“Bubble Watch” digs into trends that may indicate economic and/or housing market troubles ahead.
Buzz: One-third of Southern California homebuyers are paying above the seller’s asking price.
The above-ask trend is a sharp increase from last fall. In September, 33% of homes sold above list price in both Los Angeles-Orange County and the Inland Empire. A year earlier, it was 21% in L.A.-O.C. and 16% in Riverside and San Bernardino counties.
Nationally, 22% of buyers paid above the list price vs. 15% in September 2019.
Who knew a pandemic would boost homebuying this much?
I can’t argue with Zillow’s commentary: “Strong demand is likely because of buyers wanting to lock in low mortgage rates and taking advantage of the new freedom to telecommute from a more affordable area. Competition from other buyers is pushing them to make offers above list price while inventory is low and sales are happening quickly.”
Let’s dig into the data …
L.A.-O.C.: The typical amount paid over list was $34,000 for September. In the hottest price segment — $525,000 and $685,000 — 39% of homes sold over the asking price. As of Oct. 31, inventory is down 21% from a year ago and homes go from list to escrow in 12 days.
Inland Empire: Typical over-ask payment was $19,500 for September. In the hottest price segment — $398,000 and $487,000 — 43% of homes sold over the asking price. As of Oct. 31, inventory is down 46% from a year ago and homes go from list to escrow in nine days.
Soaring prices are making housing less affordable — even with historically cheap mortgage rates.
Just look at the “affordability” index for the summer quarter, provided by the California Association of Realtors, which estimates how many households could buy the median-priced, existing single-family house and keep payments under 30% of income …
Los Angeles County: 23% of its households can afford the $708,870 median vs. 32% in spring and 25% a year ago.
Orange County: 23% of households can afford the $910,000 median vs. 25% in both spring and 2019’s summer quarter.
Riverside County: 40% of households can afford the $475,000 median vs. 43% in spring and 41% a year ago.
San Bernardino County: 51% of households can afford the $350,500 median vs. 54% in spring and 51% a year ago.
On a scale of zero bubbles (no bubble here) to five bubbles (five-alarm warning) … FOUR BUBBLES!
Everything that could go right for housing’s ownership market did this year — minus the very limited interest of owners who put their homes on the market amid a pandemic.
Folks with good-paying office jobs largely stayed employed. The Federal Reserve and federal regulators pushed rates lower, kept lenders lending and gave troubled borrowers generous forbearance. The result is a surprisingly strong homebuying rebound that has effectively wiped out any savings associated with lower rates.
That’s great news for sellers or the equity position of owners staying put. But will affordability issues now limit the number of house hunters?