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No End in Sight?

Time for another year-end recap and new year forecast for our housing market. Because we need another economic forecast? As John Kenneth Galbraith was fond of saying, “The only purpose of an economic forecast is to make astrology look respectable.”

So, looking back, 2017 was a pretty decent year for our local housing market. After the big fade in November, sales bumped up just enough in December to keep my forecast of 12,000 sales viable. Just barely. The computer tells me, (and computers are seldom wrong), that we finished the year with 12,017 sales while a different part of the same computer tells me it was only 11,965. Either way, it was a good finish.

For many cities, it was the strongest sales year since the 2009 peak. Temecula had their best year since 2005. December sales didn’t bounce as strongly as they have in some past years but still pulled ahead of last month by 6% (2% under last December). 2017 also marked the 7th consecutive year of price increases. We ended the year 8% ahead of 2016, which was 7% higher than 2015, which was 6% higher than 2014. I’m sensing a trend.

Most prognosticators think 2018 will be another good year but with a little slower appreciation. That could happen, although as demand continues to outstrip supply in our region, upward price pressure is inevitable. The impact of the recently passed tax bill will undoubtedly affect our market in some way.

Maybe good, maybe not. We’ve had groups advising that a 10% drop in home prices and/or a significant slowdown in home buying is on the horizon, while others show the market poised to expand as millenials finally test the water. By all appearances, the economy is sound and getting better, more people are employed, consumer confidence is up, GDP is performing stronger than expected – what’s not to like?

Well, except for the new gas tax and 916 other bills enacted by our legislature last year and signed by the Governor. Were we in need of another 900+ laws to guide us? Apparently so. And while some of those bills may actually help housing, the majority seem bent on making it harder or more expensive to build. Some cities and our county also raised fees on housing in response to increased demand on public services. Seems only fair after years of no increase. But it still adds to the cost of development and for every $1,000 increase in the cost of a home, 6,000 – 8,000 people are priced out of that home.

Rising interest rates will also impact sales in 2018 and the new tax bill may or may not reward homeownership as in the past. It gets even more complicated for us in California. Because. But the most important variable remains inventory. Inventory of existing homes in our region is at a four-year low point. Since reaching highs of 2,600 units for sale in July 2015, our available homes on the market stands at 1,417 in December, a drop of nearly half.

Effective inventory is even lower in some cities. Last month there was 1 ½ homes sold for every 1 listed. With an inventory this low it’s probably a good thing our pending sales are down 20% going into January. That’s a joke. It’s not a good thing. Except that it happens most years – the housing market sinks in January and February and then starts to heat back up. There’s nothing on my horizon that I see making that any different this year. I think we’re in for another good year locally. Very high cost areas of California may experience some discomfort this year, but our region should be minimally impacted. Our demographics are strong and diverse, and our cities are working hard. Let’s keep Southwest California great in 2018!

Written by Gene Wunderlich, Sr. Staff Writer

Prior to his retirement in 2021, Wunderlich served on a number of local non-profits and boards. He spent the past decade as a legislative advocate for the housing and real estate industries as well as a coalition of local Chambers of Commerce advocating on behalf of small and local businesses.

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