It’s been 12 years since California housing has been in a “buyer’s market.”
Industry folklore holds that when home seekers can choose from a list of six or more months worth of inventory on sale, buyers are presumed to be in control of the market. If the supply is less than his three months, home buying logic says it’s a “seller’s market.” In between, a so-called “balanced” market operates.
So, to find a buyer’s market, my trusty spreadsheet applies these interesting definitions to statistics from the California Association of Realtors, which tracks single-family home sales, and some related economic data dating back to 1990. Did.
First, note that California’s supply of homes for sale in September was 2.8 months. According to real estate mythology, it’s a seller’s market.
According to this definition, to find the last time California buyers dominated the market, we need to go back to February 2012, when supply was 7.5 months.
Over the past dozen years, California housing has been in a seller’s market 38% of the time and in a “balanced” market 62% of the time. During the same period, the median sales price of existing single-family homes by real estate agents rose at a rapid rate of 8% per year.
As California home hunters know, buyers are clearly not driving the market.
Abundant options
So what does history tell us about the typical California buyer’s market compared to the supposedly seller-friendly era?
There are plenty of homes for sale. The average length of supply over a 34-year buyer market period was 10.2 months, compared to 2.4 months when sellers were in control.
And there’s no need to rush. Since 1990, listed homes have sat for an average of 63 days in a buyer’s market, compared to 23 days in a seller’s market.
On the other hand, prices are falling. Buyers’ markets have declined an average of 3.7% over the past 12 months, while sellers’ markets have risen 15% annually.
When buyers dominate the market, mortgage rates also fall. Since 1990, interest rates on 30-year fixed loans have fallen by 0.3 percentage points in the previous year for buyers, but have increased by 0.1 percentage points when sellers are in control.
Buyer beware
However, these seemingly attractive buyer’s market conditions do not encourage home seekers to buy.
In California, sales rates in buyer’s and seller’s markets were, on average, 26% lower. Even builders are pulling out, with permit applications to build single-family homes down 27% in a buyer’s market.
So why does real estate cool in buyer’s market conditions? Well, that “time to buy” period usually coincides with an economic downturn that can scare home hunters and owners alike.
California’s unemployment rate averaged 7.7% in buyers’ markets, compared to 6.4% when sellers were in control. In a buyer’s market, job creation across the state has shrunk by 62%.
Also, consider the Conference Board’s national standards for interest in buying a home. His 3% of consumers surveyed had plans to buy a home in California’s buyer’s market, compared to 5% in a seller’s market.
Buyer’s bust
California has been in a buyer’s market one-third of the time since 1990, according to the spreadsheet. However, if you look at this calculation, the situation of finding a house will be destroyed in a few decades…
1990s: A decade marked by a painfully slow recovery from the housing crash from the highs of the late 1980s, a buyer’s market for 79% of the decade.
2000s: A 27% buyer’s market led to a surge in home purchases, a bubble, and the Great Financial Crisis at the end of the 2000s.
2010s: The housing market recovers from the carnage of the Great Recession, with a 3% buyer’s market.
2020s: Amid all the disruption caused by the pandemic, including a period of historically low mortgage rates, there will be no buyer’s market until September 2023.
So, buyers, be careful what you wish for.
History shows that the “buyer’s market” designation is a bad label for bad times for household finances.
Therefore, a buyer’s market should have a warning label attached to it, and if an economic crisis occurs, another warning label may need to be created for California home seekers.
conclusion
The transformation in home hunting includes several market trends, including people moving less frequently, consumers’ access to detailed market information, near-instant cash purchases, and stricter lending standards.
Perhaps the calculations of buyer’s and seller’s markets should change as well.
From 1990, just before the bubble burst, to 2006, using the traditional 6-month/3-month template and real estate agent data, California was in a “buyer’s market” for 49% of all months and a “seller’s market” for 17% of all months. did. .
If you look at the last 12 years since the crash, assuming we match that pattern, a buyer’s market would have more than 3.25 months of supply and a seller’s market would have less than 2.25 months of supply.
At the very least, this evolving gap in homebuying supply is yet another reminder of the tough challenges of finding a home today.
Jonathan Ranzner is a business columnist for Southern California News Group. You can contact him at: jlansner@scng.com
