Pro shares predictions on upcoming real estate market trend

COMMENTARY /// Local housing sales



Tim Freund

Tim Freund

There has been much talk about a possible market slowdown, and that’s led some to speculate that a correction is coming.

With purchase mortgage applications in decline since mid-May and inventory creeping up ever so slightly, I was recently asked what I thought the market will look like in six or 12 months. Would there be a correction, and if so, when?

Obviously I have no crystal ball, but I can tell you what I see today: bedlam. There remains a frenzy for good homes the likes of which I’ve never seen.

This past weekend I took out an insurance executive relocating his family from Illinois. They needed four bedrooms and really wanted a pool—a little California dreaming.

We were able to look at 12 listings with pools between $1 million and $1.6 million from Calabasas to Newbury Park. I was pretty happy to have that many homes to show and was thinking, “Maybe inventory is up a little?”

Then reality hit. Some of the homes were way overpriced and the pictures were misleading. Yet one Morrison Ranch home in need of updating sold in 24 hours to a buyer paying way above asking, waiving all contingencies and putting 40% down. The seller didn’t even wait until the designated deadline to accept the offer.

Three other newly listed homes already had multiple offers before we’d even stepped foot inside. They’d been available to see for one day.

There was a stunning Westlake First Neighborhood single story home listed at an astonishing $745 per foot. I told my client to expect it to go out for $830.

Now, if this home were in Sherwood or on Westlake Island, maybe. But even The Oaks and Mountain View Estates in Calabasas aren’t getting anywhere near $800 per foot.

Before the pandemic, mid- May to July 4 was always herky-jerky. Mother’s Day, Memorial Day, Father’s Day, graduation and the July Fourth holiday have always interfered with the business of real estate.

The thing is, after 2020 we’ve forgotten what normal looks like. As we exit lockdown mode, the airports are packed with people and our highways are buzzing with vacation travelers. As a result, we should anticipate a slightly slower summer selling season.

That said, the fundamental conditions that got us here are still wildly in effect. With a gajillion millennials buying their first home, coupled with many seniors choosing aging in place, a vibrant economy, the space-premium and workplace flexibility brought on by the pandemic and urban exodus to communities like the Conejo Valley, there are way too many buyers for the homes for sale.

Insufficient building since the Great Recession and slow growth like we have in Ventura County especially but also throughout California has created acute shortages of housing.

The National Association of Realtors published a study in June titled “Housing Is Critical Infrastructure,” stating that as a nation, the U.S. is 5.5 million housing units short to house the population. The country needs to build 2 million units a year to make up the deficit. That’s 60% more homes a year than were built in 2020.

Add to this super-low interest rates, and home buyers and sellers should expect continued price appreciation and a high volume of sales. It may be slower, but that isn’t slow.

In fact, looking at sales numbers from the first half 2021, I found that the lovely sanctuary along the Los Angeles/Ventura county line had a sales volume not matched since 2005. In other words, more homes were sold in the first six months of 2021 than were sold during the same period for any of the past 16 years. Let that sink in.

Real estate agents do not have a supply problem; rather, there is an active listing problem because everything listed is selling.

And if all this weren’t enough, Realtors are finding that for the first time in probably 30 years they are really feeling the long shadow of Los Angeles; that is, many of the most intense offers are coming from buyers out of the city where prices look like bargains. As a result, L.A. buyers are throwing very high offers with little or no contingencies because this is how it has been in the city. It’s only now getting to Ventura County, which is a veritable steal by comparison.

For example, a 1,700-square-foot home in West Los Angeles can easily cost $1.8 million. By contrast, $1.8 million in the Conejo Valley buys 3,000 square feet in Westlake; 3,200 square feet in Oak Park and 4,200 square feet in Dos Vientos.

Expect prices to continue to rise, albeit at a more normalized rate, and sales to remain strong. Moreover, I predict that once rates reach 4% there will be another round of frenzy as buyers realize the days of 3% interest rates are coming to an end.

Don’t expect a slowdown of consequence until rates reach 4.5% to 5%. Only then will the market start its inevitable correction. It isn’t a question of if there will be a correction, only when and how severe.

But how much will prices have gone up between now and then? As to the question I hear about all the loans in forbearance and eventual flood of foreclosures that are coming, I say, don’t hold your breath.

Aside from the fact that a majority of those distressed property owners still have significant enough equity to sell for a profit, just ask any Realtor how many of their investor clients are champing at the bit for the first sign of market decline.

It’s fair to say investor interest, including from Wall Street hedge funds, will dull any significant risk of a steep market correction.

To reach Tim Freund, call (805) 427-3008 or send an mail to tim@1000OaksRealestate.com.