January 24, 2021 Breaking News, Latest News, and Videos

“Shadow Inventory” and Future Home Prices:

MICHAEL EDLEN, REAL ESTATE CONSULTANT

A prospective homebuyer asked whether I would agree that it made sense for him to wait longer before purchasing a Santa Monica home. His question was based on a recent report from Core Logic, a mortgage research firm. They had stated that “a supply of 2.1 million homes poised for foreclosure or delinquency potentially looms over the nation’s housing market… this ‘shadow inventory’ is at an 8-month supply as of September, and consists of residential real estate that is in foreclosure, has a loan 90 days past due or has been taken back by a lender and not yet listed for sale.” They noted that the total supply of homes in the country was up to a 23-month level, including the unlisted “shadow inventory.”

The question is how this information relates to Santa Monica homes in particular. Of course each Santa Monica market segment is different, and home value changes are very “neighborhoody.”

A review of public records shows that only 134 Santa Monica homes are currently bank owned and potential near-future foreclosures, which represents only 1.6 percent of all the homes here. Moreover, only 7 percent of the homes sold in the last year were under financial distress as identified in the multiple listing service. This is in contrast to some areas in Southern California where between 20 to 50 percent of total home sales are in this financially distressed category. The Santa Monica condominium market percentage of “financially distressed” sales is half that of homes, with only 3.5 percent of the 428 total sales over the past year in such categories.

With approximately 90 homes available for sale and a rate of 21 homes per month selling on average, Santa Monica has less than a 5-month inventory of supply. There are 40 homes that are bank or investor owned. Even if these were all included in the overall supply, it would equate to less than an 8-month inventory, which is significantly less than the 23-month inventory of homes the Core Logic study mentioned. Moreover, even if all of the homes set for auction in Santa Monica were included, the potential current inventory would still be less than a 9-month supply.

These statistics could indicate some justification to delay buying. However, some areas have already experienced price increases, while most of Santa Monica has been stable for nearly a year, so there may be little to gain from such waiting. Also, delaying to make a purchase decision may well result in a home seeker missing out on what might be the most ideal home for their family needs.

Interest rates are at 50-year lows. It is highly likely that within the next year those rates will be higher, offsetting any small additional price decreases that may occur.

Of course none of us have a reliable crystal ball to give clear direction to such decisions. However, unless a prospective buyer intends on selling the new home in only a few years, odds are that they will look back with great pleasure several years from now at their decision to purchase sooner rather than later.

We invite any current prospective homebuyer to contact our office for evaluations of any particular neighborhood they are considering purchasing in. We will be glad to perform an analysis to help you make a purchase timing decision.

Michael and his team have been effectively serving Santa Monica buyers and sellers with their real estate goals for 25 years. They may be reached at 310.230.7373 or Michael@michaeledlen.com.

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