What Happened to Spring Inventory?

As a real estate collective, can we please agree that we’re over talking about interest rates (at least for now) and have moved on to one crucial question: What happened to spring inventory?

Buyers today are generally accepting of the fact that interest rates are higher, but they aren’t too happy about inventory levels being significantly lower because it means there’s nothing to buy … at least today.

Throughout the San Fernando Valley, Mulholland Corridor (BHPO & Bel-Air) and the markets I serve, I’m seeing inventory slowly creep up, with slight increases week over week, but the gains aren’t significant enough to satisfy buyer demand. However, a tipping point may be coming.

I just spoke with a client who rightly identified a small window of opportunity to get the most value for their home: “There aren’t many houses for sale around here and buyers are looking for homes in this neighborhood,” they observed.

There really is a small window of opportunity for sellers right now to get the best possible value for their home, and all it takes is a few like-minded sellers like this one to tip the inventory scales in a buyer’s favor, sending prices in a downward direction. Don’t get me wrong – I’m not talking about a 2008 correction (nobody sees anything like that coming) but once inventory gets back to a healthier level, prices will balance in a buyer’s favor. There’s no reason to put any kind of doom-and-gloom spin on the situation, or cloak it in a shadowy veil of negativity. This is simply the natural swing of the real estate pendulum, and it’s long overdue for the spring selling season.

Now, you might be wondering how low inventory impacts sellers once they do sell and don’t have anywhere to go. So, let’s talk about that.

The small window of opportunity that’s motivating sellers to list also creates that famous “make me move” number for sellers because we’re talking about a difference of $150,000 (or more) if they sell now versus waiting until they find a place later.

It’s also bringing back the trend of contingent offers, mostly in higher-end homes, where people who are afraid to put their houses on the market are saying, “Well, we aren’t going to sell unless we find somewhere to move before this transaction is final.”

I just worked on a contingent offer with an agent. A buyer wanted to purchase my client’s listing contingent on selling their house. I represented the seller, and due to the premium price the buyers were offering and immediate saleability of the home, advised my sellers to accept the offer. All went smoothly and the buyers sold the home in less than a week with multiple offers. A win-win!

Beyond interest rates – oh, I said we wouldn’t talk rates! – giving sellers hesitancy, low inventory is also plagued by would-be sellers coming off the pandemic and deciding to do all these projects on their home to increase ROI when they sell, only to find higher costs than expected and longer construction times than anticipated. And if they haven’t consulted with a real estate professional – good time to mention I offer free real estate consultations? – prior to starting these projects, they could actually lose money on the project. These sellers are putting, let’s say, $1 million into a property expecting to get $1.5 million out of it and that just isn’t happening. Instead, the ROI isn’t there and the project is only serving to increase their overall expenses and delay the selling process, exacerbating our low-inventory issue in L.A. markets.

One sector of the market where inventory is definitely increasing is luxury leases as well as ultra-high-end homes priced above $15 million. Everything else is still staggering, so if there’s a home on the market for under $5 million that’s priced well and in good condition, it’ll sell fast. Everyone’s looking for their 100% perfect dream home in every price range but if you can get 85% and alter the home, I always say buy the home! It’s rare to find exactly what you’re looking for and with limited inventory, it’s better to make a few compromises to get the house you can transform into the home of your dreams, rather than sit on the sidelines and get nothing.

For sellers, it’s important to remember that little window we’re currently looking through created by a lack of inventory, which means getting 10% to 20% more for their home than they would if they wait. The minute inventory changes, expect to see a dramatic change in pricing and there will be no warning for when this change happens. Unfortunately, there isn’t a real estate skywriter that flies high above the city announcing in puffy cloud-ink: “Hello, people of Los Angeles! This is your reminder that inventory will be increasing in exactly two weeks!”

Fun in concept but it just isn’t true. In reality, when inventory increases no one tends to see what’s happening until it’s too late and sellers are left adjusting prices to the shift in the market. The more things pick up, the more options buyers have and the more competition sellers will see for their homes. So, if you’re in a position where you can take advantage of this current window of opportunity to capture that extra money (and it might mean a six-figure difference), sell now and lease for a few months until inventory picks up and you can find your next home.

One final point: Nobody thinks we’ll see a huge surge in inventory this spring. More likely, inventory will slowly increase until we reach a tipping point for buyers. When rates first started to go up, everyone thought prices would fall but that hasn’t happened because of this inventory drought. The buyer pool has shrunk but the buyers who are still swimming in the water are more serious than ever, because they’ve been waiting two or three years for their family to find a home. They’re willing to spend an extra $150,000 or $200,000 to get their dream home, and if you’re a seller looking to capitalize on this low-inventory market, the dream home those buyers have been endlessly searching for might very well be yours.

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Andrew Manning ? REALTOR? ? Berkshire Hathaway HomeServices California Properties ? DRE: 00941825 ? 818-380-2147 ??[email protected]