Are Multiple Offers Back?
After hearing about falling home prices due to sky-high mortgage rates, buyers expect housing to be slow so they can take their time and not compete in purchasing a home. Instead, they're experiencing long lines of buyers at open houses and multiple offers on homes that are priced right and in reasonably good condition. A lot of home buyers are frustrated… again!
Ever since mortgage rates climbed above 6% in June, there has been a tug-of-war taking place between buyers and sellers: low demand, which favors buyers, pitted against a low supply, which favors sellers. Last year, inventory kept growing until it peaked in August,while demand continued to drop after peaking in March with rising interest rates. Market times rose from 19 days in March to 56 days in June then 67 days in July. By November, the market time reached 84 days, drastically different than the first five months of the year. As market times grew, buyers had the upper hand. The pool of buyers evaporated due to affordability constraints caused by the rise in interest rates. The remaining buyers were not tripping over each other to purchase, they were unwilling to overpay for a home, and the few houses on the market took longer to sell.
The sense ofurgency that characterized the market from June 2020 through May 2022 had vanished…According to the Freddie Mac House Price Index, as of January, San Diego County has dropped 10% since May and was down 4% year-over-year…In January 2022, there were 1,500 homes available, and demand, the last 30 days of pending sales activity, was at 1,744. So demand was higher than the supply of availablehomes, and the market time was less than 30 days for all of San Diego County. It was insanely hot, with way too much buyer competition, multiple offers, and sales prices way above the asking prices. With rising rates, the supply increased rapidly while demand was falling. In May, demand was less than the supply, which is normal. The difference between supply and demand grew. At the end of October 2022, demand dropped to 1,596 pending sales, and the inventory had reached 4,433. Supply was 2,837 higher than demand, the largest gap in 2022.
The housing market has evolved yet again in 2023. The supply of available homes has beendropping while buyer demand has risen. The inventory declined from 2,898 homes in January to 2,164 today, a drop of 25%. On the other hand, demand has grown from 1,144 pending sales in January to 1,913 today, up 67%. The difference between supply and demand has diminished from 1,754 in January to 251 today, its smallest difference since May last year. The market time dropped from 76 days in January to 34 days today, its lowest level since May 2022. Anything below 50 days indicates that not enough homes are available to purchase. Two-thirds of San Diego County cities have an Expected Market Time of less than 50 days. Rancho Peñasquitos has the lowest market time at 12 days, with only 10 available homes and demand at 26 pending sales. All homes below $2 million have a market time below 50 days. The fastest price ranges are homes between $500,000 to $750,000 at 21 days, and between $750,000 and $1 million at 28 days.
At 34 days, San Diego County buyers are once again experiencing long lines of buyers at open houses, multiple offer situations, and sales prices above the asking price. This is not due to heightened demand. High mortgage rates are inhibiting demand. Instead, it is a result of not enough new sellers and a muted inventory.
So far this year, in January through February, there have been 3,948 missing… FOR-SALE signs compared to the 3-year average before COVID, down 48%. Today's buyers cannot buy what is not for sale, so buyers in today's marketplace are waiting for homes to be placed on the market. As soon as a home becomes available, if it is in decent shape and priced right, it will be greeted with plenty of interested buyer.
A WARNING FOR SELLERS though: This is NOT the insane market from June 2020 to May 2022, where values were screaming higher. Sellers may have the advantage, but overpricing a home is futile. Homes with deferred maintenance or a poor location will be extremely challenging to sell without adjusting the price. Price a home according to its Fair Market Value based on condition, location, upgrades, amenities, and age. Multiple offers may be back, but sellers should not get overzealous.