Why Aren't There More Listings in Redondo Beach?

Why is housing inventory so low in Redondo Beach? Great question and one I address often with buyers. In fact, the same issue exists throughout the South Bay and LA County so whether you are looking in Redondo Beach, Hermosa Beach, Manhattan Beach etc, the same story seems to be playing out which is that there just isn't that much to look at. And, based on what I am reading you can extrapolate the same conclusions to be true in many markets throughout the US.

The factors at play driving this are a) many homeowners have refinanced and have very low interest rates b) many current owners bought during the last downturn at prices up to 20% below today's values c) more and more seniors are "retiring in place" d) approximately 15% of homeowners do not have enough equity to sell even if they aren't technically underwater and e) California just hasn't built enough new homes over the past 5 years to absorb the growth.

On the opposite side of the equation 1) rents continue to go up creating more demand for home ownership and 2) buyers want to lock in today's low rates while they can. (ironically, raising rates may be one of the few factors that can create some lid on price acceleration.)

Let's take a look at some actual "numbers".

North Redondo Beach Closed Escrows Prior Five Years

2014 487
2013 512
2012 492
2011 396
2010 451

Five year average is 468 homes sold per year in North Redondo. Curiously if I take the most active year and least active year out of the equation we average 476 closings per year.

YTD sales Q1 2015 = 107 (36 per month). This would annualize to 432 at the current pace. So is it really 2.5 sales per month that are making buyers so frustrated. Not at all. It is the lack of properties to view, the multiple offers, and the often absurd terms that listing agents (yes, including yours truly) ask for. Lets's also throw in the rapidly escalating list prices as well.

For a very long time we have been in an entirely asymetrical environment where much of the activity is at the edges. Here's what I mean by that.

Traditionally, there would be a "starter" home followed by a "move up" home and then ultimately a "retirement" property to go along with the empty next. Maybe the priviliged few could also afford a "vacation" home or even an investment property.

For quite a while now, however, the traditional "move up" or discretionary buyer has been fairly absent from the scene. Want a newer home? Watch HGTV and DIY a remodel. Want more space? Add on (when possible.) This almost even predates the last downturn as many owners stayed in place during the early naughts as prices ran up.

What is preventing those same owners from moving now is that even with the low rates, most moves would involve an increase of 40% (or higher) above the sale price to make sense. For example, last year one of my clients listed and sold a home for a little over $1M (which was not that much above their initial purchase price at the height). At the time, I had advised them that a replacement property, based on their exquisite taste and requirements, would be $2M or more. Guess what, properties we are looking at now are $2M or more and that is a substantial capital outlay and increase in monthly expense.

Here's a more typical example, also real life.

I sell a fair amount of 3 on a lot townhomes. The nice ones are now in the mid $700's as resales (or higher in some instances.) Typically, the replacement property for those sellers is at least $1M and in some instances substantially more.

What is most often driving the current discretionary seller is a growing family, family formation of the need to accommodate extended family. In other words, the same factors driving many first time buyers with the only difference being that first time buyers are trying to escape escalating rents.

But if these move up buyers are not, well moving up, the market stalls which is in large part what we have seen today while on the other end of the spectrum if retirees are not selling their homes, that also contributes to the problem.

Because of the tax rules, ie the $250K and $500K exclusions on sales, many retirees are looking at million dollar plus gains and deciding that they'll just hold on to that property and pass it on to their inheritors who will get a stepped up basis. Here's how that one works.

Lets say you bought a 2 on a property with your spouse in the '80s for $300K and that same home is worth $2M today. Very possible in Manhattan, Hermosa, or South Redondo Beach. You could well be paying over $200K in capital gains tax and that's a lot of money however you look at it.

Last thoughts for this blog post.

I'm seeing a dozen or so offers in many multiple offer situations. Unfortunately we can only sell the house once. Those other buyers aren't going away.

I wouldn't count on more inventory hitting the market this Spring or selling season because we are already there and nothing seems to be changing!

Sellers who are expecting this price acceleration to continue unabated may be disappointed. Thinking of selling? Now's the time.