Why is Home Inventory Scarce (even in San Diego County)?

If you are a buyer you have likely noticed that inventory is scarce right now, in San Diego county as well as many other areas. As we head into the Spring/Summer “busy” home selling season, many wonder whether the inventory will pick up, and that has some buyers and sellers worried.

Here are some of the likely reasons why inventory levels remain low right now:

1. Rate increases. In December of 2015 the feds slightly raised interest rates, with the hint that more increases would follow. Many buyers got off the fence and are not out looking for houses before any further increases might price them out of the buyer market. This could be good news for sellers, but it seems they are not jumping to list their properties – likely because they are concerned with finding replacement property themselves.

2. Buyer inability to qualify for a loan. Many buyers may not be able to qualify for loans. Price increases in 2015 and mortgage interest rate increases could cut out the ability of some buyers to qualify.

3. Sellers don’t want to give up prop 13 tax basis. Some sellers may not want to list their properties because they could lose their Proposition 13 tax benefits if they sell – especially if they purchased their homes when prices were lower, the assumption being that a new home purchased will  be priced higher and thus have a higher tax base.

4. Sellers worry they won’t find replacement property. This was mentioned above, and it is a Catch-22 situation: sellers may have plenty of interested buyers and great offers, but they are afraid because of the lack of inventory available for finding replacement property; thus many sellers stay put.

5. U.S. and foreign economic issues. Although this may not play into selling and purchasing decisions as much as some of the other reasons, it could be a deal breaker for some buyers/sellers, who may perceive threats in the economic system and decide it is best to stay put until things feel safer.

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The bottom line is that we do not know how the inventory will be affected as we head into 2016. Buyers who are qualified should probably focus on finding properties sooner rather than later, if they want to avoid interest rate hikes. Sellers who have replacement property, are moving out of the area, or must sell for other reasons will likely find themselves in a great position to sell. Make sure to talk to a knowledgeable and experienced local area agent and mortgage professional to understand what it going on in your hyper-local market, so you know when is the best time for you to buy or sell real estate.