INVENTORY TIGHTENS--BUT THE MARKET AVOIDS A RUN UP IN PRICES,SO FAR

Before you get too excited by this headline, let's face the fact that prices are very robust.  As previously reported in every local paper, the Wall Street Journal and the news, housing prices, particularly in California have rebounded about 75% of the lowest recessionary crash prices.  Despite an early article in the LA Times on March 18th,  touting a 9% increase in inventory in LA county, with multiple factors drawing in the home sellers, such as equity position, stable employment or gaining incomes, and the desire and hope of moving up themselves, that inventory has vanished almost as quickly as it was reported.  In fact, the National Housing Trend Report shows inventory has actually decreased 10.9% year over year (February the most recent month available).  What happened?  Buyers who have sat on the sideline for years, finally feeling good about exactly the same scenarios, have swept into the market and started buying up the inventory as quickly as it can come onto the market.  Why no run up in prices?  Yes we are seeing a 4% to 6% increase year over year for February, the market is tight after all. In fact, February pending sales surged beyond expectations.    But a 15% or 20% run up in prices?  Not this year.  The cash investors are largely gone, flippers are the minority, and buyers are savvy.  They will not over pay.  Therefore, the only houses that are sitting, are the ones perceived to be overpriced.  Challenge the market and you are likely to sit...and sit.  Price it correctly and the house will be gone in a week.  Who are these buyers?  Perhaps you missed the article from the National Association of Realtors that announced that Millennials have shifted their focus from careers, paying down student loan debt, easing off from living with Mom and Dad, where they have been saving money, and heading towards their own home ownership.  And the ones not living with Mom and Dad?  Since the Millennials have been dramatically shaped by the Great Recession, frugality is in their second nature.  Rents have risen in often cases, higher than what it would cost to buy.  Not willing to succumb to overpaying for any one item in their life, they are looking toward real estate.  Remember that this newsletter predicted, based on a Gallup Poll, that Millennials would become the driving force in real estate before the end of this decade, because over 64% believe in home ownership and also believe that a home is a better investment than stocks.  The best news for the single-family resale property?  The Orange County Business Council, the leading council for OC, reports that OC homebuilding isn't keeping up with the expanding workforce.  According to an article in the OC Register, it's creating a shortfall of "50,000 to 62,000 homes."  Homeowners are poised to maintain an edge as supply and demand economics drives housing.