Monday, January 23, 2017
By all forecasters, 2017 looks to be another fairly steady year in real estate. This column believes that prices will flatten out, prompted mainly by some very slow, but probably steady rise in interest rates. Most are aware that the Feds raised rates the last meeting of 2016 and indicated there would be at least two more coming in 2017. We have heard such rumors before, we will all watch to see if they come to fruition. One thing is certain, if anyone is thinking of buying or selling, this first quarter could not be a better time. Why? Well, the obvious...do it before rates rise again. If you are a buyer, you could see your purchasing power diminished; if you are a seller, you could see your potential sales price flatten if rates do rise and the buyers cannot afford the same amount of home with the rise in interest rates. Higher rates have always had the capability to keep a lid on home prices. Demand should stay high and career Millenials get further settled in their careers and with incomes on the rise, particularly at the end of last year, watch for many of them to seriously start looking for a home, or to upgrade their starter condo, into a single-family home. Remember, Millenials think renting is a waste of money, and they're not wrong about that. Expect to see Baby Boomers continue to downsize, utilize Proposition 60/90, and seed the market with much needed inventory. Prices likely will not drop significantly due to tight inventory. All in all, 2017 should shaped up to another great year that is fair to both sellers and buyers, what is called an equitable market.
November sizzled for a holiday month, and many reasons were stated in the previous column. Namely, a strong job market, wage increases, fear of interest rates rising, all factored into a big month. CoreLogic reported new and existing home sales of 2,978 for Orange County, up 20.9% from November 2015; Los Angeles had 6,450, up 23.6% from the previous year. San Bernardino was up 28.3% in total volume and Riverside up 23.5%, all compared to November 2015. Most striking is the statistic on the median price of a new home, which came in at $861,500, up 4.5% from a year ago as builders sold 426 new homes in November. That makes the median price of an existing home look like a bargain at $660,000, even as that number rose 5.9% from 2015. Prices were up, again according to CoreLogic in 56 of 83 Orange County zip codes. Sales volume rose in 50 of the 83. All price ranges showed increases in volume, with the 10 priciest zip codes (median values over $1,000,000), up 9%. Basic existing single-family homes sold well, up 20.2%. Take away condos and the median price for single-family resale was $701,750.
This is kind of a trick headline because the market is always changing, and that's the whole point. One could argue that there may have been a day for a FSBO, but that era is long gone. In today's world of litigation, multiple disclosures for the sale of a home, and so much internet competition for buyers, now more than ever, a seller needs a Realtor. Here's a little food for thought: 1) Paperwork - In 1980, the California Association of Realtors sales contract was 1 page! Now, it is unending paperwork, seller transfer disclosures, appraisals, need of home warranty and Natural Hazard Disclosures. If you sell by owner, and don't use these forms or services, doesn't mean there would be any less liability. 2) Exposure to buyers - The Internet draws them in, and agents have literally a hundred sources that place their listing. 3) Negotiations - Because Agents are aware of all sales in the area, they can compare location, competition of other listings, condition, and make sure you don't under price your home for sale. 4) Pricing - See last paragraph. This is hugely important and you could be your own worst enemy. 5) Current market conditions - Literally it can change overnight. What if 2 properties sell overnight and now your home is the only one like it to hit the market? Or what if you don't know that single level homes are most in demand. Market conditions drive housing prices.
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.