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What Lies Ahead?

No, that is not a reference to the President’s latest pronouncements on the Affordable Care Act. I’ve just returned from our state and national association’s year-end meetings where we were apprised by numerous economic and political prognosticators on the state of the state and nation, especially the state of housing. And it’s mostly good news with some being more optimistic than others. I’ve included several charts and graphs from a variety of sources making this a pretty long report, but hopefully with data you can use.

Our region is performing very similarly to the rest of the state and better than most of the country, although much of the country is mirroring our market. Inventory had declined precipitously in most market but has started to increase again, as it has in ours. After experiencing heavy demand and rapid upward price pressure early in the year, sales have slowed and price appreciation has moderated nationally, again as it has in ours. Sales have slowed due to increased interest rates coming on the heels of a government shut-down that rattled consumer confidence even though the fiscal impact was minimal.
The outlook for 2014 is more of the same – slow sales growth and moderate price increases as the market sorts itself out. Heck, we might even throw in another government shut-down just to help keep economic growth stagnant. As one wag put it, ‘half the people in D.C. are raising hell about stuff that really doesn’t matter at all while the other half aren’t saying anything at all about stuff that really does matter.’

Overall the percentage of homeownership will decline modestly primarily due to the ongoing lack of new home construction and a demographic shift in ownership characteristics. California will suffer disproportionately from the lack of new homes being built. Part of that is due to a lack of available funding for private builders but part of it continues to be regulatory concerns unique to California. For example, did you know that it costs as much to permit and entitle a home in Carlsbad as it does to build the entire house in Houston? Perhaps that’s one reason why they’ve built as many homes in Houston this year as we have in the entire state of California.

According to our Chief Economist, the inventory of new homes must increase to 1.5 million from their current rate of just over 900,000, or our housing shortage will become persistent, especially in some areas (California being one). This decline in home ownership will lead to even more unequal distribution of wealth since owning a home is the primary determinant of wealth in the country today. I’ve included a summary of Dr. Lawrence Yun’s remarks at our forum last week where both he and John Krainer, Senior Economist at the San Francisco Federal Reserve, noted significant disconnects in today’s market, the lagging pace of the recovery and disconnects between the economy, housing and consumer confidence.

After spiking in 2009 and 2010, the ownership rate for 1st time homebuyers has declined to its lowest level since 2006. Increasing prices and interest rates will continue that trend. Today, 40% of homes are owned by people 55 and over and that percentage will likely increase until us ‘boomers’ start shuffling off the planet. If there’s any good news I guess that’s it.

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/

Written by Gene Wunderlich, Sr. Staff Writer

Prior to his retirement in 2021, Wunderlich served on a number of local non-profits and boards. He spent the past decade as a legislative advocate for the housing and real estate industries as well as a coalition of local Chambers of Commerce advocating on behalf of small and local businesses.

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