Our supply of homes is going up. Let’s look at both the Conejo Valley and Simi/Moorpark to compare if they are rising at the same rate. And why.
From the slope of the black 2014 lines, Simi Moorpark inventory is growing much faster than the Conejo inventory. But why is the inventory rising? Are more homeowners putting their homes on the market, or are fewer selling? Or both?
Let’s consider the number of sales taking place, and how they compare to the previous four years. Again, comparing both areas.
At this time of the year, the 8-week moving average line begins to turn upwards, signalling the sales low for the year. For Conejo, the line is about even with the previous four years, indicating that sales are basically the same as the previous four years. For Simi Moorpark, the line dropped lower than the last couple of years. That is what the charts say.
Let’s next look at the actual number comparisons, for the first 10 weeks of this year against the first 10 weeks of last year.
We see from the graphs that both areas are experiencing inventory growth. But that is ok, that happens this time of the year. If you compute percentages, it looks like there is a big problem. Conejo inventory is up 40% compared to last year, somewhat reasonable. But Simi Moorpark is up 151%, a combination of having an extremely low base of inventory last year, only a month worth, as compared to two months worth of inventory in the Conejo last year. For both areas, inventory is up such a large percentage because last year inventory was so terribly low. That makes the percentage increases high.
In spite of those high percentages, we are in reality getting back to normal. Both areas are now up to 3 month supply of homes based on current sales. The main reason why inventory has grown relatively quicker in Simi Moorpark is due to lower sales. Conejo sales are down 2% compared to last year, but Simi Moorpark sales are down 33%. We originally thought demand was so great that any increase in inventory would automatically generate more sales. Not really. We are taking a breather. The market is relaxing.
Simi was basically sold out last year. That pace cannot continue forever. Now the inventory for both valleys is equivalent to three months worth of sales. We are in a balanced market, one in which both sides have negotiating power.
Prices are up 10-12% versus last year, but the shift away from a runaway sellers market gives us the impression we are no longer moving forward. Kind of like when you step on the brakes in a car. The car is still moving forward, but you feel the change in momentum as you press against the seat belt. The market is still traveling forward at a decent rate, but we can sense the change of acceleration.
What makes this market attractive to buyers and sellers? In a sellers market, sellers are happy with multiple over-list offers, but not so happy when they go to buy their replacement home. In a balanced market, they can get a better idea of what their home will sell for, and a better expectation of what they will pay for the home they will buy. And buyers got depressed after losing continually in multiple offers. They left. Now that the market is balancing, they will be back.
Prices have increased probably 40% in the past two years, adding to the equity people will use to buy their next home. Move-up buyers again have the ability to move up. A normal market allows them the ability to plan and make decisions. The economy is more stable, there is job growth and a reduction in unemployment. Confidence is building in the stability of the economy. We are going through the next phase of a recovering economy.
Picture a graph of the Dow Jones industrial average. It is not a straight, smooth line. There are dips and jumps, but as you step back you can see the trend. As I step back from these graphs, I can see the trend is good. That’s good for you to know, but it is even better for your clients to know.
You are their housing expert. They look to you to tell them how their home, their investment, is doing. I hope the thoughts above can help you do that. Remember, we have gone through a horrible downturn, and finally a strong comeback. Don’t expect the market to act calmly yet. It has to go through a little bouncing as it adjust back to normal. The storm is over, and sailing is beginning to be smoother.