The booming real estate market has proven one thing many investors believe: When a market is great, it is the top levels that prosper most. Those who believe in Malibu real estate — and invest in it — have been handsomely rewarded after four years of unbridled appreciation. Malibu is enjoying value increases well above other environs in the county, state and nation. Home equity has more than doubled for many property owners.
With virtually every real estate statistic as good as it gets, what happens to the market now? How long can we expect rises in prices and overheated sales activity?
The key to the future will be the behavior of buyers. There are three types of buyers out there, classified by their motives and motivation: the soft, the medium and the hard.
The soft buyers are active in the market only because the market is great. They are buying because they intend to sell again — at yet higher prices. A lot of “flipping” is evident in the current marketplace and for good reason. It has been profitable.
A great market, like now, is partially propelled by its own strength, just as a bad market perpetuates itself when buyers stay away — precisely because the market is bad.
When it is apparent that significant price increases are minimal or doubtful, the soft buyers will flee.
The medium buyers have some actual need to buy, but are strongly influenced by economic factors. Prices and interest rates dictate their buying decisions. This group will start fading from the market.
Affordability indexes show that most households in L.A. County can no longer afford current median prices. The significance to Malibu is that we rely on the move-up population to fund our sales and price increases. As the medium-motivation buyer retreats from the marketplace at lower price levels, our elite local industry of million dollar homes will feel the effect.
Thirdly, there are the hard buyers. They must buy. Whether it’s because of a job change or other factors, a move is imminent. This group may start to deplete also. Why? Because a disproportionate share of the population has relocated in recent years. People only need to move so often. Following heavy volume, sales often slow down more than normal. The simple reason: Underlying need to change residences is lacking in the population as a whole.
Thus, the forces that make the market so terrific combine to make buyer demand weaken. Prices too high make for less profit in speculation. The soft buyers flee. High prices reduce the affordability index and weaken the move-up market. Meanwhile, brisk sales reduce the number of hard buyers who need to move.
The market values in Malibu have stretched so high there is decreasing thrust for price appreciation. After the local median price increased from about $800,000 to $1.1 million last year, this year the jump appears much less, though indeed upward. Values may increase about 10 percent by year-end.
The other side of the equation is the supply, or inventory.
The inventory of homes for sale in Malibu is razor thin. (Incredibly, Malibu/90265 has almost as many regular real estate agents as homes listed at this time, inventory is so low.)
Low inventory has kept the feeding frenzy strong. The robust economy, combined with the driving strength of the local entertainment industry has helped a long line of move-up buyers push Malibu to the top of the nation in overall home values.
When a home sells in Malibu these days, and more homes will sell this year than any other, there is half a chance it will bring $1.2 million or more.
Remarkably, that is the median sale price, where half of the Malibu homes sell for more and half for less. Meanwhile, barely more than 200 homes are for sale. Only about 52 are listed under $1 million. It will take a very long time before the weakening demand crosses the point of growing supply! (That is the point where prices go down). Market times are extremely short. Sale prices virtually match asking prices in a majority of cases.
It is easy to track seller supply. It is merely the number of listings active. More difficult is pegging buyer demand. Sky-high sales numbers tell us that demand has been tremendous but what attitudes the buyers have now or in a few months cannot be known till future closing statistics are recorded.
Until then, the move up market keeps bulging. All reasonably priced listings have hope. And while buyers will inevitably institute a resistance to the market and price increases are destined to pause, until then locals can bask in the glow of their new-found equity like few other places in the country.
Rick Wallace has been a Realtor at Fred Sands Malibu office for 12 years and a Malibu resident for 25 years. He can be reached at RICKMALIBUrealestate.com.