To paraphrase Charles Dickens, it wasn’t the best of times, it wasn’t the worst of times. 2015 ended just in time, not with a bang, but a whimper. As forecast, December sales volumes for the region spiked up 24% over November pulling the year up 9% over 2014 ( 9,932/10,916) and a scant 1% ahead of 2013 (10,764). Median price also bumped up for the region by 1%, moving the needle enough to finish the year 6% ahead of 2014 ($300,111/$319,103).
Revenue from single family real estate transactions contributed a hefty $3.5 billion dollars to local revenue streams in 2015, a 15% increase over the $2.9 billion in 2014. 560 condominium sales added another $116 million.
We’ve clawed our way back pretty well from the sales bust of 2007 when we only sold 5,640 homes. As a region, we’ve still got a ways to go to catch our best ever year in 2009 when 15,835 homes sold. Our regional median price has also recovered nearly 37% from our 2009 trough ($201,264/$319,103), though we’re still nearly 30% off our 2006 peak ($448,894). Some cities have fared better than others with Temecula pulling within 17% of its peak price ($449,651/$543,545).
So, now we’ve got another year behind us, what’s next for 2016? Well, as some prognostications surmise, we’re in for more of the same – slow, steady growth – maybe a little slower than 2015. UC Riverside’s Chris Thornberg claims “the roller coaster ride is over…there will be no big surprises in 2016. We’re nowhere near the top of the cycle. This market has a ways to go.” CoreLogic Chief Economist Dr. Frank Nothaft says “…home price growth remains in its sweet spot.” NAR’s Dr. Lawrence Yun is also on board with increases in the 5%-6% range for 2016 with sales climbing back to pre-recession levels.
We’ll know in the next 90 days if these positive vibes actually play out against a less certain backdrop. At the national level, with manufacturing off significantly last quarter, will the US continue to add jobs at a rate that inspires consumer confidence and support home buyers? And will that finally be reflected in a GDP closer to 3% than 2%? The Fed is expected to continue ratcheting up rates for the next 12-18 months assuming everything doesn’t grind to a halt in the meanwhile. At some point that will start impacting mortgage rates. Health care costs have already jumped, offset to some degree by falling gas prices. And, what of the economists who caution that we are entering the seventh year of our economic recovery cycle which tend to cycle every 6-8 years? Internationally, what happens if the Mid-East continues to conflagrate and gas prices jump? What happens if the EU disintegrates, or Europe’s economy continues to falter under the onslaught of refugees and China’s economy tanks?
Closer to home, we are dealing with a shrinking housing inventory, declining affordability and a political climate that is discouraging home building. A recent study conducted by Chapman University’s Center for Demographics and Policy pointed out a number of concerns about our housing market. California’s rate of issuing building permits per 1,000 residents is 2.2. Los Angeles issues just 1.7 permits per 1,000 and the Inland Empire comes in at 2.3. Contrast this to the Dallas-Fort Worth area where the average was 6.3 permits and the number of permits issued was roughly double the number for Los Angeles-Orange County, which boasts nearly three times the population.
As I’ve cautioned before, our housing shortage in California is reaching crisis levels. Regulatory, environmental and infrastructure issues restrict our ability to build and limit the affordability of the products we do build – even in our area. Joel Kotkin, an R.C. Hobbs Presidential Fellow in Urban Studies at Chapman University recently pointed out, “Progressive housing policy – so beloved by our political leaders – turns out to be very regressive, indeed.” Assuming that millenial buyers enter the housing market at some point, even if it’s just multi-family housing, the demand for a rare commodity will skyrocket, affordability will be further reduced and we enter another cycle of housing bust before we even fully enjoyed a boom.
Oh well, our housing market was better in 2015 than 2014, prices have been appreciating in a moderately sustainable fashion for 4 years, the recovery, though anemic, appears to be continuing and we’re getting some rain. No use worrying about things we have no control over and you’re reading this so you didn’t win the Powerball either. Have a great year.