Home sales in the Sacramento region were stuck in an odd rut in March, traditionally the start of the spring homebuying season. Even though prices rebounded to healthy levels not seen since before last decade’s housing boom and bust, the supply of homes on the market remained anemic.
Inventory, measured in the time it would take for all the homes listed to sell, dropped from 2 months in February to about 1.5 months in March, several data sources reported. Inventory that low makes for a strong sellers’ market but is bad news for buyers.
In keeping with the trend, homes sold quickly, spending an average of about six weeks on the market, and the median sales price for Sacramento, Placer, El Dorado and Yolo counties bumped up to $300,0000 – the highest level since late 2007, Sacramento-based TrendGraphix, an affiliate of Lyon Real Estate, reported.
Today, after two years of double-digit increases, home prices are roughly the same as they were in 2003-04, before prices went crazy in the housing bubble, then crashed. Yet that big boost hasn’t been enough to trigger what economists call a supply response.
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If prices keep going up, it will invariably push more people to list their homes, said Andrew LePage, analyst for San Diego-based real estate information firm DataQuick. But for now, he said, we’re in a “stalemate that apparently could take some time to work itself out.”
A pattern of low inventory and rising prices has also taken hold in the San Francisco Bay Area and Southern California real estate markets, DataQuick reported this week. Largely as a result of low inventory, sales in March in those markets – and in Sacramento – were the lowest for any March since 2008, the firm said.
The inventory shortage is toughest on buyers seeking affordable homes, said real estate appraiser Ryan Lundquist. On his blog, sacramentoappraisalblog.com, Lundquist analyzes Multiple Listing Service data for real estate trends. Earlier this month, he broke down Sacramento County listings by price range and found there was about 1.4 months’ worth of inventory in the $200,000 to $300,000 range, but triple that figure for homes listed for $500,000 to $600,000.
There was 10 months of inventory – a firm buyers’ market – for homes listed over $1 million, he concluded.
“People don’t realize there are many markets within the market,” he said.
Lundquist noted the number of listings actually rose in March, but more buyers and the pace of sales resulted in falling inventory based on the time it would take to sell the homes.
“I think buyers are hungry,” he said. “We need to see a lot more sales for the market to progress at a healthy pace and at healthy levels.”
Stuart Gabriel, director of the Ziman Center for Real Estate at UCLA, said the basic laws of economics are still functioning: Increasing demand will eventually lead to greater supply, he said.
Other forces, however, are also shaping the market.
Home builders, who normally create a steady supply of new homes in response to rising prices, are still holding back after a crash that brought the industry to a standstill, he said.
“In the wake of the crisis, home builders remain relatively cautious and have been reticent to jump into the market,” Gabriel said.
That’s just a part of a complex picture, he said.
A still-shaky economy and job uncertainty are preventing many homeowners from selling and moving up, Gabriel said. The middle class has yet to recover from the deep recession, with its mass layoffs and business closings. The confidence consumers once felt may take years to return.
“There has been a very significant shift in people’s levels of economic well-being and higher levels of caution,” Gabriel said.
Others are holding on to homes in the hope that prices will continue to appreciate as they did in last decade’s housing boom, the economist said.
“Whether those bets will come through or not remains an open question,” he said.
Pat Shea, president of Lyon Real Estate, said many homeowners who would normally sell their houses and move to larger homes to accommodate growing families, or who would downsize in retirement, are staying put because there’s not much to buy. They don’t want to sell their homes with no assurance they can find a new place, he said.
Agents and clients are learning to adapt to the new reality, he said. For instance, some are writing contingent offers that allow sales contracts to be canceled if buyers don’t enter escrow to sell their current home within two weeks. And to encourage sellers to accept offers with conditions, some buyers are offering full asking price, he said.
Another issue is that homeowners who refinanced when mortgage rates fell to below 3.5 percent last year may not want to finance a new home at a current rate of about 4.5 percent, he said.
“Anyone who bought or refinanced with a 3 percent mortgage has to ask themselves a tough question,” Shea said. “Do I want to pay more for my next home and pay a higher interest rate, too?”
It’s going to take a significant change in market dynamics to create dramatic growth in inventory, such as rising interest rates that push wavering buyers and sellers off the fence, he said.
For now, Shea said, “We’re in a transition phase. We’re trying to figure out how to get back to normal.”