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Looking Up, or Look Out??

Linguistic master Yogi Berra once opined, “It’s hard to make predictions, especially about the future.” That’s proving to be especially true these days. In my last newsletter, the Fed had just raised their interest rate for the first time in seven years in what was widely expected to be the first of many such increases because ‘things were looking up.’ A scant 30 days later smart money says the Fed is done for awhile, maybe quite awhile, as current headlines trumpet “Big Firms Hit Brake as Profit Slumps,” “China Bleeds More Cash,” and “How to Survive the New Economic Normal.” The stock market responded handing the DOW its worst 10 day start to a year since 1897 in what one senior trader called “gut wrenching drama.” Citing fears of further collapse in oil prices and ongoing weakness in the Chinese economy, some analysts are warning of the ‘biggest stock market crash in a generation.’ Look out!

But before the Bears run amok – the January unemployment rate dropped under 5% for the first time in years and forecaster expect that to drop to the 4.7% rate by year-end. That’s good. Last year’s forecasters of GDP reaching the 3% milestone were disappointed when it averaged just 2.1% and have tempered their 2016 forecast to 2.5%. Not great, but better. Housing prices are expected to rise 4.5% – 5.5% in 2016, slightly slower than 2015’s pace, while new home construction is expected to reach 1.27 million, its highest rate since the 2007 route. Things are looking up!

And Alt-A loans, euphemistically referred to as ‘liar loans’ a decade ago, are staging a comeback. These mortgages, typically extended to people that can’t fully document their income, can be a real boon to many otherwise well-qualified but self-employed buyers. However, together with sub-prime loans, they helped fuel the avalanche of defaults leading up to the economic crash and thus fell out of favor. Investors looking for higher rates of return than current interest rates are lobbying for these new low-doc mortgages promising to do a better job qualifying and policing than before. Look out – maybe.

January was one heckuva month.

I, for one, was right on the money when I forecast that January housing numbers would suck. They did. I’d like to claim that I’m just that prescient but you all now that’s not true. It was a pretty safe call because every January for the last 5 years has sucked, often being the lowest sales month of the year. With December pending sales way down, it was a sure bet that January closings would follow suit. That’s too bad because January’s pending sales aren’t all that hot either, up only 5% from December, so February numbers won’t be anything to brag about even with an extra day in the calendar. We’ll have to bide our time until March to see how demand is going to trend this year.

Both sales and median prices were down in January – sales off 25% from December and prices down 1%. Even with that drop, they were good enough to keep us ahead of 2015, with sales up 10% from last January and prices holding a 7% edge. Analysts believe prices will continue to increase this year but at a slower pace than last year which we’re seeing borne out in our local market,

With sales down and people starting to list their homes after the holidays, inventory ticked up 6%, but still 17% below where we were last January. Inventory is holding in that 3 month range for most cities – new normal. On average, cities managed to absorb nearly 85% of new listings to the market in January and homes sold a little faster bringing days-on-market back down to an average of 55 days.

That means anxious buyers are out there but just not that many (yet). Things are looking up – maybe.

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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