San Diego County Housing Report: Scraping the Bottom, November 28, 2023
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The active inventory, buyer demand, and the number of homeowners willing to sell have been bouncing around a bottom all year, so it is only up from here.
Low Readings for a Year Now - Housing is finally at a point where year-over-year statistics will isolate the slightest signs of improvement in the housing market.
For many, peanut butter is a delectable treat that is wonderful on crackers, toast, bananas, celery and an incredible additional ingredient in chocolate and cookies. The jar often gets to a point where it necessitates scraping the bottom for every last morsel. When it is this low, it is just a matter of time before everything changes; a new jar is opened, and there is plenty of peanut butter to dip into. Get the full report here.
Housing is just like that peanut bar jar. The supply of available homes, the number of homeowners willing to sell, and buyer demand are all very low, scraping the bottom compared to normal levels before COVID and sky-high mortgage rates. The current trend lines for these metrics cannot get much lower than where they are today. They have been at these low levels all year. It is just a matter of time before they start to rise from this established bottom.
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In October and November of this year, mortgage rates eclipsed 7% for the first time since 2001. They had risen from 3.25% in January 2022 to 7.37% at the end of October, drastically higher in a very short period. The quick erosion in affordability slammed on the brakes of a nuclear-hot housing market. Demand hit a March peak 27% below the average peak for 2020 and 2021. It was 24% below the 3-year average peak in demand before COVID (2017 to 2019). Before homeowners were able to adjust to the much lower demand levels, the inventory climbed from historical lows in January, with only 1,453 homes during the first week, to a peak of 4,806 in August, a 231% rise. It was 51% higher than 2021’s peak at 3,180 homes. Yet, it was still 35% below the 3-year average inventory peak before COVID of 7,354.
Demand in 2023 has been subdued all year due to the high mortgage rate environment and the lack of homeowners willing to sell. Demand has remained relatively flat, at bare-bones, inherent levels. There are always buyers in every market regardless of where rates climb. Year-over-year numbers have been nearly identical for the past month.
This year’s inventory has also remained relatively flat, dropping by 30% from January through April, when it usually rises. From there, it slowly climbed and did not peak until the beginning of this month at 3,055 homes, only 5% above the start of this year. Year over year, there are a lot fewer homes on the market, bare-bones, inherent levels. Like demand, there are always sellers in every market regardless of underlying fundamentals.
Another restrained statistic is the number of homeowners willing to sell. According to the Federal Housing Finance Agency’s National Mortgage Database, 85% of Californians with a mortgage have a rate of 5% or lower, 69% are at 4% or lower, and 30% are at 3% or lower. Consequently, fewer homeowners are selling their homes in the current high-rate environment. From January through October, 24,996 new sellers entered the market in San Diego County, 22,118 fewer than the 3-year average before COVID, 47% less. Last year, there were 25% fewer sellers. Yet, year-over-year comparisons were very similar in October, with 2,459 sellers this year compared to 2,642 last year. Rates in October were above 7% both this year and last.