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You Can’t Climb the Ladder if You Can’t Reach the First Rung

Our housing market is booming, making it a rare oasis in the midst of this pandemic. As past newsletters have pointed out, record low interest rates, the desire for larger homes to provide office and classroom space, and the desire to escape crowded urban settings, have put our local housing market on track to exceed the previous two years sales volume at a time when the economy was in much better shape. But a darker side of the market is emerging, one being temporarily held together by rent relief measures, eviction moratoriums and mortgage forbearance options. What the eventual outcome is when those programs wind down is subject to a very broad range of opinions. Surprise!

Time may prove me wrong but I’m not anticipating a significant increase in foreclosure activity in the near future. Forbearance and deferral will allow most delinquent homeowners to recover eventually, though there will undoubtedly be some who have endured long-term job loss or loss of a business that will lose their home. But given the decade long run-up in pricing, most homeowners are sitting on a wealth of equity, assuming they learned a lesson the last time around and haven’t refi’d their way to insolvency. A recent estimate by the National Association of Realtors® shows that people who bought a home a decade ago have over $120,000 equity in that home today. That’s on average, not California, which is even higher. Statistically the average homeowner today has a net worth approaching $300,000. If pressed, these homeowners can still sell for a profit rather than forfeit their homes to the bank.

However, the housing disparity disproportionately falls on renters who, prior to CV-19 had a net worth of just over $3,000. According to recent Census data, about 1 in 6 renters are behind on payments, have exhausted their resources, and may be facing homelessness as eviction moratoria expire. Many of those folks had aspirations of homeownership, have been saving for a down payment, and have seen that dream disappear along with their jobs and their savings. When the single largest component of household wealth is home equity and that wealth transfer from generation to generation, this impact on a large subsection of our population will have long-lasting implications for the market that will play out for a decade or more.

But those are future worries and challenges for people way above my pay grade. All I can do is track the current local market and try to keep some perspective on the broader picture.

Sales for the last half of the year continue to outstrip last year. Though as expected sales declined 14% month-over-month, they still exceeded November 2019 sales by 20% (832 / 1,033). This increased our year-over-year margin to 4% over 2019 (10,182 / 10,576). Extrapolating from pending sales volume, I expect we’ll finish the year well ahead of the past two years. Not quite on par with the nearly 12,000 units sold in 2017, but in solid company with 2016’s 11,600 sales. Not bad for a CV-19 driven, lockdown hampered, season. Of course we continue to cannibalize our inventory to support these sales, notching the 6th consecutive month where sales have exceeded inventory.

With just 738 homes available across the region, one would have to journey all the way back to May 2013 to find less inventory, and sales were not nearly as strong then. With just 3 weeks inventory on average, buyers today have only 1/3 the number of homes to select from as they did just one year ago (738 / 1,960). While not exactly robust by historic standards, last year’s 2.4 month inventory looks very hefty by comparison. Indeed the rest of the state is enjoying a 2 month unsold inventory and nationwide the figure

In November absorption increased from 99% to 120%, meaning for every new listing that came on the market, we sold 1.2 homes. Temecula sold 1.6 for every new listing and Canyon Lake sold 2.1. It’s interesting to speculate how much stronger our market could still be IF we just had more homes to sell. When homes are staying on the less than a week and generating multiple offers, it’s safe to assume there are a lot of disappointed prospective buyers out there.

Of course, when these supply/demand elements combine, the inevitable happens, as it continues to here. Median price edged up another 2% month-over-month and posted a 12% gain year-over-year ($399,555 / $454,278). That extends our year-to-date median increase to 8% ($386,460 / $421,688). Temecula matched its highest median again this month at $555,000 while Murrieta posted its highest median this year at $525,000. With 15 sales in excess of $1,000,000, Temecula’s average price remained above $600,000 for the fourth consecutive month as did Canyon Lake, with 7 sales of $1,000,000+.

And distressed properties represent 0% of our market. That’s an amazing statistic on its own.

So since we’re all locked down until sometime next year or maybe 2022, I’ll take this opportunity to wish you all a most happy holiday season, a very Merry Christmas and a prosperous and HEALTHY New Year.

Gene Wunderlich is Vice President, Government Affairs for Southwest Riverside County Association of Realtors.  If you have questions on the market, please contact me at GAD@srcar.org.      

Written by Gene Wunderlich, Sr. Staff Writer

Gene Wunderlich is the Government Affairs Director for Southwest Riverside County Association of Realtors. If you have questions on the market please contact me at GAD@srcar.org or to keep up with the latest legislative and real estate trends go to http://gadblog.srcar.org/.

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