If these conditions continue, 2013 should see a five percent increase in housing sales in Malibu as total housing sales exceed 200 for the year.
First, a quick primer. When a home sells in Malibu, it may seem like an isolated incidence of negotiation between a seller and buyer, but the deal actually fits into a bigger picture. The sale price is subject to the heavy hidden forces of supply and demand. There may be many factors affecting supply (such as many financially troubled owners needing to sell) or demand (such as low interest rates encouraging motivation). But in the big picture, prices fit nicely within the margins of supply and demand.
Those forces can be measured, and particularly over the long term, by simply tracking the number of homes sold and homes that are for sale. Homes sold demonstrate demand that is fulfilled with completed purchases. Homes for sale is the inventory, the measurement of supply.
The above chart provides a comprehensive history of Malibu homes sales since 1997. It describes the change in the median price each year. More so, the relationship between homes sold and homes for sale shows how prices must adjust to the circumstances of the marketplace at the time.
As demonstrated in the chart, the price of a home in Malibu has gone up every year since 1997, except for 2001, and then the last three years. The five percent increase for 2012 is a projected increase based on nine months activity. The median price went up 37 percent in 1999 alone, and over 30 percent in 2004. It dropped 26 percent in the collapse year of 2009.
The solid line represents homes for sale, each time with September as a base number. The inventory of homes for sale goes down steadily from summer to winter and then back up again, maximizing in summer months. The September line in this chart is representative of year-to-year trends. Note that coming out of the doldrums of the 1991-1996 real estate market, more than 300 homes were for sale. That tally dropped steadily (other than the anomaly year of 2001) until only 128 homes were for sale in September 2005. Then the market changed and the inventory rose to a new height last year, at 282 homes. This year, the inventory is down markedly to about 230.
The number of actual sales in Malibu (the dotted line) has shown dramatic changes. As the market was recovering in 1997, sales ballooned above 300 every year (again, except in 2001), and did not fall below 300 until 2005. Then the bottom really dropped out; 2006-2011 represented six years in a row of depressed real estate activity. This year, the 200 level will be topped, with sales projected to the 215 level, or thereabouts.
Obviously, prices adjust based on the tug-of-war of buyers and sellers competing and essentially bidding prices lower or higher. A short review of Malibu real estate history for the past 15 years:
As sales stayed above 300 after 2007, and as the inventory dropped steadily, price increases were guaranteed. It was just a matter of how much price increase. The 325 sales in 1998 brought a 37 percent increase in prices in 1999.
In 2000, with a staggering 353 homes selling and inventory down to 213, the only reason prices did not go up a lot more than 14 percent was because the market was already exhausted by 37 percent increases the year before. That exhaustion further played out in 2001 (further paused by the 911 terrorist attacks shutting down business), as the sales dropped to 246 and inventory rose to 237.
The incredible years of 2002-2006 will never be forgotten and there is good reason why. Sales levels were above 300 and inventory levels were increasingly below 200 levels. The market had no choice but to skyrocket. The average annual increase in prices during those years was 20 percent. That means that any buyer who put down 20 percent to buy a house in Malibu doubled their money in one year, and each year after.
In 2006, however, doom was clearly on display. When the inventory leaped to 206, and sales dropped to 182, the market had its last wind with a 14 percent price increase, but the sails had come down and there was no valid hope of much more price appreciation based on the trends. In 2007-2008, prices inched upward only to the shoulders of relatively mild inventory levels. Had the hardship cases and distress factors kicked in for Malibu they already were around the state and country, inventory levels would have risen faster and prices would have dropped quicker. Malibu had a two-year reprieve. But the writing was on the wall in bold print.
As sales dropped to 117 in 2009 and 111 in 2010, while inventory levels rose, the huge drop in prices was inevitable. (While many sellers would not listen, Malibu did not get a special pass from fundamental economic conditions that had otherwise made a lot of those sellers rich in years earlier.)
Inventory levels close to 300, and sales struggling to top 150 the past few years? It has not been so much doom saying in the news as much as simply doom reporting. Prices have had no choice but to go down. A price, after all, is the end result of market forces.
Which brings us to now. As mentioned before, the conditions are ripe. Sales are increasing, inventory is dropping, prices are inching higher.
Next year may bring a reversal of those trends, or an anomaly year such as 2001, or even a lag in reaction time with prices, as we have seen. Possibly interest rates will rise, for example, causing less demand and fewer sales. But if inventory continues to drop and sales numbers continue to increase, whatever the reasons, Malibu will absolutely have higher prices, all things being equal.
These statistics apply to single family homes of 1-4 units in the 90265 ZIP code, based on information culled from the multiple listing service and several other sources each year. Condominiums, mobile homes and homes outside the Malibu ZIP code are excluded, though they would surely show a similar result.
Finally, it should be noted that the average annual increase in prices the last 16 years in Malibu has been 8.7 percent. The average annual number of sales has been 243. The average inventory (using September) has been 226. It is fair to say, in theory, that any year that sales hit 243 and the September inventory is 226, prices will rise about 9 percent. Extrapolating in any other year off those numbers can give an investor a good idea of how prices will likely change—in advance!