The term ‘fake news’ has been much overused of late. But in some cases, it’s really the only way to describe what you’re reading. Perhaps in some hope of becoming a self-fulfilling prophecy or appearing prescient, some outlets continue to boast about the housing ‘crash’ that we’re experiencing.
As I pointed out last month, I’m just not seeing it. While our market has indeed slowed from its more robust pace of the past few years, there’s simply no indicators pointing to a crash. The market is still strong, the underlying fundamentals of the economy are sound and most prognosticators are in agreement that the cyclical nature of these events has been overstated. If there is no cause, there can be no effect.
Having said that, our housing market is definitely in a correction phase. Median price appreciation averaging 7% – 8% over the past eight years, have outstripped wage increases which have only risen on average 2% – 3% a year the past couple years. Couple this with interest rate increases the past year, after years of historic lows, and you get the affordability delta we’re experiencing now. Current homeowners are also staying in their homes much longer than they used to, limiting the availability of lower-tier price points making it difficult for first-time buyers to enter the market.
However, a couple salient points to remember: 1) California is still an estimated 1.5 million housing units shy of what’s needed as a result of nearly a decade of underbuilding, and 2) there is still pent-up demand as Millenials start to enter family-forming and home-buying years. I know the Millennial housing boom has been forecast for years but the fact is they have to live somewhere and that can’t be Mom & Dad’s house indefinitely. So, the market will correct until it reaches equilibrium and then take off again. Unless so many people leave the state we no longer need all those houses. Chances of that are slim.
So where does that leave us? Well, August home sales across the region were up very slightly from July but 11% under last August, leaving us some 9% down year-to-date (8,108 / 7,361). While definitely slower, it’s about on par with 2015, which we thought was a pretty good year at the time. Some Realtors will point to the fact that they are no longer receiving multiple offers above asking price within hours of listing a property as signs of market collapse. The rest of us say ‘welcome to the real market’.
Prices are still climbing, although at a slower pace than before. Essentially flat from last month across the region (down $26), prices were still up 5% over last August and 4% ahead year-to-date ($359,250 / $372,581). That trend of restrained appreciation will continue as the market corrects. Slower sales also translates to increasing inventory. 2,828 units on the market right now puts our inventory at its highest level since at least 2014, and maybe before.
I don’t have inventory for the expanded territory prior to 2014 but it’s been awhile since we reached these heights. And while it’s gratifying to say our inventory is up 38% over a year ago, we’re still at a scant 2.8 months – a far cry from a ‘normal’ balanced market of 6-7 months. But it’s an improvement. Homes are also staying on the market a whopping 26 days, up from 18 days a year ago, and that’s still aggressive performance.
So overall, our market is still healthy and solid heading into year-end. Nothing spectacular, but that’s OK. We survived another legislative year in Sacramento with no serious damage inflicted on housing and as long as the rent control initiative (Proposition 10) is defeated in November, we should be good for another year or so.
Of course, that’s just my opinion, what do I know?