While a lot of folks welcomed the end of 2016 with good reason, our local housing market actually had a pretty good run. A run we’re only moderately optimistic we can improve on in 2017. We actually finished the year 5% ahead of 2015, scoring 11,519 single family home sales for the Southwest California region compared to 10,916 in 2015. That’s our best year since 2012 when 11,556 homes sold. And while it’s a far cry from our peak sales year in 2009 when 15,836 homes sold, it’s way better than our trough year in 2007 when a scant 5,640 homes changed hands here.
Temecula actually sold 26 fewer homers in 2016 than 2015 (2,007/1,981), and Murrieta sold 122 more (1,962/2,084). The largest gain came in Hemet with a 10% year-over-year increase (1,779/1,972) with Menifee and Lake Elsinore posting 8% gains. Perris and Canyon Lake joined Temecula selling fewer homes than 2015, but only dropped 12 and 10 homes respectively.
Could we have sold more if we had more product to sell? In all likelihood. You can’t sell homes you don’t have at price points that don’t exist. While remaining low throughout much of the year, December inventory dropped to its lowest level since November 2014 with just 1,743 homes available for purchase, down 16% from November. That’s just 2.1 months supply overall with many cities showing less than 2 months. It’s no coincidence that as our inventory continues to recede, our percentage of first-time homebuyers has shrunk to record lows as well.
Both average and median price continued to appreciate posting a 7% increase over 2015 (median – $303,226/$322,397)(average – $316,751/$339,827). Median price is that point where half the homes sold for a higher price and half sold for less, average price is total revenue divided by sales. In areas like Temecula, where 49 homes sold for more than $1,000,000 last year, or Murrieta, where 39 $1,000,000+ homes sold last year, the delta between average and median sales price can be significant. The $339,827 average puts us some 40% ahead of our trough of $201,264 in 2009 but still leaves us about 24% below our peak year of $448,894 reached in 2006.
Temecula has clawed its way back to within 13% of its peak ($543,540/$473,340), Menifee follows closely at 15% below, Murrieta and Lake Elsinore remain some 22% off the peak and Canyon Lake remains furthest from their high water mark at 34% ($660,930/$426,900). With a greater percentage of sales coming from higher end homes, Canyon Lake suffered the greatest decline during the recession dropping 60% in just two years ($660,930/$272,070).
Will prices continue their march in 2017? The paucity of inventory tells us that is inevitable. In fact statistically, we should have been appreciating at a far faster rate than we have been. We still have a ways to go before reaching our previous peak, a milestone reached by several cities like San Francisco last year.
Many prognosticators are forecasting that the nation will get back to their pre-recession pricing by late 2017. We’ll have to double our appreciation rate to achieve that but if things go well we could see the region hit that sometime in 2018.
Sales should also climb slowly in 2017, constrained only by availability of inventory. Interest rates will also impact sales. Interest rate will remain very low by historical standards and by some accounts increasing interest rates may actually spur sales as buyers who have been waiting on the sidelines decide it’s time to jump back in.
What happens in DC and Sacramento will obviously be big factors. Rein in the EPA overreach, re-work Dodd-Frank and the CFPB, trigger job growth? Good for housing. Jigger the tax code and eliminate mortgage interest deduction, allow the SCAQMD to run amok under Sheila Kuehl, increase fees and regulations? Only one voice you can trust to bring you the latest in local housing data so keep your eyes on this column. For the complete 2016 housing report please visit: http://tinyurl.com/2016housing.