Costa Mesa Real Estate Blog

As is typical for this time of year, demand increased a bit at the beginning of August; however, the continuous drop in the active listing inventory is far from ordinary.

Inventories have been dropping across the nation and Costa Mesa is no exception. Since March of this year, the active inventory has been steadily dropping (see my past posts)....

So, what’s going on? Prices are down, interest rates are down, affordability is up and demand is WAY, WAY up. All of these forces together have been pulling the inventory down. Throw in the fact that discretionary homeowners are only placing their homes on the market ONLY if they have to and are motivated to do what it takes to compete in this market.

We are now (in Costa Mesa at least) in what would be technically a seller’s market. The lower the range, the hotter the market.

All ranges below $1 million are pretty hot, but homes priced below $500,000 are sizzling. The expected market time for homes priced between $250,000 and $500,000 is currently less than a month and a half.

For detached homes within that range, the expected market time is only 1.02 months. When the expected market time drops to such low levels, sellers are busy sorting through multiple offers and buyers are writing offer after offer with no luck.

Finally the distressed inventory has also been dropping and now represents 29.5% of the current active inventory, versus about 45% a couple of months ago. 

If you are a buyer, how should you respond to this market?

First, please throw out the notion that there is no competition and that you can write an offer for thousands less than the asking price. The sales to list price ratio for homes priced below $500,000 is 100%. That means that, on average, homes are selling for their full asking price. For all homes in Orange County, the sales to list price ratio is 98%. Remember, homes have already dropped 30% or more in value. As a buyer, do NOT write an offer for 10% or more off of the asking price with a letter detailing that the housing market is currently in a declining market. These buyers feel that the ultimate sales price should reflect a future drop in values. That notion of purchasing is ludicrous. Industry experts and economists cannot accurately determine future prices and are constantly revising their estimates. The values are already highly discounted over the past few years. Arriving at the fair market value includes taking into consideration pending activity, recent sales (within the prior 90 days), property condition, seller motivation and circumstances, location, upgrades, lot size and amenities. To rely on Zillow.com or other online valuation tools is also absurd. These tools only take into consideration property size and sales price, ignoring all of the other factors that are used to arrive at price. There has been a lot of pressure on interest rates to move higher. Gone are the days of interest rates below 5%. As interest rates rise, affordability drops. In purchasing today, the monthly payment is approximately the same as a home purchased later with a drop of 10% in value and a 1% rise in interest rates. This is a very important number!!

These historically low interest rates are not here to stay. How long they remain low is anybody’s guess. Last, buyers should only purchase in today’s market if and only if they plan on living in their home for years to come. In the long run, Costa Mesa housing has proven to be an excellent long term investment. It is also a great place to call “home.”