Wunderlich Realtor Report for June

BY

This June “Realtor 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 the Realtor Report do not appear here. Direct questions to GeneWunderlich@srcar.org.

Sustainably strong market?

By Gene Wunderlich, SRCAR VP of Government Affairs

As we reach the mid-point of 2015, we appear to be on track to exceed sales volumes from both 2014 and 2013 – IF sales stay close to their current level. We’ve had four months of solid sales gains, so while we may see some dips closer to the end of the year, this year may come close to 2012 volume.

At the same time, median prices have continued their five-year climb, putting us within 20 percent or less of our peak prices across most of the region.

Remember just a couple years back when the “experts” said we would never again see those high prices in California? Santa Barbara and San Francisco have already passed those previous peaks and our region is on track to do so within the next couple years.

Since most of our local markets tanked in 2009, that means it will have taken eight or nine years to regain the 55 to 65-percent drop we experienced in just 18 months. The best part of that is how gradual the increase has been – averaging just 6 to 7percent a year. That’s sustainable appreciation, not like the 35 percent a year we were growing from 2001 to 2006. We could theoretically sustain this level of growth indefinitely.

Or not. Our rate of growth is dependent on a number of elements. As I’ve cautioned before, we’re building far too few homes in California. As demand grows we could easily run into another cycle of rampant price appreciation followed by another bust. Those boom/bust housing cycles have become as much a part of the California scene as the droughts that afflict us every decade or so, or a Kardashian marriage implosion.

We know it’s going to happen, we just don’t know when. We’re never quite prepared for it and we invariably express surprise when it happens. (And somebody’s gonna make money off it).

Of course there are other things that could slow us even more in the short run. The underlying economy is still weaker than most people think. I’m always amused by the grandiose headlines screaming that our unemployment has dropped again to a five-year low of just 5.3 percent. What they don’t report is that our labor force participation is also at a low, a 38-year low, with more than 94 million Americans out of work.

While the President brags about “creating” 233,000 jobs in June, the only reason unemployment dropped was that 432,000 people just quit looking; so they don’t count anymore. Those people don’t buy houses – they’re just trying to hang on to the one they’ve got, if they’re that lucky.

The Greek economy or the Chinese fiscal meltdown? A decade ago who would have cared a lick about what happened there? Today our economy is directly impacted by what happens a half a world away, especially with the number of foreign buyers coming into our market.

Delinquent loans? They’re out there. A decade ago, thousands of homeowners who figured that California home prices would never come down, either refi’d or took out home equity lines of credit (HELOC). Those who refi’d their ATM home have largely washed through the system in the first wave from 2009 to 2011.

However, many of those HELOCs that began as interest only have started to reset at the 10-year mark. The delinquency rate in disconcertingly high, with nearly 5 percent of 2014 rate resets falling more than 30 days late after the principle payments started kicking in. That is nearly double the previous rate. We’ve got a lot of those folks in this region and we’re just seeing the start of that wave.

So hang on. Our local market could get a lot better, or a little worse. I’m betting on better but then what do I know? My advice is free and worth every penny.

We’re back down to just over two months’ inventory in most cities. Remember, a healthy market in balance is defined as six to seven months. With two months’ inventory and healthy absorption, we are supposed to be in a strong seller’s market, but that’s not the case.

The last time we saw a six to seven-month inventory was in 2009 to 2010 when we had a plethora of bank-owned homes and a paucity buyers. That was definitely not a healthy market in balance. Maybe this is part of re-defining the new normal; I don’t know.

We did experience a slight uptick in the number of short sales on the market last month; and with just 35 to 40 percent of them selling, they could become bank-owned homes in another few months.

However, standard sales still make up 90 percent of our active sales and sold homes, and that’s been holding steady for several months now. I’m not anticipating any big leap in the number of distressed properties and, as more and more equity sellers decide to move up or out, we should retain a strong proportional representation of standard sales with steady price support.

Of course, with strengthening prices comes reduced affordability, especially for first-time buyers. But our market has made a smooth transition from one dominated by investors and first-time buyers as recently as three years ago to a somewhat more mature market today with move-up buyers and buyers seeking the relative affordability of our region after being chased away from coastal prices. Who wants to live in LA anyway?

Distressed properties remain at a very low percentage of active and sold properties for the region. Experts are still anticipating this to climb somewhat as interest rates reset to higher levels over the next couple years, but we haven’t seen much local fallout yet.