California real estate is experiencing something of a stand-off right now, and it’s getting a lot of people worked up. Analysis of local data over the last year shows that the usual principles of 'supply and demand' just aren't applicable right now, and neither buyers nor sellers are willing to give an inch...
In any normal situation, when inventory goes down and demand remains high, one would expect residential housing prices to go up. After all, this is how supply and demand works, correct?
But in California, that isn't happening, a situation that has left many real estate professionals in the state scratching their heads, asking themselves what the hell is going on…
Statistics show that inventory levels in California have dropped by as much as 70% over the last 12 months, from January 2011 to January 2012, yet prices in the same period, instead of going up, have actually decreased, according to data by DQ News.
So what is the explanation for this paradox? Could it just be down to the fact that this is one of the weirdest recessions we’ve ever experienced, and that no one really knows what they’re doing anymore? Or is there a more logical answer to this mystery?
A recent infographic, first published in the Movoto blog, can perhaps shed some light on just what is happening over on the west coast:
In conclusion then, it’s pretty fair to say that 2012 is unlikely to be a stand-out year for California real estate. Prices are too low so nobody wants to sell. The only people who are looking to sell are those who have to sell, and as such, these people are usually the ones with the least desirable homes.
Buyers of course, still want to buy, as there really is no better time to buy than the present, what with interest rates and prices so low. But those who can buy want the nicest homes, not the ugliest, and so what we’re left with is something of a Mexican stand-off – nobody buying, nobody selling, everyone just watching and waiting to see what happens next.
If 38% of the home sales are all cash sales, this in itself will drive prices lower, as probably 99% of the all cash sales are investors or savvy buyers who are driving prices down even as they buy more often. Hence you get more sales, but those sales are actually the driving force behind falling prices. This high of a number of all cash sales means that there are actually very few "normal" owner occupant buyers in the market, so it's a "false positive" of sorts when thinking in terms of a recovery.