Definition of a strong real estate market

[Thermofoil]

Did not want to pollute USC's thread about the status of the Irvine Real estate market.
Yet I would like to get some clarity and thoughts from members about his statement quoted below as I tend to disagree with it:

....
real estate should continue to be strong in 2013 primarily due to a lack of inventory and backlog of buyer/investor demand and can see prices increasing moderately
....

As much as I can concede that the last 3 quarters of 2012 were indeed strong as the home inventory progressively dried up I am having a hard time to see how 2013 could technically be a repeat of 2012, especially since the inventory is already low and continues to dry up.
I understand that the low inventory makes it a seller's market as prices could go higher but it does not necessary make it strong that there's not a lot of choices for buyers no matter how large the pool of buyers is.

To me "strong market" = a lot of sales NOT high prices

If a Walmart store has 100 Ipads for sale and 500 buyers in line they're going to sell 100 Ipads not 500, right?
Is is too basic a reasoning and does not apply to RE?

 

[irvinehomeowner]

I think by "strong", USC might mean "high demand" or "higher than usual prices".

Taking your Walmart example, if only 100 iPads are available for 500 buyers, Walmart *could* mark those iPads up 10% and still sell all 100... whereas if there were 500 iPads and only 100 buyers, they wouldn't be able to do so. Which case would you consider "strong"?

 

[usctrojancpa]

Let me give you a few examples of how much of a seller's market we are in.  I put in an offer on an attached condo in Irvine recently (which was priced above comps), there were 10 other offers on the condo and my buyer got outbid.  Then there was detached condo in Aliso where my client put an offer in above list price (list price was at the very top of the comps), the seller did not even counter back my buyer because he said the seller only countered the top 4 buyers.  It's basic economics at work, if demand outstrips supply then prices will rise until the market clears.  The signs of a strong real estate market to me are the following....1) increasing prices, 2) increasing sales volume, 3) decrease in inventory levels, and 4) buyer backload growing (both for re-sale homes and new homes).  Hell, Laguna Altura was sucking wind in terms of sales in 2011 and the early part 2012 but not if you go in there you can see that sales picked up a lot since then.  Why?  Because there's little re-sale inventory and because there is buyer demand.  I'm not saying that the market isn't artificially "juiced up" by low rates and foreclosures coming onto to the market like a slow leaking faucet because it is.  But you have to admit that a material reason for inventory levels being as low as they are is because of increased buyer demand (sales volume and price trends don't lie). 

Btw, you know what will hold down the number of sales?  Low inventory.  If you don't have inventory to sell, you can't have the sales.  So I can see where sales volume decreases in 2013 but prices increase all because of the low inventory levels.  Another indicator of a strong market is months of inventory on the market (or weeks as we measure it now in some areas).  Anything below 3 months of inventory of homes is a seller's market (aka a strong market).  We are around 1 month of inventory of homes, thats a VERY strong seller's market.

 

[irvinehomeowner]

Maybe William Lyon is timing it right by releasing those $900k+ 3br homes in February.

So sad... I still don't think I ever saw that gigantic bottom everyone was predicting... at least not in the type of homes we were looking at.

 

[Irvinecommuter]

Maybe William Lyon is timing it right by releasing those $900k+ 3br homes in February.

So sad... I still don't think I ever saw that gigantic bottom everyone was predicting... at least not in the type of homes we were looking at.

I just don't think we are going back to that type of homes.  700K gets you a house with no driveway...it's the new reality in Irvine.

 

[Thermofoil]

Thanks USC for your detailed explanation of the definition of strong market. I understand a strong market has the same characteristics as a seller's market and is proportionate to metrics such as the number of offers per house, the size of the pool of buyers (strong demand) and the price of goods rather than the actual number of sales.

As you pointed out it is conceivable that 2013 will see a significant decrease in sales as the inventory continues to shrink.
Not only buyers compete but I imagine RE agents will have to compete even more fiercely for listings this year if they want to keep making their easy dough.

I too wish the government had not intervened to soften the deflation of the housing bubble and had let the market correct itself. The gigantic bottom would have happened had the government and Fed not intervened like they did and we would likely now enjoy those nice looking WL homes at $700K.

 

[Thermofoil]

Being a Olick-aholic I make note of her quote in today's article:

"rising mortgage rates, coupled with severe inventory shortages, are not the mix needed for a healthy spring housing market"

strong does not apparently mean healthy

 

[Liar Loan]

As you pointed out it is conceivable that 2013 will see a significant decrease in sales as the inventory continues to shrink.

It's hard to say if it will happen in 2013 or not, but eventually rising prices will lead to more supply and help get the market in balance.  Also, if rates continue to creep up then demand will start to be suppressed eventually.

Diana Olick's articles should be read with a grain of salt.  Her core audience consists of perma bears that still believe home prices are in for a severe crash.  Even as she writes about positive housing news, she shrouds it in negative terminology or looks for the most negative interpretation of the facts to get her audience excited.  Larry Roberts does the same thing with his reporting which is why I've not been participating at his blog as much lately.  I'd prefer just an honest reporting of the facts without the negative spin.

 

[homer_simpson]

As you pointed out it is conceivable that 2013 will see a significant decrease in sales as the inventory continues to shrink.

It's hard to say if it will happen in 2013 or not, but eventually rising prices will lead to more supply and help get the market in balance.  Also, if rates continue to creep up then demand will start to be suppressed eventually.Diana Olick's articles should be read with a grain of salt.  Her core audience consists of perma bears that still believe home prices are in for a severe crash.  Even as she writes about positive housing news, she shrouds it in negative terminology or looks for the most negative interpretation of the facts to get her audience excited. 

Larry Roberts does the same thing with his reporting which is why I've not been participating at his blog as much lately.  I'd prefer just an honest reporting of the facts without the negative spin.

Couldn't agree more.