The thing I hear everyone talk about whether they are a buyer, seller, agent, or real estate spectator is how little there is on the market. Given the number of new condo units being built, it is especially dramatic that the inventory continues to be low. No matter how fast the new construction is completed, it is not fast enough to increase the inventory of homes on the market in San Francisco. Everyone wants to know why inventory is so low, will it change, and when will it change.
Why inventory is low is easier to answer than will this change and when. Here are six things that contribute to low inventory:
- The most obvious factor is the technology boom bringing new buyers into the Bay Area.
- Days on market, often referred to as DOM, is a factor. Both single-family homes and condos are selling faster than at any time since 2005. If it takes two months to sell a property, there is an opportunity for a build-up of inventory. Today when homes regularly sell between 7 and 21 days, there is little opportunity for inventory to increase. Many banks are offering 15-day escrows to help their clients compete with cash buyers.
- Older people are working longer, and if they retire they are not leaving the city unless absolutely necessary. Buying another house within the city doesn’t make sense, either, because the increased property taxes would likely be thousands more per year.
- Sellers who would like to move up to bigger homes are not able to find a home to buy and instead are adding rooms to their current homes.
- Older homeowners whose homes have increased in value to the point where they will have to pay capital gains on their sale are waiting until one spouse passes away to sell their homes. This way they will have a step up in tax basis for half of the value of their home.
- Potential sellers are staying on the sidelines trying to time the market, waiting for an even higher high.
Low inventory coupled with high demand has caused the price of housing to continue to rise. At the end of February the San Francisco Associa-tion of Realtors re-ported the one-year median price change in homes and condos. Single family homes were up 6.2 percent and condos a whopping 17.4 percent. The low inventory coupled with the increase in the price of housing is a double whammy for buyers. Sellers are reaping the rewards, but this also contributes to low inventory.
What does the low inventory and decrease in DOM mean for buyers and sellers?
Sellers. Don’t think for a minute that you will put your home on the market and “wait and see what happens.” Unless your home is incredibly over-priced, you can count on it selling. Sellers need to work closely with their agents to make sure their home will look its best to get top dollar even in what some people like to call this overheated market. Keep in mind that buyers have expectations about what a home should look like when they walk in the door. A home will sell faster at a higher price if it is visually appealing to buyers.
New buyers. Don’t be afraid that the low inventory means that the day after you have bought a home there will suddenly be a glut of homes on the market. Even if there is an increase in housing inventory, it is unlikely that a more desirable house will be for sale than the one you just bought at a better price. Here we are on the way to summer, and there is no indication this will happen. The best thing to do is focus on buying a home in a neighborhood that will work for you for the next 5 to 10 years. Remember, it is unlikely that you will buy only one home in your lifetime. The idea of building equity in a home and moving up is still a plan worth consideration.
Downsizing buyers. You are lucky! This is a great time to both sell your home and buy in a new condo building with an elevator, plus transfer your tax basis in San Francisco if you are over 55 years old. Market Street, the Van Ness corridor, and the neighborhoods South of Market offer choices. Also the area along the Embarcadero is ready to sprout wings and fly as the Warriors Stadium area comes to life.
Whether you are a buyer or seller, at some point you need to shut down your computer and go out and look at Sunday open houses. No amount of surfing the Internet beats seeing a home in person. Understanding market value is a necessary part of making a decision to buy or sell a home. This is especially true today, when it is likely that you will be making an offer quickly within a few days of a home coming on the market. As with sellers, there is no time to “wait and see what happens.”