We are still dealing with a very unhealthy real estate market in the Los Angeles region. The buyers are out in full force. You can see in this chart the quantity of residential escrows closed is way up year over year, but the active inventory for sale is basically non-existent. We are at 2600 units for the entire San Fernando Valley.
If you look out over the past 4 1/2 years we’ve dropped from 17 months inventory to 3. Those are two major extremes. We need about 6 months inventory for a good balance between buyers and sellers.
The supply & demand imbalance is frustrating buyers. They are stuck in multiple offer scenarios. The buyer’s that are winning out are well qualified, and aggressive with their offers. Some buyers are aren’t as well qualified, or they have their mind set that they don’t want to get in a bidding war.
You can see on this chart we hit the bottom on the San Fernando Valley pricing October 2011. By the numbers we’re up about 11% in a year. Still way below the historic highs, but those values were inflated because of overly liberal loan underwriting guidelines, adding millions of buyers that wouldn’t normally be in the market.
My recommendation is even though the pricing isn’t at the bottom, you have a great combination of low interest rates, and much lower pricing than historic values. You don’t necessarily want to wait and chase the market higher, or deal with higher interest rates that will increase the house payment more than a higher purchase price will.
I don’t see the inventory scenario getting better any time soon. The quantity of new listings coming into the system is basically what is presently being sold, not adding to the inventory.
Also the lender foreclosed inventory isn’t hitting the open market. Large blocks of properties are being sold to REITs and investment groups from the lenders directly.