Market Watch - Tipping the Scales

Rising inventory and declining sales may indicate a return to an equilibrium price point.



Photo by ThinkStock.com

The Pattern in valley housing over the last two years — as well as throughout the country — has been strong price increases fueled not by a powerful wave of home buyers but by a severe lack of home sellers. However, this pattern might finally be changing.

The housing recovery

After distressed homeowners who were forced to sell (short sales or foreclosures) at almost any price slowly dissipated from the market, the remaining homeowners who didn’t have to sell refused to do so at such low prices. So, for the past two years, homes haven’t been available to buy, even to a moderate number of buyers. This caused bidding wars, which moved prices higher.

Over the past four months, this pattern is showing signs of change. Yes, prices are still rising — in February, the valley’s median price per square foot rose to a 5 1/2-year high of $173 — but this is now happening as inventories rise and sales decline. Declining sales mean lower demand (fewer home buyers) and rising inventories mean increasing supply (more home sellers). We think this indicates that we may be nearing an equilibrium price point for valley housing.

Valley home sales

Valley home sales are showing a measurable decline from last year. This is true of both three-month and 12-month average sales. The three-month average is down 1 percent from the same time last year and the 12-month average (year over year) is down 6.5 percent.

Careful study shows that this decline is a little lopsided, however, since most of the decline represents homes priced under $300,000. In homes priced between $300,000 and $700,00, year-over-year sales expanded 18 percent. Those priced over $700,000 have increased 53 percent.

This indicates that sales of foreclosures and investor properties, which were typically priced under $300,000 and represented a large percentage of sales a few years ago, are rapidly declining, while sales to higher-level second-home buyers and retirees migrating to the desert are increasing. However, the net loss of investor and foreclosure sales is greater than the net gain in the higher end, so total sales are declining.

Local housing inventory

The combination of declining sales and higher home prices is causing the Multiple Listing Service inventory to rise as more homeowners become willing to sell. We appear to be watching on paper the natural pattern where higher prices create rising supply and declining demand. At some point, equilibrium is reached between supply and demand and prices become stable. It is important for prices not to go beyond or overreach that price point. If they do, a small price move back to the lower equilibrium point is possible.

Rising “months of sales”

Rising inventory and declining sales are two factors

starting to push the ratio of inventory to sales, called “months of sales,” up to six months. This chart shows the ratio for 11 communities in the valley compared with levels last year. The area’s average is 5.8 months. Six months is often considered a balanced or equilibrium point of supply and demand.

Vic Cooper and Mike McDonald are partners in Market Watch LLC, a nationally recognized real estate advisory firm that publishes The Desert
Housing Report. Visit www.marketwatchllc.com

See More Market Watch Articles Here

Comments to this website are moderated by staff. While all comments are welcome, we encourage all to be polite and please do not use this system for advertising or business promotions. Any complaint towards a business or service should be directed directly to that business and not posted here. If anyone has a complaint that a comment is defamatory, please contact me at tmay@palmspringslife.com and I will take appropriate action promptly. Thank You

Add your comment:
Edit Module Edit ModuleShow Tags

Related Articles

Our Town

The mayors of nine Coachella Valley cities weigh in about their towns.

The Big Valley

To capture the essence of life in our desert, we look at the Coachella Valley within neighborhoods described by their residents.

Secrets of the CIA

The housing market in the Coachella Valley is formed from a mix of local, working households, immigrating retirees, and the second-home buyer.

Modern Meets 
The Vintage

Club Member and developer Elizabeth Benton has launched a new era of fully automated and architecturally distinct homes within The Vintage Club.

Monterra Offers Luxury Living at PGA WEST

Home shoppers attending the recent grand opening for Monterra PGA WEST™ enjoyed the chance to tour model homes for the newest luxury neighborhood at PGA WEST™.
Edit ModuleShow Tags

Promotions + Contests

Palm Springs Life's Women in Business

Palm Springs Life's Women in Business

Celebrate the Coachella Valley’s most dynamic women in business at the May 12 luncheon featuring keynote speaker Laura Schwab, President, Aston Martin The Americas. The luncheon takes place at The Ritz-Carlton, Rancho Mirage.
Fashionista Friends

Fashionista Friends

Experience the glitz and glamour of Fashion Week El Paseo 2016.
Food + Wine Festival Grand Experience

Food + Wine Festival Grand Experience

Enter for a Chance to Win a Food + Wine Festival Palm Desert 2016 Grand Experience
Cartoon Caption Contest

Cartoon Caption Contest

Each month, we provide a vintage 1950’s cartoon illustrated by Alice Rovinsky. You are invited to submit a caption or vote for your favorite caption.