Thursday, October 20, 2016
It is long understood by all that anyone can get any numbers to vouch for their economic prognostications of where they believe the real estate market will be heading in the foreseeable future, i.e. 2017. In researching how to best fairly depict the possible outlook, this column ran into conflicting numbers and opinions. So, as fairly as possible, that you might have the best information, as unbiased as possible, here goes...The OC Register had 2 articles, one day apart, with conflicting reports: 1) Headline #1 - WITH INVENTORY LOW, PENDING HOME SALES SLUMP IN AUGUST 2) Headline #2 - OC HOME PRICES UP AS SALES BOOM IN AUGUST. What was the primary difference in these headlines? Geographics. The first headline was reported with the National Association of Realtors (NAR) numbers for the country, and the second headline was for Orange County. Is this then good news? Appearances would proclaim more neutrality. There has been no doubt that strong job growth, low interest rates and low inventory have fuelled a recovering market for So Cal in general and Orange County specifically. End of summer has also always signaled the end of moving before the holiday season. Perhaps some last good deals drove it also. But more than speculation is the fact that more inventory entered the market and stayed longer. This can signify more realistic pricing and offer/counter offer scenarios. Home buying, in fact, soared 14.5% year over year to 3,633 transactions. This, according to CoreLogic, is the highest number of transactions for an August in 11 years. However, when one looks at pending sales, or contracts written, the number softens and takes us from a seller dominated market, in terms of inventory, and back towards a more neutral market. According to Leslie Appleton-Young, the longtime CAR economist (California Association of Realtors), home prices in California may be near their peak. Although 2016 is projected to have a 6.2% rise in the median home price, that is a far cry from the peak of 2013 which came in at 27.5%. Clearly this stabilization has been most necessary for the market, even though many then call it part of a sluggish recovery. This column disagrees that the housing recovery has been sluggish. Numbers aren't the only indicator. You must also track activity, inventory, and actual demand, which has been quite strong. More on the numbers will appear in the next section, but the slower gains, and modest increase in actual number of sales, (probably a better barometer than median price), would indicate a "slow squeeze than a big drop," according to Appleton-Young, barring a catastrophe, natural or manmade, or a seismic and fast rise in interest rates. Summing up, it would appear that 2017 will be about the same as 2016, with possibly slower sales and more inventory, which could trigger a price slowdown. However, a pricing slowdown could bring back buyers on the fence, so in other words, no crystal ball here.
Sales were actually pretty flat both nationally and regionally for 2016 (projected). According to NAR, 2016 has averaged 14,603 sales per day for the country. Prices are up 5.1% and inventory was down 10.1%; sales were up less than 1% at 0.8%. California projects 407,300 sales, down 0.4% over 2015's 408,800, and the median price of $503,900 up 6.2% over 2015. Sales of existing single-family homes, which make up 68% of the overall market will actually increase 1.4% in 2017 to 413,000 (forecast). If inventory creeps up, which it likely will, and new construction keeps on its torrid pace (more jobs added in OC than any other sector), sales next year could surprise us all in Orange County. Affordability remains the biggest challenge with that number dipping to just 22% for the median priced home by mid-23016, although other counties such as Riverside were considerably higher at 41% to 56% (San Bernardino). Inventory has actually thinned at 6,786 properties for sale as of September 22nd, down from 7,040 of two weeks earlier, but this is more likely a seasonal drop, happening every year as the school year returns. There are approximately 120 foreclosure/short sale properties on the market currently.
Ok, here we go, in no particular order... 1) Prices will continue to go up. Previously reported in this newsletter and confirmed with Keeping Current Matters National Real Estate Blog, NAR, Mortgage Bankers Association, Freddie Mac and Fannie Mae, are all projecting home sales will increase nationally 6% - 6.5%, and with scarcity of inventory that means pricing will rise as well. 2) Interest rates remain most compelling, particularly for the move up buyer. Why would you not sell now and buy more home for the money with that low rate? 3) Less competition - fewer buyers and fewer multiple offers. If ever you were to get a break on pricing and get something at fair market or slightly below, a motivated seller at the holidays, that is getting no offers, whose home is sitting on the market, is probably a move up buyers best bet. 4) Either way, you pay for where you live, so live where you want and move before the holidays. Everyone likes being settled at the holidays. 5) Flexibility on terms - If you do need a seller carry back or if you have a lower down payment, you are more likely to get accepted when you are the only offer. 6) Mover on with your life - constantly looking at property, looking online, spending you weekends going through open houses, starts to take a toll on you and your family. Sort of looking can keep you from committing to a home that is perfect for your needs.
Maybe elsewhere in the country it is possible, but it is unlikely in the Southland. A widely regarded economic index, the BH&J states, "Housing remains a sound investment." It tracks 23 urban centers and So Cal remains strongly positioned. This newsletter is meant to be informative only, you should always consult experts in any financial area, but hopefully it serves as food for thought about the powerful wealth building tool of real estate investment, as you purchase or sell your single largest asset...your home.
Monday, July 18, 2016
This is the $64,000 question for which everyone would like an answer. The short answer is, it probably won't affect it long term. Why? First of all, 4 million citizens of the UK have already signed a petition for a revote. So who knows whether Brexit will actually occur and if it does experts predict about 28-36 months for it to happen. Secondly, the true impact has already been felt as investors panic and seek solace in Treasuries. As the Washington Post reported, "Brexit has spawned the recent bout of volatility in global financial markets. That has anxious investors scurrying for safety--and few assets are safer than US Treasury bonds. High demand for government debt pulls down interest rates." Having reported this, however, it is unlikely they will stay down permanently because of Brexit. In fact, we are seeing the markets settle already. Much larger issues loom for Southern Californians than Brexit; namely affordability, scarcity of inventory in general, and affordable housing in particular. The rental market has also never been tighter than it is right now, as the median price hits its 2007 boom price point; more on that later. What Brexit does do, is keep the lid on interest rates, and focus on real estate as a safer bet than financial markets, particularly the world financials since most investments are heavily blended at this point. Many investors will like the closeness of the real estate investment and the solid nature of a fixed commodity with ability to leverage the investment dollar. These attractive attributes are always present in real estate, and exist for the common homeowner, with a tax deduction for interest, as well as the seasoned investor. Long term impact will no doubt play out, and frankly, we have other mitigating factors affecting the market as well, chiefly the presidential contest. National elections always spur some waffling over the unknown but the 2016 campaign may cause more worry than most. What does bode well is the general health of the So Cal economy and the jobs being added. Workers are working longer and maybe pay raises are long in coming (this being the weakness economically, is wages pacing appreciation), but overall read on to find out why there is reason for optimism...
This was the headline in the Sunday OC Register on a recent Sunday morning, written by Jonathan Lansner. He reports that the OC is in the midst of the sixth year of a recovery, and reminds us that we are recovering from an event no less catastrophic than the great depression. Although the article reported that 3 separate reports detailed issues ranging from: 1) Elite workers make too much 2)Many workers aren't paid enough 3) We don't have enough elite jobs-- we still need to have some gratitude for where we are today. Southern California is a unique blend of industries. Perhaps in some ways this has slowed our recovery because we don't have a "boom" industry. We have tourism, manufacturing, service labor (malls and entertainment), Hollywood, technology, marketing, etc. One drags, and there is a drag on the local economy. However, given where we started, and considering all homeowners have been fully qualified and vetted for their home loans, expect a price adjustment next year...maybe. There is no bubble. There is only a reason to be optimistic about where OC and So Cal are headed.
Home prices nationally, according to the National Association of Realtors (NAR) and Freddie Mac, rose to $239,700. Sales also rose 1.8% month over month, and 4.5% year over year for May, the last complete month. There is a 4.7 month supply and that is down 5.7% year over year. Sales for existing homes have hit their highest in 9 years with 5.29 million (May 2015 -May 2016). Here in the OC home prices hit pre-crash highs as was reported last month. But Southern California isn't alone in this as 4 different markets established the same trend: 1) San Jose 2) Denver 3)Dallas 4) Portland. The median home price for May, 2016 is $651,500 (CoreLogic). As of June 7th, inventory for OC was 6,868, and that number is actually climbing. If inventory continues to rise, this will give buyers more choices and sellers more competition, which could create that price adjustment mentioned in the previous section of this newsletter. Median price per square foot actually went down to $374.47, but reflects that larger homes are selling. Distressed sales have been hovering between 130 and 140 per month and comprise a small percentage of the total sales for the month.