(Thanks to Don Martin)
That’s the sound of our housing market bouncing back! (Sometimes a newsletter needs sound effects.) Last month I doubted we’d come anywhere close to the March 2016 uptick of 30%. But defying the constraints of shrinking inventory and demand, sales actually rebounded a whopping 32% last month, leading to the best 1st quarter performance since 2013.
Sales volume was up 4% Q1 2017 over Q1 2016, and just 23 units shy of 2013 (2.457 / 2,434). Pending sales were up also 11% in March so April sales volume should reflect that. Homes are flying off the shelf after just 39 days on market across the region with days-on-market at a month or less in several cities.
Median price actually dropped month-over-month in March by about 1% ($342,977 / $339,161) but still 4% ahead of last March. Q1 median was up 7% over Q1 2016 ($314,624 / $337,422) and up 41% from 2012 ($200,001). That’s good. 7% a year is good.
Lack of inventory continues to be a problem plaguing the region, the state and the rest of the country. Our inventory was down again last month but very nominally (1,597 / 1,549), but off 22% from a year ago (1,982). You’d have to go back to February of 2014 to find a lower month. Our inventory is down to 1.7 months across the region. That inevitably constrains sales and contributes to escalating prices. The good news is that 67% more homes were brought to the market in March than in February. 1,331 new listings last month was nearly 25% more than January and February combined. That not only met increased sales demand, but left a little cushion such that absorption dropped under 100% in March, down 39% from February’s 121% to 74%. That means we weren’t cannibalizing every new listing as it entered the market, allowing inventory to grow a bit (maybe) in April.
Most prognosticators still have high hopes for housing for at least the next couple years, some more, some less. We’ll probably know more about the housing agenda in DC when we go back next month. Some things look promising, others, not so much. We are hopeful that this administration will recognize the need for regulatory and lending reform that will allow and/or encourage more people to enter the housing market and stimulate the need for more construction. Probably won’t help California much but maybe the rest of the country.
After all, housing is generally the flywheel that gets the economy moving. While we have technically been out of the recession for the past eight years, housing construction and homeownership rates have fallen precipitously. Homeownership stood at just 63.7% in Q4 2016, down from a peak of 69.2% before the boom. As a result total spending on housing declined to 15.6% of GDP compared to a 60 year average of 19%. As each new single family unit typically creates three jobs as well as demand for ancillary services like appliance purchases, home renovations and jobs for Realtors®, escrow, title, lender and other services and products, the stifling regulatory climate of the past eight years has had a profoundly negative impact on the housing sector and kept economic growth at a somnambulous pace.
Some experts argue that our default rate is actually too low. While not advocating a return to the lending licentiousness of a decade ago, just 5.1% of mortgages are at risk of default today compared to a historic run rate of 12%. This indicates that lenders aren’t making loans to thousands of people who pose little risk, depriving many middle-class families of the equity appreciation the market has enjoyed the past five years and forcing more Americans into the rental market – which is pushing rents ever higher as well.
Then again, if we had all those extra buyers running around and no houses to sell them… Is there a happy middle ground anywhere?