With the new year, the South Bay continues to face certain real estate challenges. Nationally, the market is quite different as few states are as far along as California is in the recovery process. In many states across the nation, it takes more than a year to sell a property. Not so in San Diego, in fact I know of many buyers who have been trying for longer than a year to buy a property. The toughest challenge facing buyers right now is a severe shortage of inventory. This lack of supply is not new in the South Bay; it has been a reality for more than six months.
The majority of the inventory that is available right now is distressed. Distressed inventory is the terminology used most often to describe foreclosures and short sales. The distressed inventory situation makes things even tougher for the buyers in our market. Not only do these buyers have a limited selection, the options available lack visual appeal as well. It is a common occurrence for buyers to compete with more than 20 offers on properties with a multitude of structural and cosmetic deficiencies.
Many in the real estate field are wondering when the supply situation will change. Combining attached and detached homes throughout Chula Vista, there is only a 1.4-month supply of homes for sale on the Multiple Listing Service. Generally, a neutral market contains about five to six months of inventory, so anything less than that figure leans toward what is referred to as a seller’s or buyer’s market. At 1.4 months, inventory indicates we are moving into a seller’s market. This typically means that the sellers would exercise more control throughout the transaction than the buyers would be able to exercise.
Considering that we have been experiencing this lack of inventory for awhile, it is natural to wonder if there is an end in sight. Many people have been talking about “shadow inventory” or distressed properties that are waiting to hit the market. They feel that this shadow inventory may provide the surge we need to head into a more favorable inventory situation. So how much of this “shadow inventory” is really out there?
If we subtract the number of homes currently on the MLS in active, contingent and pending status, that gives us the inventory that is yet to come on the market. Since our active inventories in each zip code are pretty low right now, these properties would provide a significant inventory increase. Just looking at the Chula Vista zip codes, this shadow inventory would add seven months of inventory to our dwindling supply.
The lowest active inventory level in the South Bay belongs to 92173 (San Ysidro) at .7-month supply. The highest active inventory level belongs to Imperial Beach, currently reflecting a 2.7-month supply. When it comes to shadow inventory, 91915 in Chula Vista has the lowest at a 4.6-month supply, while 91950 in National City sports the highest at 12.1-months supply.
When it comes to the real estate market, economists and historians alike will tell you that only time will tell. Despite all of the challenges buyers are facing right now, they should take solace in the fact that they are paying incredibly low prices and enjoying record low interest rates. Opportunities abound for those brave and patient enough to navigate these rough waters. Remember that all areas are different, so be sure to contract the services of a real estate expert in your area.
