“Why are we in such a seller’s market and when will it end?” This is a question I get a lot and I wanted to give you an overview of what is happening in the market.
Big news not so much for all of us that we are in a sellers market across the country, and if you are a buyer you have little to no hope that prices will ever stop rising, and I am certain, fearful that by the time they do, you will be priced out of the market for the home that you dream of right?
If you are thinking of selling a home you are watching this market and trying to time it, and be one of those people (we have all met one) with a story of how they timed the market perfectly and cashed out big right before everything tanked!
In order to understand the market lets looks at why we are in the market and what we can expect in the future.
Lets first talk about the three terms we will use here and define them for us.
- Sellers Market: This is a market that has less than 3 months worth of inventory of available listings for sale.
- A Balanced Market: This is a market that has between 4-6 months worth of inventory of available listings for sale.
- A Buyers Market: This is a market that has between 6 or more months worth of inventory of available listings for sale.
This is really about supply and demand.
Right now here in Orange County, CA we have about 2,200 active listings for sale and with about 3,300 closed sales in the last 30 days that means we are at about 6 months worth of inventory. I have heard on the “news” that the market is shifting as well and all I can say is that maybe they didn’t do the math?
So our next questions are simply why is this happening? and how long will it last?
As far as the first question goes, we get to move to the source of the supply new home builders.
When the market crashed in 2008 the new home builders were left with literally thousand of homes that they could not sell, or if they could, they had to take major losses on them. This was because the market at that time was so hot that they were building as fast as they could in order to keep ahead of demand and production.
Once the economic recovery in this country began and builders began building again, we saw that rather than building hundreds of units at a time they would build a few, sell them, and build a few more. This kept their inventory and their risk very low. After years of this and as sales started to increase inventory kept shrinking.
Consider this when you are selling and moving up: most people want a bigger and a nicer home, so new homes are a very attractive option. However if you cannot find what you want in a home you are likely to stay in your current home and add on or remodel as needed. Then as demand for housing rises and more and more people are choosing this option.
This coupled with low interest rates and the US having experienced one of its most booming economies in its history pre-COVID a lot more people found themselves with the means to purchase a home for their families, and indeed we saw people doing that in record numbers both pre-COVID and then during COVID for a variety of reasons including work flexibility coupled with low interest rates really drove the market through the roof!
Okay, so now that we understand some of the reasons for the sellers market your next question is “when will it end?”
My simple answer is: nobody knows for certain. With current economic conditions in our country as they are and with rising inflation everyone is saying that interest rates will have to rise eventually. When this does happen we will see prices start to come down and correct.
Does this mean there will be a crash? I don’t think so. I think it will be more of a correction than a crash and as anyone on the industry knows a correction is good and healthy for our market.
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