The latest reports from real estate website Zillow showed that the inventory of low priced homes ($313,200 or less) shrank by more than 40% in California since last year. This was by far the largest inventory reduction in that classification of any state, with homes sales nationwide falling just 19.4 percent overall during the year ending Sept. 30.
“Low inventory, across all price points, in California will continue to slow the real estate market’s upturn in the state,” said a recent forecast from the California Association of Realtors.
Perhaps the most vulnerable to the falling inventory of lower priced homes is the first-time home buyer. This group typically cannot afford the higher priced homes and are now being forced to compete over a diminishing amount of properties with savvy real estate investors.
With investors having developed sophisticated plans to purchase, fix and rent out homes, there are fewer and fewer options for first-time buyers and they are having a hard time finding affordable properties. Often sellers choose to go with the all cash buyer, believing that their offer is more secure and will close more quickly.
“First-time home buyers are being squeezed out of the market by falling inventory and the rapid influx of investors looking to buy basic homes to rent out,” Zillow chief economist Stan Humphries said in a statement. “Investors are paying in cash and can close sooner, which is more favorable to banks and homeowners looking to sell.”
Further compounding the situation is a push from Wall Street to turn bank-owned homes into rentals to help foster more private investment in the sector. California real estate agents disagree with the approach of bulk sales to investors, wanting the government to instead release more foreclosures into the local markets and create more home buying opportunities.
So how can a traditional buyer compete with investors?
Professional real estate agents and Mortgage Advisors are emphatically recommending their clients get pre-approved very early in their real estate search process. Being pre-approved means that you have had your credit checked and assets evaluated. It’s a more in depth process than just being pre-qualified and speaks volumes to sellers.
Over the next few months expect to hear a lot more about California’s plans to manage their current inventory and shadow inventory. Experts believe that the state can handle more foreclosures (which are at a record low right now) and that it will improve the overall health of the market to deal with the distressed properties locally.
Do you think the government should sell California’s shadow inventory to investors in bulk? Or that our state would benefit from the release of more affordable housing? Let us know!