April 18 Snapshot

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Even though housing is insanely hot, trends have emerged that confirm that the San Diego County housing market is starting to cool. Now that the first quarter of 2022 is in the rearview mirror, noticeable cracks have appeared that illustrate a cooling market. It is not as if housing has suddenly tilted in favor of buyers. No, multiple offers are still the norm, and most homes are flying off the market and into escrow just moments after FOR-SALE signs are pounded into the front yard. Buyers are still frustrated by the lack of available homes to purchase in all price ranges. Sellers remain in the driver’s seat able to call the shots. Nonetheless, trends have surfaced that highlight a cooling marketplace that will eventually pave way to a completely different housing scene thanks to a dramatic rise in mortgage rates from 3.25% at the start of the year to 5.35% today (Mortgage News Daily).

The current active inventory has increased by 35% since early-January. From January 6th through today, the number of available homes to purchase has risen from 1,453 to 1,967, up an astonishing 35%, or 514 additional homes. The inventory has struggled to grow after ringing in a New Years since 2020, the start of the pandemic. It is the largest gain since 2018. Today’s level is still extremely anemic and far below normal levels, yet is a trend that demonstrates that not all homes are selling instantly. It will not be long before there are more homes on the market this year compared to 2021. Last year everything that was placed on the market was slammed into escrow. That is not the case today even with a muted number of homes coming on the market. 

Demand, a snapshot of the number of new escrows over the prior month, has been muted since the start of the year and has stalled within the past several weeks. Today’s demand is at 2,744 pending sales, down 18% compared to last year. The 3-year average demand reading prior to COVID (2017 to 2019) for this time of year was at 3,466 pending sales, 26% more than today. Demand readings have been muted by a lack of available homes and fewer homes coming on the market; yet, demand is still falling while the inventory is climbing. Typically, during the Spring Market, pending sales activity is firing on all cylinders, the busiest time of the year, and continues to climb until peaking between the end of April to the middle of May. Demand most likely already peaked in mid-March. It has not been this low in mid-April (ignoring the lockdowns of April 2020 that only initially impacted demand) since tracking began a decade ago.

While there are definite cracks in San Diego County’s pandemic induced housing run, the market is still an insanely Hot Seller’s market. Due to an unprecedented spike in mortgage rates, new trends are emerging fast. These trends should be seen as cautionary flags in approaching the local housing market. Carefully pricing is rapidly becoming an essential ingredient to successfully selling. As these trends continue, if higher rates persist with duration, the market will only cool further. The housing market will not change overnight; it will evolve over time. This year still promises to be an excellent year for sellers, only a bit more challenging, necessitating a more cautious, deliberate strategy and approach to the housing market.

The current active inventory surged higher in the past couple of weeks.

The active listing inventory added 189 homes in the past couple of weeks, up 11%, and now sits at 1,967 homes, still its lowest level for this time of year since tracking began a decade ago. Yet, this is the first year since 2018 that the inventory is methodically rising. With a major spike in mortgage rates, demand has cooled. Homes that are priced well and in good condition will fly off the market. Homes that are overpriced, in poor condition, or have an inferior location will accumulate on the market allowing the active inventory to continue to grow. There are more OPEN HOUSE directional arrows at intersections, another barometer indicating that homes are beginning to take a bit longer to sell. Expect the inventory to continue to surge upward. Normally it peaks during the summer months, prior to the kids going back to school. But, due to higher mortgage rates, anticipate a delayed peak that occurs between October and November as many homes sit without success.

Last year, the inventory was at 2,309, 17% higher, or an additional 342 homes. The biggest complaint last year was that there were not enough homes on the market, yet there were more homes available compared to today. The 3-year average prior to COVID (2017 through 2019) is 6,010, an extra 4,043 homes, or 206% more, more than triple today. There were a lot more choices back then, though this is slowly changing.

For the first couple of weeks of April, there were 2,500 new FOR-SALE signs in San Diego County, 549 fewer than the 3-year average from 2017 to 2019, 22% less. Every single missing sign counters the potential rise in the inventory due to higher mortgage rates.

Demand dropped slightly in the past couple of weeks.

Demand, a snapshot of the number of new escrows over the prior month, decreased from 2,756 to 2,744 in the past couple of weeks, down 12 pending sales, nearly unchanged. It has dropped 1.5% in the past four weeks. Demand is dropping when it typically rises by 4% (pre-COVID average between 2017 to 2019). It appears as if demand may have reached a premature peak four weeks ago. Normally demand peaks between the end of April to the end of May. Current demand is muted due to a major spike in mortgage rates, increasing from 3.25% in January to 5.35% today according to Mortgage News Daily. Affordability has eroded tremendously since ringing in a New Year, sidelining many buyers. Buyers will be a bit stingier on price going forward, not as willing to stretch much above recent comparable pending and closed sales, especially as the year progresses. Expect demand to remain muted and slightly fall from now through summer months.

Last year, demand was at 3,366, 23% more than today, or an extra 622. The 3-year average prior to COVID (2017 to 2019) was at 3,466 pending sales, 26% more than today. In San Diego County, current demand readings have been muted by a lack of available homes, not enough coming on the market, and spiking mortgage rates.

With the supply surging higher and demand dropping, the Expected Market Time (the number of days to sell all San Diego County listings at the current buying pace) increased from 19 to 22 days. At 22 days it remains an insane, Hot Seller’s Market (less than 60 days) where there are a ton of showings, sellers get to call the shots during the negotiating process, multiple offers are the norm, and home values are rising rapidly. Last year the Expected Market Time was at 21 days. It is the first time since April 2020 where the market time is higher than the prior year. The 3-year average prior to COVID was at 52 days, substantially slower than today and a Slight Seller’s Market (between 60 and 90 days).

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