March was generally a good news month for the local housing market – and a much needed boost for both sales and prices. We hope it’s the beginning of a recovery, or a trend, or at least a few months of good news.
However, the general outlook is more mixed. (One) article points to stalled consumer housing sentiment while the second article, by the same author the next day, points to a surge in demand. How do you make sense of that?
Esmael Adibi, Director of the Gary Anderson Center for Economic Research at Chapman University says the first quarter was “way below expectations” but overall “not too bad.” He believes we’ll see much better numbers for the economy the rest of the year. If bad numbers are “not too bad,” would better numbers be “not too good?”
And based primarily on job growth reports, you’d have to agree that certainly part of the economy was recovering nicely even if that had not yet translated to a strong housing market. But then March job numbers came out and poked some holes in that recovery. Turns out job growth had not been as strong as reported in the previous months (the dreaded “downward revisions”) and March was not only dismal but, again, “way below expectations,” jolting a number of rosy forecasts. In fact, when you look at the real numbers under the reported 5.5 percent unemployment statistic, you realize that actual labor force participation dropped again by nearly 100,000 jobs, leaving job force participation at just 62 percent, its lowest level since the 1970s.
So people feel a little optimism when unemployment declines but then get even more pessimistic when they realize those numbers are bogus, especially if they’re out of work and have given up trying. And then the Fed steps in hinting that interest rates will finally rise off the floor, maybe about mid-year, and that sends the market into another funk. It’s a funny thing that the market only looks strong enough to raise interest rates when people don’t think they will. As soon as it looks like rates will rise, the economy stumbles and the Fed has to back off.
I can tell you that, after a dismal January and a slightly stronger February, March home sales jumped by over 30 percent locally. For the region we sold 614 single family homes in January, 636 in February and 934 in March. Sales were up in almost every city, with Temecula enjoying its best month since July of 2013.
For the quarter, regional sales were up 2 percent (2,146/2,184), and prices edged up 3 percent over Q1 2014 ($289,868/$299,130).
Between a drop in inventory and the increase in sales, demand jumped 32 percent, homes remained on the market fewer days and inventory of available homes fell from four months to 2.7. That should put us directly in the center of a strong seller’s market, but your average seller is just not aware of that and most buyers still think they’re in the drivers seat. It’s a funny market.
Demographics tell us we’re in a good place. Our region is adding jobs, we’re still an affordable oasis bordering several faster appreciating areas (buying a median price home in Manhattan Beach requires an income over $300,000), the cost of gas should stay low all summer (perhaps encouraging people to buy here while working there) and our cities and schools continue to perform well (at least most of them).
But one good month does not make a trend any more than one bad one, so we’ll hold off judgment for at least another month or two and see where this market takes us. The wild card today is water. Increases in water rates could offset savings on fuel costs, and any impact on the nascent building industry could rock our market.
Figuring that out is way above my pay grade.
Demand surged in March back to numbers we haven’t seen in months as more homes sold than were listed during the month. For every new listing that came on the market, 1.06 homes sold in Temecula, 1.12 in Murrieta and 1.22 in San Jacinto. That led to a 4 percent drop in inventory and a reduction in both days on market and months of active inventory.
In addition to strong closings, pending sales, that precursor of future sales, were also up.
I’m hearing from a few agents that the market is “hot” right now. Of course there are always a few agents for whom the market is hot.
There are also a few agents who will tell you the market is hot whether they mean it or not. They buy into the notion that you “fake it until you make it” so, if they convince themselves the market is hot, sooner or later their production will follow suit.
The agents who are selling nothing aren’t saying much either way. But in an area with some 5,000 Realtors, not counting those from Orange, LA or San Diego County that carpetbag, 900 sales produces 1,800 paychecks. You do the math.
But enough about the plight of Realtors – it’s definitely better news for homeowners hoping to sell. And with prices edging up, more and more homeowners are seeing some equity build up in their home. The number of distressed properties dropped back to 10 percent, but we’ll still be watching for that number to climb some as loan modifications reset to higher interest and/or interest PLUS principle . That will be a real jolt for some homeowners and as many as 63 percent of those with loan modifications are still underwater. Time will tell.
This March report is provided by Gene Wunderlich, Director of Government Affairs for the Southwest Riverside County Association of Realtors. For space reasons, some of the comments and charts in Gene’s Realtor Report do not appear here. Direct questions to GeneWunderlich@srcar.org.