A changing real estate market is a lot like staring in the mirror; day to day you look the same, but over time you find you actually look a lot different. That’s just the way it is. For months we’ve been feeling a slowdown in real estate. Little things stand out, each giving some indication we were cycling out of a seller’s market and back into a buyer’s market. Seasonal – that’s what most agents thought; spring is always strongest and summer is solid and by August we feel the summer buyers going away and with them, the urgency to get in and settled before school starts. Heck, August is the slowest month of the year we reasoned and this year held true to that, it was slower. However as we venture into fall, were seeing a greater indication that we are in a market adjustment rather than just seasonal slowdown . Sure, great homes are still selling really fast, the problem is there aren’t very many of those and your more average properties aren’t moving quickly at all and usually require some price adjustment and if you’ve got a light to moderate fixer, you showings are like a ghost town; lifeless and lonely.
If you look at a graph on real estate it is never a straight line. At best if you look over a long enough period the line is rounded and smooth, but even then it’s not a straight line. Zoom in and it’s all jagged, reflecting subtle fluctuations from one month to the next. So to jump right in and assume that the sky is falling because the last month was slower than anticipated is unwarranted. However, string enough months like this and you have a trend. This is how the Conejo Valley market is today, trending lower. The question now is, how slow are things going to become?
There are always several forces at work at any one time when assessing real estate trends. There’s the National economy which is improving but there is still no real inflation or better said, wage inflation. This means people aren’t making more money than they’ve been so prices really can’t be expected to go up until we make more money and can afford a greater house payment. Then there’s the local economy. Is there a shift in hiring? Are people coming in or being let go? This is really important for a couple of reasons. Obviously if people are coming in there is an increase in demand for housing and that puts pressure on inventory and prices as demand exceeds supply. By contrast if people are losing jobs they aren’t looking to buy and quite possibly looking to sell which puts pressure on prices to the downside as more people compete for fewer buyers. There’s also the confidence level that goes along with a changing employment picture. People don’t make big decisions and take on more debt when they aren’t sure they’ll have a job. Moreover even those secure with their job are affected by the overall insecurity. If all anyone is talking about is layoffs, it’s pretty difficult to be positive. The area’s biggest employer, Amgen, is in the process of restructuring and it is having a numbing, slightly depressive effect on the community’s overall attitude and confidence.
Our inventory is actually relatively stable. After a couple years of absurdly low inventory, below 300 units some months, we are hovering around mid-600 units for sale and have been so for several months. What’s changing is the number of sales which are down in the neighborhood of 20%. Seasonal? Yes, but that is being exacerbated by the job insecurity. And it’s not just Amgen employees that are feeling insecure. It’s the local sushi restaurant owner and the local small business owner, because the insecure corporate employee is changing the way they spend their money when they are not sure they’ll have a job in a month.
National economy, local economy and let us not forget national politics (it’s an election year) and Geopolitics. There’s a little bit of that going on these days too. In total it adds up to one big pause. Then add into the mix the seasonal nature of real estate and what you get is a slowing trend.
When the market was on the rise, there were only a few Realtors who recognized it early and coached their sellers to boost the price. Most were months behind the curve. But when a slowdown is happening, everyone starts to see it around the same time. Listings that should be having lots of showings get a scant few; sellers who overshot their prices during the spring market find themselves falling down the elevator shaft of price reductions with the prices going down faster than they think are willing to reduce. New listings of course have the benefit of seeing the older ones flounder and will undercut their competition, which in turn creates a vacuum effect and pulls everyone down even further.
When does a market decline slow? When buyers come back to the table or inventory declines. What makes them decline in the first place is a shift in the supply/demand balance. The same thing makes them go up too. So we’re going to give a little of those 2013 gains back and frankly this is natural because the line on the graph is never straight up or straight down or flat across, it’s always bouncing. Just hold onto your hat because you’ll want to when it rains and you’ll need it when it’s sunny again too.
Originally published 9/24/2014