While some national and state media are explaining why the housing market is slowing, our local market appears to be holding up quite well heading into year-end. Don’t get me wrong, historically we expect some slowing in 3rd quarter – some folks have moved before school and found a home over the summer, some folks may want to move but not during the holidays – whatever the reason the market typically slows from now through February and then picks back up. Not this year. October 2019 marked out strongest October in the 15 years I’ve been charting this activity! Not only are sales up 5% over September (944 / 992), but up 10% over last October (896) and even up 5% over our most recent high-water mark in 2017 (941).
That’s pretty good, eh? While we won’t finish the year ahead of 2017 due to a slower Q1, we will certainly turn in a very respectable sales volume year. Even more special when you consider the mix of new homes that have come on the market in all of our cities since 2017. If our cities weren’t building new homes as fast as they are, existing home sales would probably have been even stronger, and prices would have appreciated even faster.
Not that that’s a good thing necessarily. High prices are to blame for much of what ails us as a state and continues to bedevil us even locally.
It is increasingly difficult for developers to build affordable housing given the variety of state mandates, CEQA requirements, various compliance regulations and local and state fees. The new term being applied is ‘market malaise’ as buyers retract while developers struggle to find the sweet spot where buyers can afford their product while still making a profit. I’ve pointed to the fact before that in spite of Riverside County generally being one of the less expensive areas to build, it’ll still cost a developer between $75,000 and $125,000 for entitlements, exclusive of land acquisition and actual construction costs. Makes it hard to build affordable workforce housing at that rate.
Statewide, those baseline costs push the ‘average’ cost per unit in a typical 100-unit multi-family project (apartment or condo) to $425,000. That’s hardly affordable to most first-time buyers. It gets even worse in areas that mandate inclusionary zoning. In order to push the entry level ‘low to moderate income’ unit down to the $350,000 level for 10% +/- of the units, that pushes the ‘market rate’ of the remaining units to $600,000+ if the builder hopes to wring any profit from the deal. That means for every 10 people getting a good deal, 90 more are stuck paying above market – if they can or will pay at all. And as the inclusionary ratio rises to 20% or 30% of a project, the problem only gets worse. AB 1482 rent control has just exacerbated that equation.
But back to our market, in addition to sales staying strong into Q4, prices continue to appreciate as well.
While our median price did dip 1% from September ($395,990 / $391,433), we widened our lead over 2018 by 3% ($376,028). And at a time when the inventory of existing homes statewide jumped to 3.5 months, ours actually contracted 12% back down to 2.2 months and posted a 29% drop from a year ago (3.1 / 2.2). Homes stayed on the market at average of 25.4 days, down 15% month-over-month and down 25% from last October (32.6 / 25.4). Distressed properties remain low, occupying just 2% of the market.
Later this week we’ll be at our National Association of Realtors® meetings in San Francisco (oh joy!) and we’ll get the latest prognostications from our chief economist on the outlook for 2020 and beyond. As I pointed out last month, uncertainty over a variety of issues will continue to impact the economy and the housing market. But the media, who just two months ago were wringing their hands over a faltering economy and a pessimistic forecast, are now feeling quite bullish given ongoing strength in employment numbers, wage growth, possible trade war resolution and record stock market. CoreLogic is calling for even stronger home price appreciation in 2020.
Housing construction across the state will likely be down about 6% this year to just over 100,000 units, far short of Governor Newson’s goal of 500,000, but Apple just committed $2.5 billion to help the state build more ‘affordable’ housing, joining Facebook ($1 b) and Google ($1 b). That’s certainly good news. Doubtful our region will see a penny of it, but we’re used to that. Recession? We don’t need no steenking recession!!