By Scot Campbell, Realtor 12/7/2023 | Sources: Reports on Housing, Realtor MLS, NAR, Wikipedia
I have been selling real estate for over 30 years in Huntington Beach, and I have a formal education in real estate finance and economics.
So, my friends, past clients, and family often ask the familiar question: “How is the Market?”
The answer to that question is best answered by looking at what I consider the best indicator of market conditions. That “metric” is called the Days of Supply, and it is defined by:
The number of days it would take to sell every home currently on the market at the present rate of home sales if no new listings came onto the market.
So, in considering the components of Days of Supply, we have the number of homes on the market, also known as “inventory”, and we have the rate of home sales, “demand”.
The strength of the demand relative to the inventory of homes for sale, tells us the answer to the question “How’s the Market” in one very simple number which I have labeled “Days of Supply”.
Think about a very popular champagne vintage that many people purchase at the holidays to toast for the New Year. If there is an abundance of bottles on the shelf at the store, lots of inventory, and fewer people appear to be buying champagne this year, there is little concern about your family “going without”. So, you might wait to see if the champagne goes “on sale” in time for the holidays.
On the other hand, if you see there are only ten bottles left, and the gentleman ahead of you in in the process of putting four bottles into his cart, you would probably jump to buy the two bottles you need for your family’s New Years Eve toast.
So, when there is an abundance of champagne on the shelves, and few are buying bottles, we could perhaps compute that there is 120 “Days of Supply”. At this level, it is a Buyer’s Market, and there is every chance the store will discount the champagne to rebalance their inventory.
But, what about when there are only ten bottles left, and four just flew off the shelves in the last few minutes. We could say the “Days of Supply” is very low, perhaps just 1 “Days of Supply”. At this level, it is a “Seller’s Market” for champagne and the store may raise the prices of the other remaining vintages to take advantage of market conditions… they certainly would not put any champagne “on sale”.
Now, with a full understanding of Days of Supply, let’s turn our attention toward the market for homes in Huntington Beach. Inventory is the first part of the equation, so let’s start with some context on the supply of homes. As you might suspect, the supply of homes in Orange County, and Huntington Beach correlates closely with the numbers in the United States as a whole.
According to the National Association of REALTORS®, at the peak of the financial crisis in 2008 there were over 4,000,000 homes on the market in the United States. By January 2012, there were 2,330,000 homes available across the U.S. It dropped to 1,880,000 in January 2014. The 2014 Market in Huntington Beach was the last in recent years where the entire year was in the Balanced Market Range for Days of Supply.
In 2017, there were 1,680,000 homes on the market in the U.S., and in January 2020, just before the CV-19 pandemic, there were 1,400,000, the lowest start to a year since tracking began in 1982.
Of course, demographics play a partial role, but research shows that the main reason inventory fell in the years between 2014 and 2020 was a deficit in the number of new homes built. Since 1970, California has been experiencing an extended and increasing housing shortage, This shortage was estimated to be 3-4 million housing units (20-30% of California’s housing stock, 14 million) as of 2017, and has only gotten worse. In 2017, the Days of Supply in Huntington Beach spent the entire year in the Seller’s Market Range.
But, the supply of homes for sale in the U.S. has fallen further. In 2021, the number of homes for sale plummeted to 1,030,000; in 2022, it hit a record low of just 850,000 homes. This year, 2023, started with 980,000… this is roughly one half the number of homes which were for sale in the U.S. when conditions were last in a full year of a Balanced Market. So, in looking at our champagne example, this year there is just one half as many bottles remaining on the shelves as compared to the inventory in normal a normal year.
The demand for homes is the second component in the Days of Supply equation. Certainly, mortgage rates rising have curtailed the number of buyers purchasing homes since mortgage rates more than doubled in the Spring of 2022. We know that inventory is half of what it was in the last Balanced Market in 2017, but what was the level of home sales that year relative to 2023? In 2017, there were 5.51 million closed home sales in the U.S. It appears there will be about 4.17 million closed sales in 2023. The decline in home sales is roughly 25%, in looking at our champagne example, this year there are still about three quarters as many bottles coming off the shelves as compared to a normal year.
In summary, we would expect this year to have a Shortage of Champagne. About three in every four customers are buying as they usually do, but there is only half as much available on the shelves… eventually the champagne will sell out before New Year’s Eve. One in four customers will have to “do without” this year.
So, even with mortgage rates up over 7%, the real estate market is experiencing Seller’s Market Conditions in the U.S.
Let’s take a look specifically at Huntington Beach… “How is the Market?”
I have been tracking the numbers carefully in my spreadsheet since 2014, so I have some great information for you. What I have found over the years is that Days of Supply above 120 is a Strong Buyer’s Market, and a Days of Supply reading below 60 is a Strong Seller’s Market.
The Days of Supply was 62 on November 27, 2023. So, presently, we are experiencing conditions of a slight Seller’s Market.
Buyers will find that homes which are priced close to market value and in good general condition will sell quickly… and they will be a little disappointed that there are not more homes available to purchase. However, they will be pleased at the buying conditions in comparison to the 2021 CV-19 market when Days of Supply was hovering around 20… there were multiple offers on everything!
Home Sellers will find a strong level of activity on their home and will get top dollar if they prepare the home for the market, hire a Realtor who does an excellent job with the listing imagery, and it is priced “close” to market value.