Uncertainty was the working title of a recent presentation to the 556th Board of Directors meeting for the California Association of Realtors®. Uncertainty is behind much of what is driving our housing market and indeed our economy right now. Given the constant negative drumbeat of the media, people are uncertain about impeachment, Brexit, trade wars, the stock market, gas prices, vaping, you name it– it’s probably bad. And that makes people uncertain. If anything drives us into a recession, it will be uncertainty. In spite of a return to record low interest rates, people aren’t buying homes because of uncertainty.
Is that uncertainty warranted? Well, it depends on who you talk to. There are experts who predict a recession starting sometime in 2020. There are other experts who predict that the current underlying economy is sound and sustainable for the foreseeable future. As usual, I agree with the experts. It’s the whims of human nature I’m not so sure about.
Consumer confidence dropped a bit in September but intermittent short- term variations do not create a trend – until they go on for a while. Continued uncertainty will continue to diminish consumer confidence in the expansion. For example, nearly 15% of properties under contract have fallen out of escrow so far in 2019. That’s not an unusually high number but it’s usually because buyers couldn’t come up the down payment or qualify for the mortgage. This year the reason nearly half fell out of escrow was not inability to qualify or come up with the down, they were simply uncertain and changed their minds about buying a home right now.
But enough about stuff we have no control over, what’s happening in our local housing market?
For the first seven months of the year we were trailing last year’s sales volume. But surprisingly strong demand in August and September pushed year-to-date sales past 2018 in August and increased the margin to a 2% advantage in September (8,194 / 8,358). Unless everything tanks between now and year-end we’ll post a decent year. Nowhere close to our 2017 volume (9,013 YTD), but pretty good all the same.
Prices continue to appreciate, albeit at a rate about half that of prior years. Since 2014 we’ve averaged nearly 7% appreciation year-over-year. Year-to-date we’re only up about 3% over last year ($374,391/ $384,452). That slow-but-steady rise propelled California median price to an all-time high of $617,410 in August. That’s definitely good news IF you are a homeowner. If you’re not, well, it’s not so good. Because every rise in home price keep a few more people from entering the market.
An interesting slide from our last meeting shows the out-migration from Coastal California landing primarily in the Inland Empire as people are priced out of those areas.
But out-migration from our region is overwhelmingly out of state with Texas and Arizona being the principal recipients. Surprisingly the #3 destination for folks moving from the IE is Kern County (Bakersfield! Really?), but 9 of the top 10 are moving out of state. So, people move to our area when they’re priced out of coastal regions and when they hit their limit with us, they hit the road out of state. And $4.00+ gas prices really don’t help our commuters at all.
So, are we headed for a recession? Probably, at some point, maybe sooner, maybe later. In his recent address, our C.A.R. CEO Joel Singer predicted that we will definitely have a recession ‘sometime before 2035’. And we were reminded of the cardinal rule of forecasting – Never give a number and a date in the same sentence. Good advice.