January was a slow month for housing so why not blame it on something the President said or did? It’s a popular pastime these days. But, of course we knew January was going to be slow anyway. History has proven that, so it wasn’t a big surprise, but it’s still nice to have a scapegoat.
Actually, January was a mixed offering – sales dropped 24% from the prior month (894 / 682) and 9% under January 2017 (729) – not an auspicious start. However, cooler sales allowed the market to slow absorption and increase inventory of existing homes by 9% to 1,565 single family units. That’s still 6% fewer homes on the market than last January, but it’s a start. It allowed us to creep back to 2.3 month’s worth of inventory from last month’s 1.7 and staying the same as last January.
Pending sales are up nearly 10% in January indicating stronger sales in February. But February is also a short month so some of those sales will fall into March and serve to jump-start the spring buying season. By March perhaps people will be seeing a little more in their paychecks and may decide it’s time to buy a home or buy up a notch. Tax time will add another chapter to the saga as people (outside California) will be seeing a reduced tax bill hopefully, spurring buying decisions. And the long anticipated Millenial buying surge is off to a start. A slow start to be sure, but a start nonetheless.
Price appreciation continues to provide a bright spot for homeowners even as it dims prospects for first-time homebuyers. Our regional median price dropped $489 month-over-month but maintained a 10% edge over January 2017 ($330,155 / $368,333). Temecula notched its 9th consecutive month with average prices above $500,000. December’s average price of $554,974 drew within 4% of Temecula’s peak price last reached in June 2006 ($575,935). IF they push past that the next couple months, it will complete a 12- year path to price recovery for the city. Other cities across the region are within 5% – 15% and should hit their previous peaks in the next 12 – 24 months. Assuming no disturbances in the force. That’s never a given.
It’s been gratifying to see our cities and county taking pro-active steps to address the lack of housing inventory across the region. Our cities are trumpeting new housing approvals that will help mitigate the demand. It’s probably fortunate that sales increases have been minimal the past five years as it has avoided unsustainable price spikes. Without these new homes coming online the market will become increasingly exclusionary as price appreciation continues to outstrip wage increases. Further increasing price pressure in some cities is the disparity of effective inventory where 90% of buyers are constrained to just 60% of the market. It remains to be seen whether the imposition of a $750,000 mortgage deduction cap will have a noticeable effect on the upper segment of our market.
As noted later in this report, the minimum income needed to qualify for a median price home nearly doubled across all California markets between Q1 2012, the peak of recent affordability, and Q3 2017. If your income hasn’t doubled in the past five years, you’re falling behind!! At least in California. The rest of the country’s doing a little better, they’re only up by 2/3.
The state Legislature is getting all fired up again. The last of the two-year bills have either moved along or died. Hearty congratulations to our Assembly Member Melissa Melendez for her arduous four-year battle culminating in passage of AB 403, the Legislative Employee Whistleblower Protection Act. So, settle in as another 2,000 – 3,000 bills vie for our time and money and a plethora of Propositions are rushing to greet us this fall. Supply = Solution. Not bills – HOUSES.