Wunderlich Realtor Report for January

BY Gene Wunderlich

This January “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.

Looking up? or Look out!

Linguistic master Yogi Berra once opined, “It’s hard to make predictions, especially about the future.” That’s proving to be especially true these days. In my last newsletter, the Fed had just raised their interest rate for the first time in seven years in what was widely expected to be the first of many such increases because “things were looking up.”

A scant 30 days later, smart money says the Fed is done for awhile, maybe quite awhile, as current headlines trumpet “Big Firms Hit Brake as Profit Slumps,” “China Bleeds More Cash,” and “How to Survive the New Economic Normal.” The stock market responded, handing the DOW its worst 10-day start to a year since 1897 in what one senior trader called “gut wrenching drama.”

Citing fears of further collapse in oil prices and ongoing weakness in the Chinese economy, some analysts are warning of the “biggest stock market crash in a generation.”

But before the Bears run amok – the January unemployment rate dropped under 5% for the first time in years and forecaster expect that to drop to the 4.7% rate by year-end. That’s good. Last year’s forecasters of GDP reaching the 3% milestone were disappointed when it averaged just 2.1% and have tempered their 2016 forecast to 2.5%. Not great, but better.

Housing prices are expected to rise 4.5% to 5.5% in 2016, slightly slower than 2015’s pace; while new home construction is expected to reach 1.27 million, its highest rate since the 2007 route. Those are all moderately positive signs.

And Alt-A loans, euphemistically referred to as “liar loans” a decade ago, are staging a comeback. These mortgages, typically extended to people that can’t fully document their income, can be a real boon to many otherwise well-qualified but self-employed buyers. However, together with sub-prime loans, they helped fuel the avalanche of defaults leading up to the economic crash and thus fell out of favor. Investors looking for higher rates of return than current interest rates are lobbying for these new low-doc mortgages, promising to do a better job qualifying and policing than before.

January was a heckuva month

I, for one, was right on the money when I forecast that January housing numbers would suck. They did. I’d like to claim that I’m just that prescient but you all now that’s not true. It was a pretty safe call because every January for the last five years has sucked, often being the lowest sales month of the year.

With December pending sales way down, it was a sure bet that January closings would follow suit. That’s too bad because January’s pending sales aren’t all that hot either, up only 5% from December. So February numbers won’t be anything to brag about, even with an extra day in the calendar. We’ll have to bide our time until March to see how demand is going to trend this year.

Both sales and median prices were down in January – sales off 25% from December and prices down 1%. Even with that drop, they were good enough to keep us ahead of 2015, with sales up 10% from last January and prices holding a 7% edge. Analysts believe prices will continue to increase this year but at a slower pace than last year, which we’re seeing borne out in our local market,

With sales down and people starting to list their homes after the holidays, inventory ticked up 6%, but still 17% below where we were last January. Inventory is holding in that three-month range for most cities – new normal. On average, cities managed to absorb nearly 85% of new listings to the market in January and homes sold a little faster, bringing days-on-market back down to an average of 55%.

That means anxious buyers are out there, just not that many (yet).

Southwest Market

If you are the type who looks closely at these numbers (and which of you aren’t?), or saves last month’s report to compare to this month’s (and who doesn’t?), you may have noticed that there were some changes to the median price charts reflecting slightly different numbers than previous reports.

This is due to a change in the way our MLS system presents the raw data that goes into these reports, allowing me to more accurately chart a true median price rather than a more average price.

Median price is that point where half the homes sold for more and half for less, while average simply takes all sold home values and, well, averages them out. Historically it doesn’t alter pricing trends, though median prices will typically be somewhat lower than average prices. Most significantly it does help moderate some of the peaks and valleys that can be influenced by the sale of higher end homes.

As I have noted here before, the sale of several $1 million-plus homes in Temecula or Murrieta can impact the average sales price disproportionately, presenting what may be a skewed image of current market value for that window in time. The sale of even one million-dollar-plus home in Canyon Lake has an outsize effect on their average.

The impact on median price, while elevated, doesn’t present the severity of gyrations we’ve seen on some past charts and, in the long run, will provide a more accurate picture of our housing market.