Factors Contributing to the Extraordinarily Low Housing Inventory in Southern California

At the opening of 2022, housing inventory in Southern California dropped to a remarkable 4,700 from 7,600 in January 2021. Those numbers are incredibly low and represent a significant dip from pre-pandemic levels. Around 12,400 homes were on the market at the start of 2019 when all the industry changes wrought by the pandemic weren’t on anyone’s radar. 

Looking Closer at the Low Housing Inventory in Southern California

“Catastrophically low” is a phrase recently employed by media outlets to describe current housing inventory levels in Southern California. Despite the 20 percent increase in single-family residential housing starts during the second half of 2021, experts believe overall inventory will only climb by a fraction of a percent.

How will record low housing inventory in Southern California impact sales this year? Data from the California Association of Realtors indicates that the median time on the market of existing single-family homes in Los Angeles County is just 12 days and is only eight days in Orange County. The median in San Bernardino County is 15 days, and the median in Riverside County is 14 days.

Bidding wars, cash buyers, and homes sold for tens of thousands over asking price are just a few effects of lean housing inventory. Will the red-hot market of 2021 and the fierce competition buyers face lead would-be house hunters to sit on the sidelines in 2022 and wait for more favorable market conditions?

The buoyant yet unpredictable real estate market of Southern California suggests that tight inventory won’t impact sales activity as much as it might in other states or regions. However, sales prices may remain steady or appreciate only slightly in 2022 rather than skyrocket as they did in 2021. 

What Does 2022 Hold In Store?

By the end of 2021, the Federal Housing Finance Agency (FHFA) indicated that housing prices across the country had increased by an incredible 17.5 percent from November 2020 to November 2021. In Southern California, housing price increases varied by city but were solidly in the double-digits throughout Los Angeles, San Bernardino, and Riverside Counties. In Orange County, increases averaged more than 20 percent.

Complicating the real estate industry’s ability to create an accurate sales forecast for 2022 is the expectation that the Federal Reserve will raise interest rates at least once in 2022 to stem the tide of rising inflation. Some experts believe the Fed could increase rates up to four times over the course of 2022.

What It All Adds Up To

The net effect of lean housing inventory and higher interest rates may slow the upward march of average sales prices. Still, the fever pitch of real estate activity in 2021 in Southern California probably won’t stall out or drop precipitously, if at all. Southern California will continue to cater to sellers and encourage aggressive tactics from buyers as inventory remains low.

At C21 Peak, our Los Angeles real estate agents are here to help you keep up with the latest trends and data. Contact us today to get the right set of experts on your side.