Real Estate Watch – Pacific Sotheby’s
Inventory at a Record Low – Why It’s Not A Bubble
March opened with fewer homes for sale in San Diego than we had in March of 2004, which was the low point in inventory for the bubble. As inventory continues to fall, competition is heating up among buyers and prices are finally starting to move up. Last August, Keller Williams co-founder Gary Williams and some of his top local agents warned of a shift in the market and a cooling off. I disagreed for a number of reasons.
Now that the market is continuing to accelerate, I am starting to hear people talk about a bubble. Once again, I’m going to disagree. We may cool off later this year, but it won’t be anything like a bubble.
When a bubble bursts, prices collapse. Outside of a major world event, that will only happen with a dramatic simultaneous increase in supply and reduction in demand. While we could easily see a reduction in demand as prices push affordability out of reach, I believe any reduction in demand would be temporary and would reverse with a small correction in prices.
I think a continuing shortage in supply is what will prevent a bubble from forming.
With the amount of equity people have and the favorable interest rates people have locked in, I don’t see panic selling on our horizon. But what about the ability to move up? Unfortunately for many, I am seeing that opportunity constrained by the current market. As prices and interest rates have risen, homeowners are finding themselves with increased equity, but without the ability to qualify for a larger loan. So, someone who put $100K down on a $500K house and finds the house worth $650K now has $250K in equity. But as rates have gone from the low 3% range to the low 4% range, they can’t qualify for a larger loan than they now have, and so they are stuck in their current home. This is the main reason we are seeing lower inventory today and the reason inventory will stay tight and prices will hold firm throughout this economic cycle.
Managing Partner, Inland Corridor
CAL BRE #01153157
16710 Bernardo Center Dr.
San Diego, CA 92128
(888) 311-6311 | Scott@VoakHomes.com
Scott Voak, the top-selling agent since 2008 (data from SANDICOR MLS as of 12/31/2015). Email him to subscribe to his weekly real estate newsletter – Monday Morning Coffee.