California housing inventory disappears into the sunset.

drhousingbubble's picture

Since 2009 all cash buyers have purchased roughly one third of all Southern California home sales. This is a significant number and unlike the early 2000s, many of these buyers are looking to hold onto properties as rentals. A good portion of buying has come from larger hedge funds and an increase of foreign money has caused competition on an already low selection of homes to become more pronounced. The latest inventory report for California is telling in many ways. Many of the larger metro areas in California are seeing annual inventory drops of 50 to 70 percent. Those looking to buy are facing added competition from a variety of unlikely sources. Last year in February we set a record with the number of homes sold to absentee buyers (29.9 percent). Where is all the inventory going in California?

Inventory disappearing

One of the more telling stories is the large decline in housing inventory available for sale. The trend is apparent nationwide but more pronounced in California:

inventory of homes

Source: Redfin

If you are out in the market to buy a home and are wondering why your selection is limited, look at the above. If you were looking to buy in Sacramento, you had a 71 percent drop in inventory from the previous year. San Francisco saw a major 68 percent decline. Los Angeles came in at 61 percent. These are all nearly twice as high as the nationwide inventory drop of 33 percent.

Is this growth coming from employment growth? We’ve been adding some of the jobs that have been lost:

nonfarm employment

We had more people working in the LA/OC area back in the early 1990s than we do today. The drop in inventory is a unique one and also one that reflects the management of shadow inventory from the banks.

The perception in the market is that inventory is running out and many people have the first California housing mania etched into their memory. Last year saw a big push from those sitting on the fence. This is why we are now experiencing this:

“(PSN) Real estate agent Alan Castillo recently listed a client's fixer-upper in Granada Hills for $278,250.

It was only 1,600 square feet -- but it drew 128 offers, most of them in cash.

The final selling price, after all of 10 days on the market? $377,872.

"I was very surprised," said Castillo, the owner of Financing Realty Center Inc. in Granada Hills, who has been in the business for 20 years.

"I didn't think I'd get that many offers. This was overwhelming."

A fixer-upper listed in Granada Hills for $278,250 ended up selling for $377,872 after 128 offers came and sold in 10 days. Many areas of California are now seeing signs of a second housing bubble. We’ve documented many cases of flippers in hipster areas putting in a little HGTV work and then selling the home in a matter of days for hundreds of thousands of dollars more.

What is causing this market to inflate again? The culprits remain the same: incredibly low inventory, record low interest rates, bank management of shadow inventory, foreign money, hedge funds, and flippers. It is true that sales have increased but in reality, the surge in prices is coming more from the massive drop in inventory and low interest rate leverage:

homes sold 2012

For example, home sales in the Inland Empire fell by 14 percent year-over-year but inventory fell by 57 percent. San Francisco saw home sales drop by 8 percent year over year but inventory fell by over 60 percent. In other words the push up in prices is happening because of a massively small amount of inventory being combined with all the other forces of low rates, investors, and banks controlling distressed properties. In other words, the market is completely manipulated.

I’ve seen some people arguing that we had a surge in population but that is not a reason either:

population growth

In fact, Los Angeles County for example saw its first annual population decline since the 1990s prior to this recession hitting. This was the slowest growth in population dating back to the 1970s. Population growth is back but at a more modest pace. Certainly this is not the reason for the current major push.

The drop in inventory is incredible and is the largest I have ever seen. The increase in sales is not so dramatic but with scant inventory available, for those seeking to buy a home right now conditions are extremely competitive.

What is interesting that a leading indicator in future changes is when home sales begin to decline. Take a look at areas that are seeing annual sales drop:

Las Vegas: -14%

Inland Empire: -17%

Phoenix: -15%

These areas are massive hubs of speculation from investors. For Las Vegas and Phoenix roughly 40 to 50 percent of all sales over the last few years came from investors. What happens when prices get so high that they are no longer attractive as rentals or to flip? What happens when the large pool of uncommitted money takes off? Keep in mind that for investors, they need families to eventually buy or rent these places. At a certain point, you need the real economy to make up the slack and incomes need to rise in proportion. This drop in inventory is stunning since very few organic homes are coming on the market. In California, you have many underwater homeowners and also, many that took out HELOCs and home equity loans that wouldn’t be able to sell in this current market even after the current surge in home prices.

Home prices are still off by 36 percent from the peak in the LA/OC area:

los angeles case shiller

If you are looking to buy, gear up for low inventory, bidding wars, flippers, and investors. Any stories from prospective buyers dealing with low inventory?

Did You Enjoy The Post? Subscribe to Dr. Housing Bubble’s Blog to get updated housing commentary, analysis, and information.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
beentheredonethat's picture

I am connected on real estate in s. california, ny metro and florida- and all are up- 

There is much less inventory in ny metro/nj, fla housing is already up 10-20 percent for the basic rental home(one comment in a story here on zh mentioned all the doctors and dentists running out to buy 200k rental homes- which is absolutely right- their wives buy them and rent 2-3 of them and get much better returns than bonds). And is S. cal there is absolutely no inventory of rental or sale.

Thats what $90b a month in fed money will do, but dont call it inflation.

Lost Wages's picture

Does anyone want to buy our condo and rent it back to us? 

Missiondweller's picture

In the San Francisco Mission District its a combination of wealthy Google & Facebook hipsters who buy the nice properties and investors buying the "sketchier" properties as rentals. When a home is for sell in the "sketchy" areas you see lots of investors in Mercedes show up to view the properties.

GMadScientist's picture

It's winter, numbnuts.

Hobie's picture

Inland Empire? Is that Washington D.C.?

markovchainey's picture

I think it's a typo. It was supposed to be "Inbred Empire".

dunce's picture

The market segment that consists of people buying homes to live in are public employees, they have job security and often don't face transfers when promoted. Think of police and firemen, by the time they retire their kids are grown and their house is near paid off. They can sell and pay no taxes on the profit if they buy another house in a low tax state within 18 months usually for less than they sold and get a better house.

joego1's picture

All 8 know is that contractors are going out of biz where Iive there is no boom. There are people that are exiting the stock  the market and investing in real estate. More like the lessor of two evils. Hell I did it.

GMadScientist's picture

How much to rent one of your evils?

CheapBastard's picture

The Shadow Inventory has to be massive. I see literally dozens of empty houses with no For Sale signs in front and no longer listed on th einternet.  Problem is vacant houses corrupt the neighborhood---broken fences unrepaired...lawns unmowed...broken windows and garage doors....


The word, "Community" has a different meaning when you have this many empty houses. Add to that the large number of rentals and Flippers and you no longer have a "community" since fewer and fewer care about the long term benefit of the neighborhood....just short term profit.


The Aliens may be buying parts of Cali and manhattan but I don't see that for 99.9% of the rest of the country. I don't see RE turning the corner for years to come given this new short term thinking and high joblessness.

jonjon831983's picture

Nowadays because we are decentralized we cannot mount sufficient resistance to big players like this.


If people want to keep their homes, they need to organize somehow.



tony bonn's picture

this is all tax payer funded bubblemania courtesy of the fed and treasury which are funding the banks to hold property off of the market and who are shoveling money at the large investors to buy up as much as possible....this is another fairy tale which will not end well...if you aren't feeling fucked you have nerve problems...

waterhorse's picture

Awesome!  Did she get a Countrywide, I mean PennyMac, Pick-A-Pay?  And I do suppose MERS is on it also.  Deja vu on the housing bubble and the toxic mortgage peddlers.

Stuck on Zero's picture

A first-time buyer friend just purchased a $749K home in So Cal at 3.25% interest, 30 year fixed, no points loan, and a refund that covered the down payment.  How could she go wrong with those terms?


GMadScientist's picture

Because within a couple years, it'll be worth less than $650k and rates will be 2.5%

willwork4food's picture

Nothing could go wrong, as long as she can afford that 3k/month + utilities/upkeep expense from the job she has that she hopes won't evaporate.

neutrinoman's picture

Realtors and banks have gotten wise: they've pushed the questionable stuff off the market. The restricted public inventory is what's elevating prices.

Many of the shadow homes now off the public market will be sold in private auctions or non-auction sales, or bulldozed. Losses will be taken, just not publicly. The NAR, NAHB, and Fed have seen to that. It's all part of that asset reflation. The big step is to take the crap out the open market, as the Fed has done with the toxic MBS.

Home ownership is going back down to 60%.

knowless's picture

huh, well i guess i was right all along. cool.

wdmitch666's picture

Those areas with the highest default rates ended up with the most surplus (Stockton) - now years of low cost of money (interest rates) is clearing these areas first.  No mystery here.

billsykes's picture

listed property is like retail investors buying stocks- you are going to get slammed by the pros. IF it was SOOO good why did'n t the Realtor buy it? 

Lin S's picture

I wish I knew what to do.

I have one detached 4-bedroom/2-bath home in Upland on which I pay 1977-level property taxes.  I owe $244K while it appraises near $280K.  It's nice, 1400 sq. ft., very comfortable.

To the south, though, Ontario is looking more like Mexico City.  And, there are Section 8 apartments to the west and north of me, within walking distance.  Crime remains low, however.

Meanwhile, the Mrs. still has her loft in Pasadena: 800-900 sq. ft.  I forget what she owes but it's roughly $35K below the appraisal.  Small but nice, very safe, clean area, close to mass transit and employment centers.

Do we rent one out and live in the other?  Or sell one now, before the bubble goes "pop" once again?

The Upland one offers more room and eliminates the need for me to commute.  Plus, the Mrs. likes it better.

Rent one?  Sell one and, if so, when?  How to time it?

Please help (and thanks for any advice)...





GMadScientist's picture

Burn em for the insurance.

Arthur's picture

refi to drop your rate and then rent it out provided   you can cover the taxes and expenses comfortably.  Sooner or later inflation will kick in and RE  usually recovers in the end.... assuming you are in a half decent location or near such.  The old adage, location, location, location still applies.  I would not want to own in a far out suburb or Detroit.   Miami is coming back strong.

I just consider my old house part of my investment portfolio but I am lucky and more then able to cover mortgage and taxes with the rent.  The location is prime and eventually it will appreciate substantially.  My property is 10% of my investment portfolio don't know that I would do the same if it was 90% of my investable assets though.  Must put on your risk management hat when allocating investment $$$.  Spread the risk.  Do you have a better plan for the dollars if you where to sell?


willwork4food's picture


1.Do what your wife leans toward. If it blows up in your face ,you can always bounce back in the future and blame her. That way you'll get that new car you've always wanted. An 'Ace-in-the-hole' is always fun to have.

2.If you like the Upland property better, and since it's more spacious than the loft, you might want to keep it and put the other loft up for sale at a ridiculous high price, with a few unique upgrades. The logic in that is two fold:

a. Even though you love your wife, and she loves you, its no fun being cramped into a small place and tripping over each other after you work your balls off each day.

b. After investing in some modest upgrades in your loft you can defend the higher asking price and have a care-free attitude about it. If you don't sell it great, if you do---then REALLY great! I had a neighbor that did just that on a home. He sold it within 30 days.

3.Put BOTH properties up for sale at ridiculous high prices. Same rule applies from 2b. Let God decide what happens to you.

4. Sell BOTH your properties, move here to  beautiful SOVA and buy a nice house on the opposite ocean. Lower taxes, lower crime and great people! Don't forget to bring your money!

ok, maybe on #4 Im being a little bias...

joego1's picture

Dear southern Californian. You live in a desert with no water and anything you want depends on you getting in a car. Get your profit while you can and move some place where you own the the water and there is life other than gangs.

Stud Duck's picture

Good advise Joego, I give it all the time, but no one listens.

My advise lately is to move to Colorado, start growing high THC marijuana. Move into the Arkansas Valley, get a little land to grow on and go for it. It is a desert but with irrigation water, small well backup will grow all that you can eat and pot you can sell, LEGALLY!

otto skorzeny's picture

"Inland Empire"-larf-more like "Inland Meth Lab"

hooligan2009's picture

i thought there was an active government program using "yellow cards" to actively encourage chinese immigrants to buy property in CA and pay property taxes?

isn't the plan to get around 15 million into the area in the next 5 years?

adr's picture

Its all the Chinese. Take a look at the census charts for the areas with rapidly declining inventories. In some LA burbs the population is running at 97% Asian, and that was three years ago. I took a little drive with my Asian friend when I was out in LA. He wanted to show me little China.

Insane is the only word to describe it. Tens of thousands of Chinese in cities all over LA buying up every property they can.

pashley1411's picture

this is just ancedotal, but isn't SF now over 20% Chineese (and not counting Korean, Japanese, Filiino, and the rest).    I don't near Toronto and haven't been there for years, but isn't in that city deluged with Chineese, just from talking to people?


Missiondweller's picture

Its about 1/3 Asian, with most being Chinese so that sounds right to me.

otto skorzeny's picture

that settles it- the top is in and the crash in RE is near-the chinese are notorious for piling in at the top/terrible investing/gambling. plus-this worked out so well for the japs in the 80's w/cali real estate. slanty-eyed bag holders.

andrewp111's picture

Yeah, but you got millions of really rich Chinese who want a bolt hole and will pay a pretty penny for it. They need a place to go if they get suddenly scheduled for that standard Red Chinese bullet in the brain thing.

Bananamerican's picture

Chinese in Vancouver, BC STILL waiting for the bubble to pop...

delivered's picture

In 1991, California real estate entered a terrible period as a result of the S&L industry meltdown. Real estate prices had run up very quickly into 1990 and then crashed from 1991 through 1995. In fact the saying sweeping the state during this period was "Stay alive till 95" and "Leave the state in 98". If anybody remembers (or worked for) the wonderful S&Ls named Imperial, Great American, and Home Fed (or dead), send out a shout as I would love to hear your stories.

So let's fast forward to where the state is today as there's a very important 15 year cycle to understand. That is, the best time to buy in California during the last real estate crash was in 1994/1995 as by 1997, the market conditions were changing quickly. What you're seeing today is that the best times to buy California real estate was in the 2010 time frame as the market conditions have already changed and pushing prices much higher. Compounding this problem was that during 2009 and 2010, there was such a shortage of financing that the capital required to begin to develop raw land to turn into sellable homes in 2012 and beyond did not exist. Thus, the laws of supply and demand are completely out of sync from both natural cycles and manipulation (i.e., shawdow inventory being managed by TPTB).

But what is really concerning about the series of events today unfolding in the real estate market is as follows:

1.) During the last major cycle, homes were still be purchased by owner occupied parties, or the middle class with families. Today, the homes are being purchased by "investment capital" that is looking to rent the properties. This represents a serious problem for the country as the two major sources of wealth accumulation for the middle class have historically been retirement accounts and real estate. The story with retirement accounts has been told numerous times, over and over but its worth repeating that the middle class has either tapped self directed plans to survive (e.g., 401k), will look to guaranteed pension plans (an oximoron as everyone knows pension plans are horribly underfunded), or SS (which under its current structure, will exhaust its funds in roughly 25 to 30 years). On the real estate front, without any ability to participate in equity appreciation, renters are left to fund the investors with increasing rents each year so what use to be a savings/wealth accumulation tool (via paying down the mortgage each month and having some long-term hope for appreciation), is now a double negative with no appreciation and increasing rents. This is just another method for the wealth extraction process to continue to occur from the many to the few and represents a long-term disater for the country.

2.) But while my concern in point one represents a real problem, it will pale in comparison to what will happen down the road. Once the investors (say five years down the road) drive real estate prices higher, they will restructure their model to package and sell the real estate (at inflated prices) to the general population. The lessons not-learned from the past real estate meltdown will be re-introducted as buying real estate will be pushed, packaged, sold, crammed down, to the unsuspecting public in whatever fashion possible. Multi-family rentals will be condoized and moved from rentals to ownership potential. Lending standards will be relaxed, down payments reduced, and the great transfer of wealth from the many to the few will occur again, all with the blessing of the politicians (owned by the investors) who will bend over help sell the American public of the value of owning real estate (but fail to mention at inflated prices).

Note: This trend in real estate is being further amplified/supported by the data coming out related to new housing starts which masks the real story. Yes, new housing starts are up but when split between multi-family units/rentals and the more traditional single family homes, the new starts are heavily skewed towards mult-family units/rentals. Even the largest home builders are moving this direction.

And just like that, the great raid on what's left of the middle classes wealth will be completed in one final act of theft with the country left with only two classes. The super rich and everyone else (i.e., the peasants left to do nothing but continue to "dance for the man" and resigned to a life of serfdom). All of this made possible by the Fed and Washington, bowing to their masters on Wall Street and creating and providing capital and no cost for only the select few while punishing the masses through a circle jerk of such historical size and magnitude that will I'm sure be written about by the historians as the point at which America's eventual failure was all but guaranteed.

Remember what Caesar said in the movie Gladiator after the final battle against the Barbarian Hoard (as Richard Harris left on his horse in the opening scene I believe), "So much for the glory of Rome".

hangemhigh's picture

@ delivered      3186413 

great response and a thoughful,  accurate overview of what is actually occurring.  I interact every day with lots of RE types who are banging the drum about inventory and rising prices.  Of course to them any sale is a good sale, and you have to understand their perspective with regard to that.

What they fail to realize, though, is that, in their enthusiasm over what is transpiring, they are  looking in the rear view mirror at a ‘market structure’ that no longer exists.  RE has traditionally had four inter-related moving parts:  rentals, entry level household formations, existing re-sales and move up buyers purchasing larger homes.

What is occurring now has nothing to do with that broken metric…….hot money speculations in the rental markets have created an illusory virtual market.  the real, functioning traditional housing market is no more……but the current concept of a functioning market is a useful deception


Bananamerican's picture

" is now a double negative with no appreciation and increasing rents...once RE investors drive prices higher..."
Slightly contradictory....but when prices get back to "flat" (like the DOW) then what?
Relief dump?

MBOB's picture

Sure: Put our Manhattan Beach area home on sale in early '90, no offers until spring '91, took one at 15% under original asking price. Since then, the joint has tripled in "value." No worries, couldn't stand the community after 10+ years there. Gentrified by ruthless scumweasels

kaiserhoff's picture

This is even more absurd if you have actually seen some of the concrete slab, particle board, boxes made of ticky-tacky that some are pleased to call "housing" in Cali.  As the monkey said while eating a box of prunes, "this too shall pass."

LawsofPhysics's picture

Yes, please, re-inflate that bubble.  One more asset to dump in cali and I really want to run the price up on another asian buyer.

michael_engineer's picture

How many houses are wrapped into the Feds 3 trillion dollar assets in some kind of dark inventory that doesn't even show them as being available for the market anymore?

GMadScientist's picture

I asked to see her Maiden Lane and she showed me her dark inventory.

joego1's picture

it will eventually be FEMA housing for the jack booted thugs willing to take the fascist pill.

Jena's picture

There have to be quite a few.  We've been following the local market just for fun and we know there are at least a dozen or more in the area we'd be interested in that have gone past the forclosure process, past the auction, past the bank re-purchase but aren't back on the market.  They are being maintained.

Our guess is that they're being held until the prices recover enough to release them back into the wild.  It's funny, though, because realtors that my husband has talked to seem ignorant of them.  I guess they only pay attention to the ones that are active and in front of their noses.  If it were me, I'd be curious to know about any properties that were out there just because they were there.

For reference, this is a small semi-rural pocket of the Inland Empire that doesn't attract either the cash investors past a certan dollar amount or the Canadian tourist snowbirds that have rejuvenated other parts of the area.

davidsmith's picture

The United States Government not only controls what houses will come on the market, it also controls what prices will be asked.  You CANNOT lower the price.  Look at some of these absurd houses and how long they have been on the market.  Realtors know better by now that to ask for a reduction in price.  And the reasons aren't hard to look for: if housing went for its true price, owners would force lower tax valuations and the whole bubble (yes, it's STILL a housing bubble--and a BIG one) would burst.  The United States has to maintain that there is still value in suburbia, although it has long since ceased to be a profit center, and has turned into a horrific money pit.  Single family homes on quarter acre lots: not a good way to house a couple of hundred million people.

LawsofPhysics's picture

This is one thing I am sure that nobody knows.

Going Loco's picture

In the UK Nadeem Walyat (best analyst I know) came out with a US houing price forecast a couple of weeks ago that suggests it is indeed worth buying now. I bought two buy-to-lets in the UK last year for cash, in the next month I hope to buy two more wih 50% leverage. Of course this won't end well, we are just swinging from boom to bust all the time, and I will watch like a hawk for the time to sell, but now that the CBs and the governments between them have made it impossible for interest rates to rise there is no way foreward except inflation and when it comes they won't be able to do anything to stop it. Imagine what Volcker's interest rates would do the US government's finances!