What do buyers resist most in the homebuying process?

  • Entering into an exclusive buyer’s listing agreement (36%, 49 Votes)
  • Deciding on a home and price quickly to submit a timely offer (36%, 49 Votes)
  • Pre-approval for a mortgage (16%, 22 Votes)
  • Accepting pricing advice from their agent (12%, 16 Votes)
  • Other – let us know in the comments! (1%, 2 Votes)

Total Voters: 138

2016 is off to a promising start for homebuyers: mortgage rates remain low (though they’ll likely rise later this year), jobs and incomes are on the rise and California is heading into an economic expansion. However, home inventory for sale is quickly drying up as buyers capitalize on today’s advantages.

Added together, these factors add up to a fiercely competitive homebuying market.

San Francisco was the most competitive city in California during 2015, according to Redfin. Here, homes almost always sell above asking price and days on the market are often in the single digits. Further, there were just 143 new listings in San Francisco in December 2015, 18% below a year earlier and woefully insufficient to meet homebuyer demand.

The most competitive neighborhoods in San Francisco in 2015 were:

  • Central Sunset, where:
    • homes sold above asking price 92% of the time;
    • the final selling price averaged 21% higher than the listing price;
    • homes spent an average of 14 days on the market before selling;
    • cash buyers made up 35% of the area’s homebuyers; and
    • the average selling price was $1.15 million.
  • Nos Valley, where:
    • homes sold above asking price 88% of the time;
    • the final selling price averaged 17% higher than the listing price;
    • homes spent an average of 13 days on the market before selling;
    • cash buyers made up 39% of the area’s homebuyers; and
    • the average selling price was $1.8 million.
  • the Richmond District, where:
    • homes sold above asking price 89% of the time;
    • the final selling price averaged 16% higher than the listing price;
    • homes spent an average of 14 days on the market before selling;
    • cash buyers made up 39% of the area’s homebuyers; and
    • the average selling price was $1.3 million.
Los Angeles and San Diego were not quite as competitive for homebuyers, but the most competitive neighborhoods in these regions were:

  • Highland Park in Los Angeles, where:
    • homes sold above asking price 59% of the time;
    • the final selling price averaged 3% higher than the listing price;
    • homes spent an average of 15 days on the market before selling;
    • cash buyers made up 31% of the area’s homebuyers; and
    • the average selling price was $584,500.
  • Mira Mesa in San Diego, where:
    • homes sold above asking price 25% of the time;
    • the final selling price averaged right near the listing price;
    • homes spent an average of 14 days on the market before selling;
    • cash buyers made up 26% of the area’s homebuyers; and
    • the average selling price was $468,000.

The most competitive markets for homebuyers tend to have a higher presence of cash buyers, which signifies a large investor presence. It also points to sellers’ eagerness to accept all-cash offers when available — in competitive markets, cash gives the winning buyer the upper hand. Cash purchases tend to offer sellers assurances of offers non-contingent on financing and generally quicker closings.

The number of cash buyers has declined in recent years, following a statewide peak of 37% in mid-2013. Still, cash remains common in California’s more aggressive homebuying markets (e.g. San Francisco’s Richmond District and Nos Valley, where 39% of homebuyers use all-cash).

A forecast for California home sales in 2016 and beyond

How competitive is your local housing market?

Inventory is getting tight across the state. In Los Angeles, the number of homes listed for sale was 20% below a year earlier as of December 2015, according to Redfin.

Expect home sales to remain competitive through mid-2016 at least — good news for sellers. However, the Federal Reserve’s (the Fed’s) interest rate hike is expected to catch up to fixed mortgage rates (FRMs) around mid-2016. At this time, FRM rates will increase, stifling homebuyer purchasing power — and demand.

Going into 2017, a reversal of today’s situation is likely to occur. Inventory will rise as homebuyers are less willing to either spend more of their paycheck to get into the same house, or accept a less desirable home for the same payments. Sellers will eventually be forced to lower their expectations on price.

That being said, all of this negative housing action will be lessened by the strengthening economy. The brief dip in home sales and pricing won’t be a repeat of the 2009 experience. Rather, home sales volume, followed by pricing, is likely to pick up late in 2017 once buyers adjust to the new reality of rising interest rates. The next generation of first-time homebuyers will finally emerge from their rental housing, ready to claim their piece of the American Dream. Meanwhile, Baby Boomers will be retiring in large numbers, selling homes and buying replacement homes. All of this activity will drive California’s housing market to the next boom in home sales, to take place around 2019-2021.