One year ago, extremely low inventory was a defining feature of California’s housing market. Now, as we begin 2019, the number of homes for sale in California has increased significantly.
Statewide, inventory has increased 18% over a year earlier, amounting to 15,600 more homes listed in November 2018 compared to November 2017, according to data from Zillow.
While inventory has increased across all of California’s major metros, the pace has varied considerably, rising:
- 65% in San Jose;
- 27% in San Diego;
- 23% in Los Angeles;
- 23% in San Francisco;
- 23% in Stockton;
- 14% in Bakersfield;
- 11% in Sacramento;
- 11% in Riverside; and
- 8% in Fresno.
San Jose far and away beat out all of California’s other metro areas with its 65% inventory increase over the past year. San Diego, Los Angeles and San Francisco follow, while inland areas have seen a less significant inventory increase.
Rebounding inventory won’t cure the housing market
A rising number of homes for sale is good news for California homebuyers, who have long struggled to compete against investors and each other for a shrinking number of homes. But inventory remains concentrated in the high tier, where the top third most expensive homes are for sale, according to Zillow.
The low- and mid-tier inventory shortage continues to hit first-time homebuyers hardest, holding back home sales volume and ultimately a return to a more stable housing market.
The solution is greater numbers of new home construction. The current pace of construction is far below what it needs to be to keep up with rising demand from a growing population and increasing numbers of young adults advancing in their careers and ready to take the homeownership plunge.
Further, the relatively small strides made to add to the for-sale inventory in 2018 were not the result of new construction. Rather, rising interest rates crippled purchasing power and discouraged homebuyers. As a result, by the end of the year homes were sitting longer on the market.
For example, consider San Jose, where inventory is 65% higher than it was a year earlier as of November 2018. Here, the average days on market is 33 days — three times the average days on market experienced a year earlier when the average home sat for just 11 days before an offer was accepted.
All of this has led to slowing sales volume and fewer agent fees to go around. The impact on real estate professionals’ wallets is just starting to be felt. Looking ahead, agents and brokers can’t realistically expect sales to pick up in 2019 or 2020. As sales volume has slowed, home prices are beginning to fall back across California. Homebuyers are becoming more hesitant to purchase, and many will refuse to buy until it’s clear that prices have bottomed.
Thus, anticipate today’s rising for-sale inventory to continue throughout 2019 and well into 2020. The next boom in home sales won’t occur until the years following the next recession. The likely arrival for this next boom will be sometime in the years following 2021.