by Gene Wunderlich
In the past couple weeks I’ve had the opportunity to talk with IE Economist Dr. John Husing and California Association of Realtors® Chief Economist Leslie Appleton-Young. The good news is that we are all in agreement that our housing market is showing signs of improvement in some fundamental ways. The bad news is that a couple wrong moves (or no moves) on the part of the federal government could undo any progress that’s been made.
One of the government’s bad moves has already come to fruition – the FHFA Bulk Sale of REO properties that we’ve talked about before. Some 517 homes have been removed from our already depleted local inventory in Riverside and Los Angeles Counties for disposal to a 3rd party investor who purchased the entire nationwide lot of 2,500 properties. We don’t yet know where the homes are, what the sale price is or who the buyer is – but hey, that’s transparency in government. We do know that with continued support from you we may be able to carve California out of future bulk sales and I thank Riverside County and the cities of Temecula, Murrieta, Lake Elsinore and Menifee for your support of H.R. 5823.
The sequestration issue is also a grave concern not only for its impact on our Southern California military bases but the deleterious collateral impact to defense contractors, local manufacturers, employment and housing. Both Congressmen Duncan Hunter and Ken Calvert have recently voiced cautious optimism that some accommodation can be reached during the lame duck session to avoid this looming catastrophe for our region.
In addition to the regional housing update for the 3rd quarter, I have included several slides from both Dr. Husing and Appleton-Young’s presentations. Theses slides expand on our regional information to include both state and national housing trends, economic and employment factors and some prognostications of future activity. Our local market is by no means unique in that some of our recent trends are now spreading to the rest of the state and parts of the country. The increases in housing sales which we started seeing in 2010 have now expanded to most of California and more recently to select areas of the country and some markets are seeing double digit increases in median prices – although we aren’t quite there yet locally.
In Southwest California home sales are up 8% over last year through the 3rd quarter (5,614/6,093) and up 4% over our previous record year in 2010 (5,827). Sales are up an astonishing 27% over 2009 (3,810). Year to date median prices are also up 5% over this period last year ($231,727/$244,844) and up 3% over 2010 ($236,477) for single family residences. The lack of inventory which is impeding our sales growth is contributing to our price appreciation as most properties are now receiving multiple offers.
Our local inventory of homes for sale has shrink by 65% since February, down to just 775 single family homes. In January we sold .7 existing homes for every new listing, in September we sold nearly 3 homes for every new listing. Our inventory is being pinched by the precipitous decline in distressed properties and a lack of equity sales. Distressed properties now make up just 26% of our active inventory with bank owned homes accounting for just 10%. In 2009/2010 that figure reached 92%, the majority being bank owned.
But while equity sales (standard sales) now comprise 74% of our active listings, with nearly 30% of homeowners across the state still underwater (over 50% in Riverside County), we won’t see a compensatory increase in volume until prices increase another 20% or more. And while new home construction is starting to climb again, it will be at least 2 years before their contribution is significant enough to meet demand. Again, the price of existing built inventory has to increase by at least 20% to make it competitive for new home builders. Could another demand driven price spike be in our future?