By Steven Thomas – Reports On Housing
The Spring Market
More homes come on the market during the spring than any other time of the year and demand reaches a peak.
Spring is just around the corner. The days are growing longer, temperatures are slowly rising, trees that had lost their leaves are blanketed with new buds about to burst to life. Spring officially begins on Saturday, March 20th, and it is also the start to housing’s Spring Market, the busiest time of the year for housing.
More homes are placed into escrow during the Spring Market than any other time of year. That is when the FOR-SALE sign is adorned with a smaller “SOLD” sign, letting the world know the home is no longer available to purchase. Many mistaken the Summer Market as the busiest season for real estate, but it is simply not true. Most families prefer to move when the kids are either out of, or about to get out of, school, between May and July. To accommodate that goal, they need to close escrow during those months. That means that they must come on the market during the spring, pound in that FOR-SALE sign, and open their home to potential buyers from March through June. The intention, of course, is to place their home into escrow as quickly as possible. It typically takes between 30 to 45 days to close escrow. A home is placed into pending status, the SOLD sign is installed, and an escrow is opened when a buyer and seller agree upon the price and terms of a contract. An escrow is when the home inspection take place, an appraiser comes out and appraises the property, home disclosures and a truck load of other documents go back and forth for signatures, the loan is put together, and money exchanges hands. All this occurs prior to closing when the buyer is finally able to move into the home.
The demanding escrow process takes time to complete. A home must come on the market, be exposed to buyers, open escrow, and close to complete the goal of selling and moving. This can take anywhere from a couple to several months. If families want to move while the kids are out of school, that means coming on during the spring. For Los Angeles County, on average, more homes come on the market in May, the middle of spring, than any other month of the year. The number of homeowners coming on the market is heightened from March through July. That would enable families to move from May through August, prior to the kids going back to school. Real estate seasons center around the family and what is best for their children.
Demand, a snapshot of the prior 30-days of pending sales activity, gains momentum during the winter months, continues to rise and peak during the spring, downshifts a bit during the summer, slows further once the kids go back to school in the fall, and then plunges during the holidays. This is the normal, seasonal housing cycle, and 2022 will be no different. Demand has already been ramping up so far this year, rising from 3,703 pending sales on January 6th to 5,364 today, adding 1,661 in the past eight weeks, up 45%. In just the past two weeks alone, it has risen by 3%, adding 160 pending sales. And it will continue to rise from here until it peaks between April and May. From there, demand will slowly fall.
Demand is similar to 3-year average prior to COVID (2017 to 2019), 5,116 pending sales, 5% less or 248 fewer. It would be a lot higher but has been muted due to the combination of an extremely anemic inventory, currently at record low levels, and fewer homes coming on the market so far this year. In fact, there have been 1,850 missing FOR-SALE signs during the first couple of months of 2022, 13% fewer than the 3-year average. With fewer available homes to purchase, demand has been muted. Nonetheless, today’s demand reading is nearly identical to the inventory level, indicative of an insanely Hot Seller’s Market. Prior February of last year, the inventory has always been considerably higher than demand.
The issue this spring is that there will be a tremendous number of buyers competing against each other and clamoring to purchase every home that hits the market. While demand levels may be similar to prior years, the real story is that the scarcity of homes available will result in just about every home that enters the fray obtaining a massive number of showings, multiple offers, sellers calling all the shots, and sales prices typically above their asking prices.
Coming up… SPRING. Los Angeles County’s housing is about to ramp up considerably for the next several months.
Los Angeles County Housing Summary
- The active listing inventory increased by 66 homes, up 1%, and now totals 5,394 homes, its lowest level for this time of year since tracking began 10 years ago. In February, there were 7% fewer homes that came on the market compared to the 3-year average prior to COVID (2017 to 2019), 462 less. Last year, there were 7269 homes on the market, 1,875 additional homes, or 35% more.
- Demand, the number of pending sales over the prior month, increased by 160 pending sales in the past two weeks, up 3%, and now totals 5,364. Last year, there were 6,422 pending sales, 20% more than today. The 3-year average prior to COVID (2017 to 2019) was 5,116, or 5% fewer.
- With demand increasing faster than the inventory, the Expected Market Time, the number of days to sell all Los Angeles County listings at the current buying pace, decreased from 31 to 30 days in the past couple of weeks, its lowest level since tracking began a decade ago. At 30 days, it is an insanely Hot Seller’s Market (less than 60 days). It was at 34 days last year, similar to today.
- For homes priced below $750,000, the market is a Hot Seller’s Market (less than 60 days) with an Expected Market Time of 22 days. This range represents 31% of the active inventory and 42% of demand.
- For homes priced between $750,000 and $1 million, the Expected Market Time is 23 days, a Hot Seller’s Market. This range represents 19% of the active inventory and 25% of demand.
- For homes priced between $1 million to $1.5 million, the Expected Market Time is 30 days, a Hot Seller’s Market. This range represents 16% of the active inventory and 16% of demand.
- For homes priced between $1.5 million to $2 million, the Expected Market Time is 40 days, a Hot Seller’s Market. This range represents 9% of the active inventory and 7% of demand.
- For homes priced between $2 million and $3 million, the Expected Market in the past couple of weeks increased from 53 to 54 days. For homes priced between $3 million and $4 million, the Expected Market Time decreased from 59 to 49 days. For homes priced between $4 million and $8 million, the Expected Market Time increased from 113 to 137 days. For homes priced above $8 million, the Expected Market Time decreased from 367 to 332 days.
- The luxury end, all homes above $2 million, accounts for 21% of the inventory and 9% of demand.
- Distressed homes, both short sales and foreclosures combined, made up only 0.6% of all listings and 0.7% of demand. There are only 24 foreclosures and 9 short sales available to purchase today in all of Los Angeles County, 33 total distressed homes on the active market, up 12 from two weeks ago. Last year there were 35 total distressed homes on the market, similar to today.
- There were 4,379 closed residential resales in January, 9% less than January 2021’s 4,787 closed sales. January market a 30% decline from December. The sales to list price ratio was 100.3% for all of Los Angeles County. Foreclosures accounted for just 0.18% of all closed sales, and short sales accounted for 0.02%. That means that 99.8% of all sales were good ol’ fashioned sellers with equity.