The number of homes for sale in Malibu stood in at 121 in mid-April. The statistic is significant and worthy of review and interpretation. The last time so few homes were for sale during April was 2005—the last time there was a “red hot” market in Malibu and everywhere else. Last year at this time, the number was at 178. That was well into the aftermath of the Woolsey Fire, which had literally taken some inventory away.
The very slim supply of homes to buy, combined with the raging demand reflected in sales results, makes for easy predicting of the market for the rest of the year. The crystal ball clearly states there can be no chance prices can go down, surely during 2021 and into the beyond, until there is more balance in the marketplace.
Almost always during spring, the number of available homes is increasing rapidly. But in this extreme marketplace, that is not happening. The inventory finished 2020 at 155 homes for sale. It plummeted to 129 in January and has only edged lower since.
Two years ago, the April inventory was 161. Five years ago, it was 208. Ten years ago, it was 295.
So often the public asks, “What is the real estate market doing?” That generally means: What are prices doing? Last year, the median price went up 37 percent, with less extreme supply and demand conditions than now.
The “supply” is easiest to calculate—it is the number of houses for sale (for Malibu, generally considered all homes with a 90265 zip code). Demand—the basket of willing, ready and able buyers currently attempting to seriously purchase a home—is best determined by measuring the pace of sales units. Through March, 62 homes had sold in 90265, a faster pace than last year. Any pace that amounts to 250 home sales in Malibu (against an existing supply of about 3,700 homes, post-Woolsey) is healthy enough to raise prices. Just like the mega years of 2004 and 2005 when inventory and sales tallies were like this, there is no way prices will not go up in this circumstance. Both the average and median price for 2021 were already higher than last year through March.
Understanding the real estate market and its trends is easier when visualizing the dynamics of a teeter-totter. Two opposite sides are counteracting each other. When the momentum of one side is up, the momentum of the other goes down. When they are balanced on each side, it is more difficult to get the teeter totter to move.
In real estate, on one side is the number of sellers who want to sell (the supply). On the other side is the number of serious active buyers determined to buy (the demand). The weight of both groups on the teeter-totter of the real estate market can be balanced, and often is. For many recent years, there was such stability between the two that prices moved in a slow, barely fluctuating pace.
Occasionally, including now, one side begins to outweigh the other so greatly that prices move to adjust to the forces. With the number of sellers currently so thin and buyer demand so high, prices are mirroring the seller side of the teeter-totter, rising up quickly by the counterweight of heavy buyer interest on the other side. It seems the more zealous buyers are, the fewer sellers go on the market, or remain. After a while, more sellers want to jump on the teeter totter and cash in their newfound appreciation. Buyers give up, most no longer qualified to pay the higher prices. The seller side of the teeter totter drops; the buyers on the other side jump off. Prices start to slow their increase, or maybe go down to reflect the reversal of the weights.
There becomes a point when the number of sellers is so low and the number of buyers so high, that prices adjust as far as they can before reversal must occur. And, it must occur. The momentum of the weights inevitably begins to switch.
Some of the real estate market is herd mentality. The buying herds are buying now and the other herds are keeping their houses off the market. Rare periods of herd buying can be called a “bubble.” Some of the frenzy is not due to underlying economic factors, but herd mentality.
The best statistic to watch, to know when a herd reversal is inevitable (when the weights on the teeter-totter will begin to shift), is the “affordability index.” It measures the capability of the buying public to buy under existing conditions. There is no specific affordability index for Malibu, but there is for Los Angeles County, which will reliably project Malibu results. Generally, an affordability of 25 percent or higher means price increases are possible. Over the past several years, the affordability has hovered around 30 percent (which means about 30 percent of households, considering income levels and current interest rates, could afford a median-priced home in LA County). LA County is currently at 25 percent and dropping, according to the latest California Association of Realtors statistics. If it gets to 20 percent or lower, the market will surely reverse direction.
Rick Wallace of Keller Williams Realty has been a Realtor in Malibu for 33 years and a contributor of real estate columns to the community for 27 years.