles in its path.
