It is the best of times for home sellers and it may even be the best of time for home buyers.
How can this be? Let’s look at both groups separately.
Home Sellers: The market has cooled and prices are effectively flat from a year ago. But
offsetting this straight lining of prices has been the decrease in sellers choosing to list their
home for salee. If sellers were concerned that price drops were imminent, many more would be
putting their home on the market and selling at the “peak”. But they are not. Many are
happing sitting a pile of equity enjoying a low interest they took advantage of when rates
bottomed out a few years ago. Home sales are down 20% in Placentia. That is huge. Fewer
homes hitting the market keeps the market in balance and prices stable.
Home Buyers: Interest have dropped again to historic lows. Combine this fact with stable
prices, it is no longer a “sellers” market, but truly a “balanced” market. Unless a property is
priced 5 to 10% market, a tactic some agents use to drum up multiple offers and bring the final
sales price closer to market value, buyers don’t need to rush their offers and even after an offer
is accepted, they can leverage this stability and make the owner fix and repair any issues they
discover during their due diligence period. Even if prices drop a bit in the next couple of years
due to a recession, they can lock in a low rate now and enjoy lower payments.
Risk to the Housing Market: It is rare for this “balanced” market to exist. Either prices are
rising and it is a seller’s market, or prices are falling and it is a buyer’s market. The only people
suffering right now are Realtors since there are fewer sales and some sellers are demanding
lower commissions since there are a few companies advertising reduced commission business
models (Purplebricks, Redfin and Rex). So why worry? Perhaps this market will stay balanced
like this for a few years? I believe there are a few events that could prompt more sellers to
flood the market and cause prices to drop 5 to 10%:
- Rental Laws that force investors to sell. Long Beach just passed a “tenant relocation
assistance” ordnance forcing landlords to pay up to $4,500 to remove a tenant. If other
cities follow their lead and decide to also implement rent control and just cause
eviction, investment property owners might decide to sell their rentals and invest their
money in more “investor” friendly states. - Mounting city, county, state and federal debt cause interest rates to rise may tip us into
a recession. The pension bill is coming due for local cities, the county and of course the
state. The federal government has a 23-billion-dollar deficit increasing at a rate of 1
trillion a year. All these bills must be paid and the only way to pay them is to cut
spending (or pensions) or raise taxes. - Major shift in political leadership increasing corporate taxes and spending. A substantial
shift in our economic policies will have a major impact on the stock market and the
economy. - A full-blown tariff war with a few countries causing prices to rise. We can handle a tariff
war with China, but if you include Mexico, Canada and throw the European Union into
the mix, that could be the tariff that breaks the economic camel’s back and tip us into a
recession. - A shock to our system such as an international skirmish. Many downturns happen from
the very unexpected, not the obvious signs. Iran attacking oil tankers does not calm the
financial markets. - The 2020 election with the two big ballot measures: “split roll” and “rental affordability
act”. Californians will be voting on two big ballot measures in 2020. If approved, split
roll would reassess all commercial and retail properties at current values. That would
generate 10 billion a year in new revenue (see the coming pension bill) but drive up
prices since this increase must be passed on to consumers. The “rental affordability act”
would limit non-rent control properties to buildings built in the last 15 and rent control
could apply to any property if the landlord owned fewer than 3 properties.
So, make hay buyers and sellers while we enjoy a balanced market with low interest rates.