Todd Shea: Sellers in Past and Buyers in Future: Who Is Right?

We started this year’s market in a very interesting way. National headlines show doom and gloom and recession, and while our local market has changed quite a bit since January 2022, it continues to move and remain strong.

One of the struggles is some buyers are operating in the future. They feel that pricing will go down, rates will drop, and then they will jump in. At the same time, we have sellers who are operating in the past. They feel that the last two years’ pricing can still be attained, and they are still fully leveraged.

Who’s right? Well, that is the even more confusing thing.

We have multiple homes going for over asking price with multiple offers at the same time, as we have longer and longer days on the market and some homes selling for well under the listed price.

Our inventory levels are still extremely low, even for our area’s traditionally low levels vs. national ones.

The absorption rate is a great way to show our market is still quite strong. The absorption rate is the number of weeks or months in a market that if no new homes came on the market, all of the homes would be gone.

We ended the year with around 1.4 months of inventory. Last year we had a little less than one month, and in 2020, we had two months. In 2019 we had around 3.8, and in 2018 we were at 4.6 months of inventory.

In our local Santa Barbara and Montecito areas, we have historically not seen a sustained decline in pricing until there are at least six months of inventory. So with that said, you can see how it may be quite some time before we see a sustained pricing decrease.

Rates play a big part, although we average about 23%-30% of the deals being all cash. We have some amazing local lender affiliates with outstanding options in helping the majority of buyers needing loans.

Rate buydowns, adjustable rate strategies, etc., as well as the strong feeling that lower rates are in the future, help buyers continue to stay active.

“The Housing Crisis,” which should be called and renamed the “The Housing Supply Crisis,” is a challenge for everyone wanting to keep our amazing area the way it is while pushing toward the future with more and more people every day, and the necessity to provide housing to all levels of economic scale.

So, if you feel a little confused about where things are headed, you are not alone. The only thing we can say for sure is that a market shift is always happening, and it is shifting now.

I heard a great quote from Peter Rupert talking about recession at the State of Santa Barbara County Chamber Event at the end of November. He was showing some great evidence, with a strong labor market and strong consumer spending, that we are not in a recession, but I loved his answer to are we in a recession.

“If we are not in one, we are heading towards one, of course. Dumb question.”

This is very similar to our housing market now. Is it shifting, yes, of course it is. It always is.

So who is correct? The answer is perhaps in knowing the market is moving to a more level market. The scales of leverage have continued to move toward balance.

Our amazing local area Realtors, affiliates, and Santa Barbara Association of Realtors members are constantly monitoring stats, news and legislation to keep themselves and their clients updated.

We live in an incredible area that is the envy of others and continues to attract people to our area and keeps families here for decades.

With gratitude …

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