Let’s start by quickly getting in to the data because the media is painting pictures for all of home buyers and sellers and we want to back that up or correct it with what is actually taking place here locally. Inventory in Carmel and Pebble remains at all-time lows with only 44 new listings hitting the market this August. This was the lowest volume of new listings in a month for our summer of 2022 and represents a 42% decline from new listings coming to market last year. This low activity in August is really unparalleled in our market. Typically we see a surge of new inventory in mid- August in preparation for the Concours De’ Elegance. In years past, we’ve seen luxury homeowners target this week to really maximize their exposure through an internationally renowned event. This year we had 80,000 attend the events, and we saw the pent-up demand across America to get back to events after a strict covid stint.
There has been a perception of a reduction in demand with the rising interest rates, historic highs in inflation, and a media narrative that is really painting a gloomy picture for consumers. This week we will get the inflation numbers back for the past 30 days and will be a real indication of how the fed is affecting things with their alterations in interest rates. Don’t forget when inflation is high, we want to invest in hard assets such as gold, land, and of course real estate. The reduction in demand has led to a 35% reduction in closed sales year over year for the entire summer which continued in August. August did have 31 closed sales which was up from July only having 27.
Median days on the market are almost double from a year ago. So as a result we are seeing more volume of inventory sitting on the market, and sellers getting anxious about consumer confidence which is leading to the price reductions we see throughout. Take a closer look at the homes actually getting these price reductions though. You’ll see these are homes that are coming to the market 10 to 15 percent above recent comparables and then they are adjusting to a more realistic price after testing the boundaries.
That being said, we still do not have a lot of great inventory. We are still in a state where demand is outpacing supply – for the right product. You could argue that everything on our Peninsula is the right product. But what we have a surplus of is what I call speculative sellers. These sellers are seeing the market trend up over the last 18 to 24 months and are calling for this to be the height of the market where they are going to cash in. However, these speculative sellers are still pricing their home as if the 15 to 20 percent increase trend is going to continue. So people who are looking to purchase are looking at these homes being priced significantly above what comparable homes have sold for, and they are taking these homes off their list or waiting until the seller brings this home to realistic price. So this speculative seller scenario paired with a remaining strong demand is setting us up for a possible recurrence of pent up demand that we saw explode in May and June of 2020.
Along with pent up buyer demand, we have pent up new build construction and remodel demand as well. Construction prices are up around 60% from 3 years ago and this is consumers out of the ability to purchase land and build new. And meanwhile we have developers who are scared to build and remodel because of market uncertainty which lends itself to a huge opportunity for those that do take the risk. Buyers are targeting move-in-ready, beautiful new homes, because they don’t have the time or ability to schedule this construction and create their dream homes. So there is a great opportunity for investors to capitalize on this deficiency and really charge a premium for their products.
There is an end of summer or Fall wave coming in. If buyer’s can find the inventory that is priced appropriately, right at or just above comps, I expect to see a lot of them jump off the fence and purchase homes. If inventory remains low and overpriced, we’ll continue to see these prices creep up and possibly explode again in 6 months. The thing to watch here is the amount of homes hitting the market that are move in ready and priced to move.
If you’re buying, selling, or investing in Carmel or Pebble Beach, please reach out to us at the C Group! And follow along with us on all of our social channels as well as right here on our blog to stay up to date on the market and so much more!