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There’s A Strong Probability

For some reason people frequently ask me what comes next for our overheated housing market. To this I honestly reply that I am nearly as clueless as they are. But there are some probabilities and even some strong possibilities about what could happen. Like everyone else, I rely on a cadre of prognosticators to inform my opinions and my circle of advisors is pretty good. Given that basis, I am rarely wrong in my market forecasts. Why is that? Because I rarely forecast specific events and/or timeframes and when I do I couch them in phrases long recognized as ‘weasel words’ by pundits nationwide – ‘there’s a strong possibility something will happen’. For example, there’s a 40% chance you’ll read every page of this report. If you make it to the end, that forecast will look smart and you’ll be part of the success statistic. If you don’t, well, I said it was a long shot anyway.

Having explained that ringing endorsement for my work, people appear more concerned than I’ve seen them in nearly a decade over the future of the housing market. Friends who work with banks on REO properties indicate they’re seeing more activity on the foreclosure front. Similarly, there has been a small, though as yet statistically insignificant, uptick in the number of short sales on the market. Homeowners in distress often try to short sell their home before the bank takes it back so as a market predictor it’s pretty accurate. But no cause for alarm. Yet.

Overall the market appears to still be strong as we head into the 7th year of home price appreciation and there’s every indication that will continue at least through 2018 and extend into 2019. Very few people are shining the light out further than that because the old crystal ball tends to get a bit cloudy. But most of us are in agreement that in 2018:

  • Home sales and prices will continue to rise, although at a slower pace than past years.
  • Lack of inventory will continue to be an issue pushing prices higher.
  • Rents will continue to rise and vacancies will remain near all-time lows.
  • The economy will keep growing and increased employment will fuel household formation.
  • Millenials are starting to come out of Mom’s basement and renting and/or buying homes.
  • In spite of headwinds from rising mortgage interest rates and the new tax plan, there are equally strong tailwinds pushing the market as supply struggles to meet demand.

Our own market is a case study of those conflicts. While 2017 was the strongest sales year since 2007 by inches, if you look at the sales chart graph you’ll note that sales have been virtually flat since 2015. Sales have stalled out at an average of around 900 units a month while inventories have fallen from a high of 2,600 units available across the region to as low as 1,400 units, with February expanding to just over 1,700. IF we start adding more buyers to the pool, it will only exacerbate the affordability gap. No matter how many units our local cities approve (thank you very much for that), it will not significantly impact the supply of homes for buyers to choose from in 2018.

Last month I forecast that February would not be a good month. That’s a pretty safe bet based on the fact that February is a short month, there were fewer pending sales going into February, and February has historically been a slow month. How ‘not good’ was it? Well, sales were down another 5% to 648 single family homes. Not unexpected. What’s more interesting is that volume has been lower than last year for the past three months. March pending sales are up but may not rise to the level of last year. Sales also were down 7% year-over-year from 695 sales in February 2017.

Median prices have also fallen month-over-month the past couple months to $359,313. As a region we’re still posting a 4% lead over last year’s $342,122. Temecula notched another month with an average price above $500,000 thanks to 3 $million+ homes sold, while their median price dropped to $460,000. Both Temecula and Murrieta inventories suffer from effective inventory available. Each city currently has 63 homes listed over $1 million with 3 sold in Temecula last month and 2 in Murrieta, according to CRMLS. Statistically those properties are not available to 98% of the buyer pool so Temecula has reduced their effective inventory by 23%, Murrieta by 18%. With mortgage interest deduction capped at $750,000 going forward, this could have an even greater impact on this market distortion.

May all your consequences be intended.

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/.

Written by Gene Wunderlich, Sr. Staff Writer

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/.

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