November 2010

By: Sara Sutachan, senior research analyst

The California housing market responded to evidence of a weaker than expected economic recovery in October. Statewide sales dropped 3.5 percent month-to-month to 450,360 homes. Sales continued to lag last year’s pace, declining 19.6 percent from 560,390 sales a year ago. The median price rose 2.3 percent over last year from $297,500 to $304,220, the smallest year-to-year gain in 12 months, while decreasing 1.8 percent from the September median of $309,720. Inventory levels crept up to 6.5 months in October, up from 6.1 months in September and 4.2 months last October, although still below the long-run average of about 7 months.

There is a barrage of news stories and statistics about where the housing market is headed. But national headlines do not necessarily reflect what is actually happening in your own backyard. REALTORS® can demonstrate their knowledge of both local market conditions as well as an ability to place them into the context of the general market and economy. In recent months, this column has largely focused on how market conditions should be interpreted from the buyer’s perspective. However, sellers must also consider current market conditions when working with their REALTOR® to price their home. It is extremely important to price it right or face unrealistic expectations of how long the home will remain on the market.

The most fundamental piece of information clients want from their REALTOR® is the true value of the home they are selling, most commonly found in an appraisal or REALTORS®’ Comparative Market Analysis (CMA). But the CMA must be viewed in the context of overall market and economic conditions along with other forces that may be affecting conditions in the neighborhood as well as the value of the property. By using aggregate statistics, a REALTOR® can explain how overall market conditions add to or take away from the value of the property based on the CMA.

Consider a situation in which you have a CMA that shows a list price somewhat below the price the seller was hoping for and this seller’s price point is in the upper price tier of $750,000 to $1 million range. Even though the statewide unsold inventory index was recently reported to be 6.5 months, indicative of a balanced or lean market and stable or rising prices, this aggregate statistic does not necessarily reflect what is going on in this particular price tier. For example, in the month of October, inventory in the state of California was at just 6 months in the lower price tiers ($300,000 and below), however the $750,000 to $1 million price tier showed 8.2 months of supply, and the $1 million plus tier showed inventory exceeding 10 months of supply. In this case the additional aggregate market information on inventory levels helps guide the would-be seller to a more realistic price point. This is one example of how various market segments are and how differently they can behave.

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Inventory is an important aggregate indicator to determine how heated the market is or isn’t. In addition, looking at the more granular level inventory picture can help bring expectations inline with reality. By accounting for inventory levels along with a REALTORS®’ CMA, the home will be better priced to sell in a timely fashion, less likely to go through a string of price discounts, will save you time, and likely result in greater satisfaction with the outcome.

To learn more about our Trends Newsletter, please contact the Research & Economics Department at  research@car.org or (213) 739-8352