Worrisome low inventory in San Diego

The concern over the low inventory of homes for sale in San Diego is not exactly new. In fact, San Diego has seen low inventory for more than a decade. As the local housing market continues to exhibit substantial signs of recovery, this issue is taking even more focus.

The Real Estate Marketing Insider recently issued a release offering observations and insights on current news of the "dangerously-low inventory" of available homes in San Diego County. San Diego has long been a highly desirable place to live. With available land for building continually depleting and additional economic pressures resulting from the recession, fewer new residential construction hasn't been able to help remedy low inventory.

Bad news for the market?
Industry professionals and insiders have been debating how the low inventory is affecting the housing market and what the future holds. San Diego County has been observing substantial gains in home prices over the course of the year, leading many to speculate that the local market is in the full swing of recovery. However, REMI expressed concern that the San Diego housing market could be facing a significant and serious setback if housing demand drops, which would drive home prices back down.

A recent industry report on San Diego inventory indicated that from October 2011 to October 2012, the number of homes for sale in the county decreased by nearly 35 percent. In fact, the report further revealed that real estate inventory has fallen for 15 months in a row, and this trend is expected to continue through the first quarter of 2013.

While inventory has been seeing a consistent decrease, another finding from the same industry report can clearly show the correlation between home price gains and a reduced inventory. As available homes decreased for 15 months in a row, the year-over-year price change for single-family homes increased by 13 percent.

Contributing factors
REMI indicated in its release that numerous factors have contributed to the shortage in inventory. One buyer trend worth noting is that many home buyers are focusing their home searches in neighborhoods that are located near the coast, with close proximity to San Diego beaches and rental beach homes. REMI speculates that this sort of targeted demand is driving inventory down.

"Also to blame are investors who, through market analysis, were able to predict the market floor and are buying up property in large numbers before prices rise," REMI stated. "Because they pay cash and can often over-bid the asking price, home buyers are having more difficulty purchasing properties than usual. The single most important factor in dwindling inventory levels, though, is the spike in demand; with unemployment in San Diego down more than 2 percent from 2010, and mortgage rates at all-time lows, buyers at all financial levels are seeking to buy."

The future of mortgage rates
A recent article in RealtyBizNews examined REMI's concerns and took a closer look at mortgage rates. The source cited projections from the Home Buying Institute that predict mortgage rates will remain low through the first part of 2013. The institute attributes this to actions of the U.S. Federal Reserve, who will continue to buy mortgage-backed securities and treasuries until late 2013.

The source also cited Freddie Mac's recent announcement that the average rate for a 30-year fixed mortgage is with 3.34 percent, which is the lowest it has been in more than 40 years. While the ever-falling inventory is a concern, as it causes sharp increases in home prices and could cause buyers to rethink entering the market, RealtyBizNews suggested that the extremely low mortgage rates could be enough of an incentive for home buyers in 2013.