Where is All the “For Sale” Inventory?

There is a strange phenomenon occurring in San Diego this Spring season – there are less homes for sale than anticipated. It is not uncommon for buyers to find themselves in multiple offer situations, being outbid and outshone by others, including cash investors. Will we see more inventory as we head into summer, and what is keeping sellers from selling? Let’s take a look at some of the possibilities.

1. Negative Equity Rising. According to an article in the Wall Street Journal, economists believe that as negative equity rises, people are less likely to list their homes because more foreclosures become a possibility, meaning property values go down. If sellers cannot get more for their homes, they will be unable to have the money needed for downpayments to purchase new homes, and to pay all the fees associated with selling. Thus, many are waiting for the market to go up before selling. Some of those who have to sell end up short selling their homes, which does not help neighborhood market values.

2. Fear. Many people are still afraid that the economy has not healed, and that the housing market has still not hit the “bottom.” To this I reiterate how important it is to focus on your own specific housing market, not the national reports. For instance, here in San Diego many communities are currently “seller’s markets” (for the first time in a long time) when it comes to condos, townhomes and attached homes. Multiple offer situations are common, and prices are rising. Many buyers are frustrated – they are making offers and are qualified for loans, but they are outbid. So, it is important to speak with a knowledgeable area agent to understand your specific market.

3. Election? Being an election year, many people feel that there will be changes within the economy and housing market if a new administration is elected, and those changes create fear and uncertainty. Some sellers choose to wait and see the results, so they can try to analyze where the market may go from that point. Again, it is imperative to really understand your local market, and not simply wait to see what might happen in the future. If you are in a market that has risen, and there is great demand there, you may be in the driver’s seat as a seller.

4. Investors in the market. There are many investors out there snatching up properties, especially those in the under-$300,000 price range. A large percentage of these investors pay cash, and their offers outshine those from buyers who need to get a loan, as they are easier to close. It is not uncommon to see buyers being outbid by these investors, and there is a lot of frustration amongst many buyers today. The only thing a buyer can do is be as well qualified as possible, and appeal to the sellers via a handwritten letter, making the sale feel more personal. This won’t always help, but I have my buyers write them, as it makes things more personal.

Most importantly, buyers and sellers need to understand the following: if somehow we knew that the market was going to improve from here on out, that improvement will be gradual – not a crazy spike like in the early 2000’s. Annual price increases of several percentage points a year will be likely. Sellers need to figure out the difference in waiting to make a few thousand dollars, compared to paying the mortgage, insurance, taxes and maintenance over that period of time. Buyers need to consider that when the market starts to correct, it is likely that interest rates will rise as well – so they could potentially be hit with higher prices and rates. There are buyers out there ready and waiting for homes to be listed, so speak with a qualified agent about your options if you are thinking of selling your home.

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