Supply of Homes for Sale Hits Record Low in State

As the prime home-buying season gets underway, the number of existing houses for sale across the state and most of Southern California stands at a record low, causing prices to soar and buyers’ hopes to wilt.

Inventory is expected to remain tight through the summer, and many analysts believe the supply level will sink to unprecedented depths for the fifth year in a row.

“There just aren’t enough homes on the market for sale,” said James Pugash, chairman of Hearthstone, a San Francisco-based provider of capital for home builders. “If there was more inventory available, there would be many more home sales, I have no doubt about that.”

Listings have declined for several reasons, analysts said. Some homeowners fear their jobs aren’t secure and are reluctant to risk trading up. At the same time, economic prospects have been brighter in Southern California than in the country overall, reducing the housing turnover that comes with career transfers out of the region.

Some homeowners are delaying putting their properties on the market because they believe prices probably will rise still higher and give them an opportunity to sell on more favorable terms. Others are refinancing their home loans at today’s low rates and using part of the equity to make improvements, allowing them to stay put.

Listings in San Diego County have plunged 59% from a year ago. In Orange County the drop was nearly 30%, and in Los Angeles County it was almost 27%, according to the latest first-quarter figures by the California Assn. of Realtors. The region’s most populous counties suffered bigger drops than the state overall, where inventory fell 22%.

There are fewer homes for sale in every price range below $1 million, and the shortage is especially acute in homes priced under $300,000, the state figures show.

Lack of supply is “a phenomenon across all regions of the country,” said David Lereah, chief economist for the National Assn. of Realtors.

Inventory is edging up nationally but still hovers near record-low levels. At the current selling pace, existing homes would be depleted in 4.8 months. Agents say a supply of about six months is needed to balance the market.

In California, the problem is far more acute. At the rate of sales in April, every home would be snapped up in two months if no more went on sale. The historical average is seven months.

Regionwide, the supply ranged in April from 1.3 months in Orange County to 2.4 months in San Diego. A nine- to 10-month backlog generally is needed to produce a stable market in California, Realtors said.

Mortgage interest rates have been under 7% for most of the year, attracting a flood of entry-level buyers when few low-cost condominiums and townhouses are available.

In the late 1980s, the last period when housing was scarce, a building boom soon put a wide range of properties on the market. But with such significant hurdles as high land costs and zoning restrictions now blocking new construction, analysts widely believe that there will be no ramp-up of production this time.

The short supply is making it difficult for owners to sell their homes and trade up, exacerbating the shortage and driving up prices at all levels. “We’re starting to see gaps in the marketplace because the stepping stones are too wide apart,” said Robert Bailey, president of the state Realtors’ group.

Most analysts believe the home listings in Southern California will edge up during the peak summer season, but the added supply probably will not prevent robust gains in prices or markedly increase desirable options for buyers.

One analyst was more optimistic. John Karevoll of DataQuick Information Systems Inc. predicted supply levels will significantly increase this year as prices move up, enticing more owners to sell.

Meanwhile, home sales continue to rise, eating further into the supply every month.

“I have never seen the inventory as low as it was at the beginning of the year, and it’s still hovering about as low as I’ve ever seen it,” said Bob Waldron, a longtime agent at Coldwell Banker in Westchester.

Out of 48 single-family homes listed recently in Westchester, an entry-level community for the Westside, only three were priced under $450,000 Wednesday. A year ago, he said, buyers had a number of options in the $350,000 range.

Agents in Orange County also have struggled with scarce listings. “You’re seeing properties commanding higher prices that ordinarily would not get top dollar,” said Patrick Knapp of Remax Real Estate Services in Irvine.

A two-bedroom townhouse built in the mid-1980s had stained and ripped carpets and peeled paint and faced a busy street. Within two days of hitting the market, the owners had four offers. The top bidder, at $269,000, offered $4,000 above the asking price.

The buyer was willing to make such a deal, Knapp said, because there were so few options in Irvine. Only eight townhomes of comparable size were listed this week between $250,000 and $300,000.

“They can’t just go down the street and buy a different property,” Knapp said, “because nothing else is on the market.”