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In Like a Lion?

I know the ‘In Like a Lion’ thing usually pertains to weather, but in this case it pertains to whether – whether or not our housing market will live up to past trends and start improving in March. Despite a strengthening employment picture, there’s still a lot of uncertainty about the economy. While a full-blown worldwide recession may not be happening, the U.S. economy isn’t out of the woods yet according to many economists. This has dimmed prospects for a GDP rebound to the 3%+ target range in 2016 in spite of ‘full employment’. This, in turn, has prompted Fed watchers to predict no additional rate increase this month and maybe not until mid-year or beyond.

Overseas the immigration issue has kept Europe in turmoil. If borders are tightened up or closed, it will put further pressure on Greece’s faltering economy and force EU countries to increase bail-outs to troubled states. With Mid-East unrest leading to continuing high oil production coupled with decreased demand as China grapples with its own economic issues, oil prices will remain low for the foreseeable. Continued low oil price, while good for the U.S. consumer, has prompted some major U.S. banks to warn of the impact of bad loans to the oil patch. JPMorgan CEO Jamie Dimon says their bank may need to set aside $1.5 billion in reserves for bad loans. That’s $1.5 billion that won’t be available for other things like mortgage loans or construction loans – not that they’re doing much of that anyway.

Given this as background, it’s no wonder legislators are exploring ways to get banks back into the private mortgage lending business. In 2015 the market for mortgage-backed securities known as subprime or Alt-A issued by private financial institutions, as opposed to government-backed agencies, fell 36% from the previous year to $1.67 billion. By comparison, lenders issued $269.1 billion of such bonds in 2003, prior to the housing boom. Without a private-bond market, mortgages will remain harder to get for borrowers who don’t meet government requirements because of weak credit histories or hard-to-document income (self-employed & independent contractors). Its absence also could hurt more stable borrowers if future policy makers decide to pull the government back from lending and there is no private market to take its place. Fannie Mae, Freddie Mac, FHA, VA and other government backed loans currently account for nearly 90% of the secondary mortgage market.

On the local front, February wasn’t a bad month with sales up 1% from January and 7% ahead of February 2015 (636 / 686). Pending home sales were up 17% which portends an even better month in March. Median price for the region edged down about ½% from January to February but managed to stay 7% ahead of February 2015 ($288,100 / $309,194). That’s pretty much on par with the rest of the state and slightly better than the rest of the country (5.2%).

Coming into the 1st quarter of the year, Riverside County remains among the most affordable areas for first-time homebuyers with some 60% able to purchase an entry-level home. That has lead to a small bump in sales to first-timers to about 32%, but still remains close to the lowest level in the last decade. Affordability for a median price home in the region stands at 39% of households able to purchase compared to 30% for the rest of the state, 25% in San Diego County, 21% in Orange County and 11% in San Francisco.

While we’re hoping demand picks up in the spring buying season, without a concurrent increase in available inventory, price appreciation will ramp up, affordability will decline and fewer folks will get to realize their American Dream of Homeownership. Moderation and balance are key – just like we’re seeing in the Presidential race. Moderation and balance? Fat chance!

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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