The End of the Home-Buying Frenzy

You may have seen recent news accounts about how home sales have slowed nationwide. So I got curious: What’s going on here? I looked back at the local home-sales stats we publish in the Business Journal, courtesy of Redfin. And in the Valley area, home sales have indeed slowed. In fact, they were down way more here than in the rest of the country, at least in June, which is the latest reporting period. Nationwide, sales of existing homes in June were down 2.2 percent from June of last year. But they were down 11 percent in the portion of the Valley area that’s in Los Angeles County. In Ventura County, it’s more dramatic: Home sales were down 23 percent. That’s a huge drop off. But then I thought: Wait a minute! There’s a housing shortage here. The sharp slowdown in sales may result from the fact that there just aren’t many homes to buy. But that supposition appears to be wrong. Home listings – the number of homes for sale – have increased over the last year. The number of unsold homes was up 1 percent in the Los Angeles County portion of the Valley area (including the San Fernando Valley and such areas as Burbank, Calabasas, Glendale, Santa Clarita and Palmdale). Again, it’s more dramatic in Ventura County. The inventory of homes for sale in June was 3 percent higher than one year earlier. In short, home sales were down in June while the inventory of unsold homes went up. Can we declare that the housing shortage is over? No, but we can say that the shortage is now less severe. Now that I think about it, this slowdown in house-buying shouldn’t be all that surprising. Mortgage interest rates have been going up, making monthly payments higher. And have you noticed in recent months the sudden reappearance of for-sale signs? For a couple of years, for-sale signs were scarce. Whenever a home came up for sale, the broker who got the listing quickly showed it to his or her roster of home buyers, and a deal was quickly made before a sign was ever planted in the yard. But lately, not only is there a proliferation of for-sale signs but even some open houses. Again, I don’t think we can declare the housing shortage dead. However, the buying frenzy – all-cash offers above asking price on the day the house hit the market – appears headed to the hospice. What about prices? Since home sales drooped in June as the supply expanded, surely that means prices went down, right? Well, ahem, no. According to our Redfin data, the median price per square foot in June was up 4.2 percent in Ventura County from the previous June, and up 7 percent in the Los Angeles County portion of the Valley area. From the previous month, prices were up in Ventura County and flat in the L.A. portion of the Valley. The fact that prices are not going down in the face of weakening sales and higher mortgage rates seems to defy reason. But here’s a thought: All the prices mentioned above are for June. Since then, things may have changed. After all, whenever a slowdown takes hold, the old psychology may linger. It may take a while, but reality eventually sets in and prices inevitably drop. Maybe that just had not happened yet in June. Here’s a slight bit of anecdotal evidence: A home in my neighborhood went up for sale in April. I walked by it last week. The house still has a for-sale sign in front, although the owners apparently have moved out. According to Zillow, the seller has cut the price three times for a total of 13 percent. The sales sheet describes them as “super motivated,” which I assume means they’ll slice the price some more. Last year, that house probably would have been snatched up quickly regardless of price. But this year, after more than three months and three price cuts, still no deal. The housing shortage is not over. In the big picture, there are still too few houses. However, the worst of the house-buying frenzy does appear to be finished or at least abating. The price cutting will surely follow. Charles Crumpley is editor and publisher of the Business Journal. He can be reached at [email protected].