Seller’s Advantage Continues as Palisades Inventory Remains Low

As we look back over the past 12 months, and particularly since the beginning of this year, several observations can be made about the Pacific Palisades housing market.

The number of homes available for sale continues to be insufficient to meet the continuing strong demand, with the number of sales 17 percent higher than last year at this time. Accompanied by 21 percent lower inventory of homes available, the Palisades median sale price is 14 percent higher now than at this time last year.

As of May 1, there is approximately a one-year inventory of homes available above the $5-million level. Conversely, it would take only 2-1/2 months to sell all of the homes below that level. As long as the inventory level is below five months, the market favors sellers. A review of inventory levels on May 1 year by year reveals that 2007 was the last May 1 that there were fewer than 90 homes for sale.

Some of the factors contributing to the significant strength of the current market include fewer foreclosures and short sales, unabated demand from developers competing for limited opportunities, and highly qualified buyers needing little to no conventional financing.

In the month of April alone, 29 Palisades homes closed escrow. This was the highest number of sales for the month of April since 2006 and reflects a likely continuation of the strong market for many months to come. As long as overall interest rates are kept artificially low, the market strength is likely to persist unless there is a substantial increase in the number of homes available for purchase.

In addition to enjoying steadily increasing values, sellers have been experiencing other benefits. For example, they have greater leverage to negotiate more favorable terms than they have for almost seven years. Also, there is a far greater probability that an escrow will close today. From 2008 to 2011, an average of only 76 percent of all Palisades escrows opened actually closed. For the past 12 months, 90 percent of escrows opened have closed.

The majority of those escrows that fell through did so because of property inspection issues, rather than the commonly believed failure to obtain financing. These significant shifts are further verification of the underlying strength of the seller’s position in today’s real estate market. In fact, because many sellers feel they have such an upper hand in this market, they are often not as willing to accommodate the buyer’s requests during the investigation process.

The main reason financing is far less often an escrow challenge today is the remarkably high number of current Palisades home buyers who are literally all-cash purchasers. Some of these buyers have funds available from homes they have already sold, others have substantial savings and highly appreciated investment portfolios, and some are beneficiaries of sizeable estates or trust funds.

   Michael Edlen provides real estate counseling services to prospective buyers and sellers.  He can be reached at (310) 230-7373 or Michael@MichaelEdlen.com.