At our recent National Association of Realtor® meetings in Chicago, the abundance of uncertainty was apparent across the spectrum of housing across the nation. How to address the lack of inventory, especially affordable workforce housing, has become an issue for the entire country, not just California. You might think states with a median home value of $150,000 (compared to California’s $563,000) would not suffer from a lack of affordable inventory – but it’s all relative. While people staying in their homes nearly twice as long as they did just a decade ago (6 yrs v. 11 yrs) is contributory, that really only recycles existing homes. The number of single family homes removed from the re-sale market by industrial investors is also contributory, but those homes have become part of the rental economy, which is also much needed. No, the only way out of the current inventory crisis is to add new product.
SUPPLY = SOLUTION.
Uncertainty was also abundant in reviewing the current tax reform plans circulating in Congress. Initial analysis pointed to several areas of the proposed bill that would not be beneficial to homeowners, nor would the elimination of SALT be helpful to residents in high tax states like ours. Of course, residents in 44 states with low, or no, state income tax don’t care about our problems. Nor are they impacted by reductions in the mortgage interest deduction to $500,000 from $1 million. When your median price home is $150,000, you’re not losing sleep over the travails in California. In fact, you kind of enjoy it.
Well, the mark-ups continue and what the final product looks like has yet to be determined. The divisions that mark our country will likely render any meaningful tax reform meaningless. So, if you enjoy your current tax plan, you get to keep your current tax plan. Wait, haven’t we heard that before?
Locally our market continues to chug toward year-end. Month-over-month sales were up 4% and year- to-date sales for the region are maintaining a 3% edge over 2016 (9,629 / 9,954). Assuming sales don’t decline precipitously over the next couple months, we should end the year with sales around 12,000 units marking our 4th consecutive year of sales increases and our best year since 2010.
Prices are continuing their upward march as well, but slowing toward year-end. Despite dropping 1%
over the past three months, our median price in October was 5% higher than last October ($339,481 /
$356,722) and year-to-date median remains 6% ahead of 2016 ($326,397 / $348,894).
There are a few clouds on the horizon – not dark storm clouds yet, but some puffy little clouds all the same. Pending home sales were down 9% month-over-month indicating further slowdowns heading into year-end. Inventory continues a three-year decline, down another 6% month-over-month and 22% from last year to 1,739 single family units across the region. We’ve got just 1.8 months inventory of homes to sell, which is even lower than the state average of 3.2 months – and they’re concerned about that. We haven’t enjoyed a 3+ month inventory in our region for the past 5 years!
Of course, inventory depletion occurs when we sell new listings faster than we can list them, as was the case again last month. Our absorption rate hit a five-month high rocketing to 164%, meaning that for every new home to hit the market, we sold 1.6. Homes are also flying off the market in record time – staying around for just 18.6 days last month, down 58% from last year’s 43.9 days and lower than the state average of 20 days.
The good news? Nobody I’ve talked to (who actually knows anything) is forecasting a downturn in the market for at least the next two years. NO BUBBLE!!
Gene Wunderlich is the Government Affairs Director for Southwest Riverside County Association of Realtors. If you have questions on the market, please contact me at GAD@srcar.org or to keep up with the latest legislative and real estate trends go to http://gadblog.srcar.org/.