Scarce Inventory Remains An Issue As The Luxury Market Soars In Southern California Real Estate

Southern California Coldwell Banker Realty President, Jamie Duran, shares the following predictions from the Inman Disconnect conference of top real estate leaders that recently met in Palm Springs.

  • A general theme emerged that the amount of home purchases using “alternative financing” would make up 50 percent of the transactions by 2030. One group predicted that within two years — by 2024 — any offer with a financing contingency would be considered “subprime.”  “We believe cash offer products, people who are making cash offers, will be the default scenario by 2024,” a representative of the group said. “In most major markets, if you submit an offer that has a financing contingency, it generally will be considered a subprime offer.” 
  • “More than a third of sellers will buy before they sell,” another attendee said. “And more than 50 percent of buyers will use financing tools to make all-cash offers.”
  • The change in the online search portals brought about in the home search space was only half the battle, multiple participants said at Disconnect. That made finding homes for sale and picking up more information about them much easier than it had been. But it still left a cumbersome purchasing experience that has yet to be revolutionized. That revolution will happen over the coming decade. Many industry insiders have been investing in companies and products that seek to make the processes of buying and selling homes frictionless, and few believe the work is done. It happens, they said, in the next eight years. “The homebuying experience for consumers is going to be as digital and as delightful as home search is today,” one leader said. “The change we’re all going to experience between 2022 and 2030 is going to feel as dramatic as the home search change felt between 2002 and 2010.”

Duran states that current inventory levels remain an issue with some economists going to far as calling it an inventory catastrophe.

  • Southern California began March of 2022 with 24,949 active listings 32% below the 36,736 active listings on March 1, 2021. 
  • New listings that hit the market in March of 2022 totaled 26,997, which is 13% less than the 31,069 listings taken in March of 2021. 
  • Closed sales of 22,860 were 42% higher than last month and 9% less than March of 2021’s closed sales of 25,115.
  • Active inventory increased 7% over February 28th of 2021 but remains well below typical inventory levels at this time of year. March active listings were 26% and 41% lower than inventory levels in March of 2021 and 2020 respectively.
  • The average selling price for a home remained above one million dollars at $1,101,319 for the eleventh straight month since reaching that milestone in April of 2021. This represents the highest average sales price Southern California ever.

Duran cites Steven Thomas, a well-read economist the Southern California real estate market followed by many sales associates who compares the current housing run with the last Great Recession on Housing.

Thomas notes that in the last Great Housing Recession the economic indicators consisted of an inventory glut, a predominance of subprime and pick-a payment loans, fraudulent lending, low or no down payments, adjustable mortgages, a flood of cash out refinances, and limited home equity.  Thomas compares that to the current housing run and cites an inventory crisis, tight mortgage qualifications, strong credit scores, large down payments, fixed rate mortgages, and substantial nested equity. 

High-End Luxury Market

Duran notes the following from the 2021 Coldwell Banker Luxury Report:

While this report looks at the luxury market across the globe, it rings very true in Southern California.

In 2022, luxury buyers are expected to continue purchasing new homes at a brisk pace, even as rising construction costs and limited supply push prices higher in the cities and suburbs. Escalating prices are unlikely to deter strong demand for greenfield and teardown developments.

“Builders, investors and users are seeking prime locations to purchase older homes as sites for their building opportunities, and new construction is the most sought out commodity, but there is extremely limited availability in this category, so selling prices will naturally increase,” she said.

New luxury construction should continue to be absorbed quickly as builders seek out new sites for development. Lack of availability of product, workforce, and higher costs are all influencing factors.

The population of people with a net worth more than $5M grew 19.8% from 2020 to 2021, adding 597,550 individuals to that category.

Approximately 83% of Luxury Property Specialists surveyed expect international buyers to return to the U.S. Luxury Market in 2022.

Statistics back up these findings:

  • In the last twelve months ended 03/31/22, sold volume of homes greater than $10,000,000 almost doubled to $21,264,452,276 from $11,428,533,130 in the prior twelve-month period.

Volume of homes sold greater than $5,000,000 increased 75% in the last twelve months ended 03/31/22 to $53,525,734,006 from $30,499,925,792 in the prior twelve-month period.

In conclusion, Duran states:

  • Buyers are still faced with crowds of interest on just about every home that hits the market.
  • It is more important than ever to have a trained, full-time, experienced Realtor to represent your interests in what is usually the largest financial transaction of your life.

“I am feeling more and more optimistic every month about the housing market in 2022 and believe real estate continues to be a solid investment choice,” she said.