As I’ve pointed out in previous newsletters, our local market is mimicking a statewide, indeed a nationwide trend of declining home sales and slower price appreciation. There are a few calling what we’re doing a ‘prelude to a crash’, but most rational prognosticators are shunning that forecast. Next month we’ll have the opportunity to meet with our federal team, including our Chief Economist, Dr. Lawrence Yun, to question them on their outlook. They’re not always right but they’re better than most. (Well except for those continued forecasts of a ‘soft landing’ back in 2008, but they weren’t alone there).
Speaking of 2008, September marked the 10th anniversary of our last great meltdown. Lehman Brothers collapsed, bringing others to the brink, precipitating a general crash in the housing market nationwide. We got towed along for a 60%+ drop in local home values and a 50%+ drop in sales over the next 18 months. Fun times! And while the housing market in general has recovered, our region remains some 12% below our previous peak price point on average, while some state markets have met or exceeded their prior high-water mark, most notably the Bay Area, areas of LA and Orange Counties, and the San Jose region where the median value of $1.29 million, is 74% above its previous peak.
So, a slowdown at this time is not necessarily a bad thing. While our appreciation has not been as heated as the 30% annual climbs we saw in the early 2000’s, it has been relatively constant, averaging 7% annually since 2009. That’s a long run. Meanwhile wage growth for buyers has only recently started to add a % or 2 to their wallets. As David Blitzer, Managing Director at S&P Dow Jones Indices put it, “We’ve been running faster than we should be able to for quite some time.” So, price gains are likely to ease until they’re more in line with wages and inflation.
As we complete the 3rd quarter of 2018, local home sales have scaled back to a range somewhere between 2014 and 2015. As anticipated, September sales of single-family homes dropped 15% from their August numbers (984/ 833) and year-to-date sales remain mired at 9% below 2017 (9,013 / 8,194).
Where have those additional 819 sales gone? Well, it helps explain why our inventory continues to climb – there’s an additional 1,048 units on the market today compared to last year (1,842 / 2,890). Our average inventory now stands at a 5 year high of 3.9 months. That’s still a ways off the 6-7 month inventory classically considered a ‘normal’ inventory or a market in balance, but it’s getting closer. We’ve been so spoiled by a super-low inventory for so long, this looks bad, but it’s really not at all. The only negative to that inventory hike is that it doesn’t include much in the way of affordable workforce housing, especially for those critical first-time buyers trying to enter the market.
After a few months of relative stagnation and even some minor declines, prices appear to be continuing their inexorable climb.
Month-over-month appreciation was 3% and we’re still running a solid 7% ahead year-to-date ($348,025 / $374,394). I know I called for some flattening or moderate declines during the 4th quarter of 2017 that didn’t happen. Well, I’m doing it again. I think we’ll see some slowing of appreciation during this last quarter as sales decline. Like most prognosticators, if I call something long enough I’ll eventually be right. Of course, we’ll still end the year higher than last year but maybe by only 4%-5% instead of 7%-8%. And since I’m the one doing the numbers, I can make that forecast come true only to adjust it next February and you wouldn’t even notice. Heck, the government does it all the time, why should I be held to a higher standard?
By this time next month, we’ll have weathered another election, billed as ‘the most important of our lifetime’. Aren’t they all? It’s going to be very tense and exciting, I do know that. And hopefully after all that, we can come together as a nation and focus on what’s truly important. Just don’t ask me what I did when I was 17! Please.