Well, we’re in the home stretch of 2017 and we’re just kind of coasting through the next few weeks, down a gentle slope applying neither gas nor brakes. Kind of like when you were in college and too broke to buy gas so you saved a few pennies by free-rolling your car whenever you could. (Or was that just me?)
With the possible exception of Congressional Republicans, there’s no sense of urgency right now. Let’s get through this year and see what 2018 brings. Depending on what H.R.1. finally looks like, and which ‘expert’ you listen to, the housing market will either be a little better, a little worse, or about the same next year. I agree.
Regardless, we’ll still be facing a housing shortage of staggering proportion in California – about 1 million units short of what’s needed over the past decade. Our region currently leads the state in construction job growth right now so that means our cities are addressing the issue. Thank you. I know it’s a balancing act between adding more residents, keeping traffic moving, and bringing in more commercial base and jobs, but our region appears to be doing a far better job than many parts of the state.
We’re finally starting to see an influx of those long-anticipated Millenial buyers moving into the market. Economists have been predicting this wave for the past five years and the leading edge of that wave started in 2017, albeit with a trickle rather than a flood. That’s probably good news because with the constrained inventory, a flood of new buyers would simply force prices into an even steeper appreciation incline which would, in turn, eliminate many of those new buyers from the market. In 2017, first-time buyers held steady at 34% of the market nationwide, (-30% in CA), but that’s well under the 40% historical rate considered to be a ‘normalized’ market. It should come as no surprise that if you’re a millennial living in California, buying your first home doesn’t come any harder, according to a recent survey. California ranked as the toughest state in the nation for first-time home buyers.
Closer to home, November sales were a little more lackluster than anticipated. Not only were sales down 11% month-over-month (941 / 837), they were down 14% from last November. Based on pending sales in the pipeline for December, my prediction of 12,000 sales for the region this year may be a bit rosy. We should still finish the year slightly ahead of last year, but by a slim margin of 2% of less.
But while sales are definitely slowing toward year-end, prices continue their upward trajectory rising another 1% month-over-month and maintaining a 7% lead year-to-date over 2016. Our regional price appreciation is slightly better than the state median increase of 6.1%, while our median price remains nearly $200,000 below the state median (CA: $546,430 / SWCA: $350,009). Price stratification is forcing buyers out of coastal and urban core areas to more affordable inland areas. That same stratification prompts buyers who may find themselves priced out of local markets like Temecula and Murrieta to find their dream home in Menifee, Perris and Hemet.
Inventory continues to be the sticking point, dropping another 7% month-over-month and declining 22% from last year. Our inventory has been on an almost steady decline. Since hitting peaks of 2,500+ units back in mid-2015, it’s just 1,618 units today. It doesn’t take a math major to figure out that if your inventory has been dropping for the past three years while sales have been increasing, you’re exerting upward price pressure as demand continues to outstrip supply. The statewide Housing Affordability Index (HAI) fell to 29% last month, meaning just 29% of our residents could afford a median price home in the state! Our region currently enjoys a 39% HAI, which isn’t great but better than most. Across the region we’ve got just a 1.9 month supply of homes for sale, which is less than the 3 month supply statewide, and homes are flying off the market at a median time of 22.2 days.
IF some forecasts are accurate, that enactment of H.R.1 slows demand and drops prices by some percent, maybe that will provide the breathing room our communities need to get ahead of the housing curve and infrastructure demand. I am very doubtful that the bill will have any negative impact on the housing market and will continue to suggest that SUPPLY = SOLUTION! Wishing you a healthy and prosperous New Year!
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/.