Yes, we’re all very aware that our housing market is going through some changes right now. If you’re not aware of that, this month’s report will bring it on home as our market continues to slide into yearend.
But we were reminded last month by National Association of Realtors® Chief Economist Dr. Lawrence Yun that our perception of current events is clouded by how good or bad our memory is.
For example, home sales locally and across the country will be down this year compared to last. Nationally they’re expected to drop about 3% from 2017, locally we’ll be down closer to 10%. But keep in mind that last year was one of our best sales years in a decade. Any correction can look like a downturn, and doom & gloom media headlines can become a self-fulfilling prophecy if we don’t challenge them. Dr. Yun’s forecast calls for ‘boring’ growth in 2019 and 2020 at about 1% a year for existing home sales, slightly better for new home sales – assuming we can get new homes built. That’s not a recession or housing bubble.
Governor-elect Newsom has called for building 3 million new homes over the next five years. The how, where, when, and how much are as yet undefined. The willingness of his new mega-majority legislature will be sorely tested on whether to support his call to arms or continue obeisance to their radical environmental constituency. But before that, we have to rebuild 20,000+ homes lost in recent wildfires, and that will be a test in itself. A bill introduced last year that would have allowed reconstruction after a fire to include an Accessory Dwelling Unit (granny flat) died in committee, which may not portend well for current efforts not only to rebuild but to use the opportunity to expand.
We’ve been told that CEQA reform and a serious look at permitting costs and timeframes will be on the table in the upcoming session. Of course, CEQA reform has been a hot topic of conversation almost since it was adopted with no relief from its worst litigious excesses, and local governments strapped for cash have continued to pile on permitting and entitlement costs making it difficult for developers to efficiently build more affordable housing. Now factor in another effort by our legislators to reduce the vote threshold allowing municipalities to increase taxes with a 55% vote instead of 66%, and you have another impediment to affordable housing for first time buyers and others. This is where perception and reality collide.
Across our region sales dropped 14% from October (896 / 769) and were 8% below October 2017 (837). With pending sales down 10% going into December (755 / 679), we’re not lining up a strong finish for year-end either. Median prices were off 1% month-over-month ($376,028 / $371,333) but remained 5% ahead year-over-year ($351,578). November was our 3rd consecutive month of declining median prices and our lowest month since March of this year.
Again, as sales slow there is less upward pressure on prices which is not unusual during this last quarter and no great cause for alarm unless the trend continues unabated after the first of the year.
As our economists continue to point out, the underlying economy is strong with unemployment, including local unemployment, at record lows, wages picking up, and home equity and other wealth factors increasing. If our new Congress can focus on the business of government, and our new legislature can keep their hands out of our pockets, we will weather this correction with only minor inconvenience and minimal worries. Of course, there’s still France, China, trade wars, investigations, impeachment, the Russians, the caravan and the mega-majority. No worries! Happy New Year!