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Signs of Recovery in the Real Estate Market

Posted by admin on April 14, 2011
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Although I do not have a crystal ball, there are some very compelling signs that our market is on the road to recovery.  In our micro, Santa Monica Westside market, it seems that we are currently at the bottom and looking up.  Inventory is extremely low, well priced homes are likely to elicit multiple offers, and we have seen builders edge back into the market.  I wouldn’t call it a seller’s market, just yet… but if the conditions persist we may start to see real appreciation.

We measure inventory levels by how many houses are currently on the market, divided by how many houses are in escrow in any one area.  This tells us how many months of inventory is currently for sale.  North of Montana has 18 active listings and 7 properties in escrow (2.5 months of inventory).  This is an extremely low inventory situation, which also includes some overpriced or unsalable properties.  Historically, markets with low inventory have coincided with strong appreciation.  The basic law of supply and demand applies, and logically, if there are more buyers than houses to buy, prices will go up.

Low inventory and high demand often leads to multiple offers.  When the market was booming four and five years ago, it was inevitable that any buyer who found a good property would end up competing in multiple offers.  Buyers were prepared to go to battle and often bid above what comparable sales justified as “market value” which in turn pushed values higher.   Thus, we found ourselves in a rapidly appreciating market.  Currently, we are seeing this phenomenon in our market, albeit in a slightly subdued format.  Not every property that seems like a good buy is getting multiple offers, but certain properties- in price ranges with extremely limited inventory, and very special houses, are getting very competitive.  Although buyers aren’t throwing caution to the wind and bidding like it’s a Wild West gold rush, we have seen some sales that have been unexpectedly “top of the market.”

One of the market segments that  is in great demand, on the Westside, is lot values.  Partly due to the fact that we have seen builders back in the market making offers on properties to develop.  These builders, who have been on the sidelines during the market decline, have popped their heads out of the ground and seen no shadow, and they want lots to develop.  Having a strong “lot-value” market will ultimately push up the values of all of our market, as most valuations start with a clear value of the land.  These builders are not alone in their search for lots.  They are bidding against buyers who want to take advantage of the plethora of builders now available at discounted prices, and build themselves their dream home.

These factors don’t guarantee that the market will shoot up in the near future, but they do give a strong indication that our market is recovering.  There are still many properties that are having difficulties finding the right buyer, but the increasing presence of multiple offer situations, and more builders in market, coupled with what seems to be an enduring low inventory market, leads to an optimistic outlook for the near future of our Santa Monica Real Estate market.

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