Bubble Watch: Is Southern California’s housing ‘shortage’ near its end?

“Bubble Watch” digs into trends that may indicate economic and/or housing market troubles ahead.

Buzz: As the traditionally busy spring shopping season drew to a close, a decided market shift was underway: sellers seemed almost as anxious as buyers.

Source: ReportsOnHousing

Trend reported: As of June 28, homeowners in the four-county region covered by the Southern California News Group added 9,334 homes to the market so far this year vs. 2017’s 2,939 — a huge 218 percent jump. Yes, the rate of listing homes for sale has tripled!

Dissection: Southern California’s “shortage” of existing homes to buy seems to have reverted to at least a more “normal” state of supply.

I filled my trusty spreadsheet with data from ReportsOnHousing that tracks homebuying patterns found in real estate broker networks: supply (active listings); year-to-date increase in supply; demand (new escrows in past 30 days); and “market time” (a measure of selling speed of days it takes a typical listing to enter escrow).

A surge of new listing’s in the first half of 2018 meant house hunters had 2,402 more listings to consider as June ended than a year ago. That’s an increase of 8 percent, bringing mid-year supply to slightly above average levels in 2012.

ReportsOnHousing stats show a 10 percent decrease in sales contracts signed vs. a year ago. Not the direction you’d think sales would go if supply rose sharply. And house sellers are learning a tough lesson: by the “market time” metric, 2018’s sellers need 74 days to get a home from listing to escrow — up 12 days in a year vs a year ago and five days above the 2012-17 average.

Yes, today’s supply levels of existing homes are well below what was seen before housing’s bubble burst and during the Great Recession. But much of that was due to the insanity of the easy-lending era followed by the deep pain of the housing-led downturn.

And, yes, local homebuying’s pace is well above the ugly market bottoms. But house hunters’ current reluctance to swiftly gobble up this year’s new listings suggests, at a minimum, a noteworthy hiccup. I’m betting pricing is an issue — both from what an owner may think a home is worth to the price-cutting impact of pricier mortgages to a potential buyer’s budget.

Quotable: Steve Thomas of ReportsOnHousing writes, “The housing market feels a bit frigid in the higher end compared to the rest of the market. Recent headlines exclaim that the median sales price has reached a record level in Orange County, Los Angeles County, and all of Southern California. Article after article details the continued lack of supply, hot demand, and years of nonstop appreciation. How in the world can any local market be a buyer’s market? Technically, luxury housing favors buyers and it is anything but hot.”

Details: Bargains will still sell swiftly. But other properties will likely sit. And the more-listings-fewer-escrows trend is fairly widespread when you look at county-level data.

Los Angeles County

Supply: 12,757 listings, up 981 in a year or 8 percent. Year-to-date: Up 4,355 listings vs. average increases of 2,089 in 2013-2017.

Demand: 5,638 new escrows, down 636 in 12 months or 10 percent; and down 10 percent vs. previous six years.

Market time: 68 days vs. 56 a year earlier and an average 62 days in 2012-2017.

Orange County

Supply: 6,362 listings, up 426  in a year or 7 percent. Year-to-date: Up 2,655 listings vs. average increases of 1,822 in 2013-2017.

Demand: 2,604 new escrows, down 281 in 12 months or 10 percent; and down 11 percent vs. previous six years.

Market time: 73 days vs. 62 a year earlier and an average 64 days in 2012-2017.

Riverside County

Supply: 8,665 listings, up 615 in a year or 8 percent. Year-to-date: Up 1,034 listings vs. an average decline of 563 in 2013-2017.

Demand: 2,956 new escrows, down 301 in 12 months or 9 percent; and down 2 percent vs. previous six years.

Market time: 88 days vs. 74 a year earlier and an average 84 days in 2012-2017.

San Bernardino County

Supply: 5,264 listings, up 380 in a year or 8 percent. Year-to-date: Up 1,290 listings vs. average increases of 628 in 2013-2017.

Demand: 2,162 new escrows, down 215  in 12 months or 9 percent; but up 5 percent vs. previous six years.

Market time: 73 days vs. 62 a year earlier and an average 74 days in 2012-2017.

How bubbly? On a scale of zero bubbles (no bubble here) to five bubbles (five-alarm warning) … this trend rates THREE BUBBLES … In recent years, real estate pros were telling anybody who’d listen that Southern California’s homebuying pace was modest and prices were on the rise because there weren’t enough options for potential buyers to ponder. Yet with homeowners finally listing homes back at roughly the post-recession average, where is all that pent-up demand?

Previously from Bubble Watch …

Bubble Watch: Are house hunters shying from newly built homes?

Bubble Watch: Is California’s anti-business vibe killing the state’s economy?

Bubble Watch: Home-equity loans back at pre-recession levels