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The Year In Review

It’s been quite a year. We started 2013 with dwindling inventory, strengthening sales and appreciating prices. While sales improved toward mid-year, a 1 point increase in interest rates, tougher lending criteria, legislative & regulatory hurdles and consumer uncertainty reigned in the last half of the year. By the end of the year sales were lackluster, inventory was climbing and price appreciation had stagnated. It seemed like everybody was just tired and ready to get into the new year.

Let’s start with sales. Single family re-sale home sales slowed for the region, off about 8% from last year to 7,361 single family units. That’s just 200 fewer than 2011 so it’s not bad – way ahead of the 4,015 units sold in 2007. It did slow more sliding into 4th quarter so we’ll have to see what the new year brings.

Last December inventory of homes for sale was just 581, or less than 1 month supply. Some months we sold 3 homes for every new listing that came on so inventory shrank steadily. Strong demand coupled with low inventory drove prices up by an average 25% across the region for the year. However, the rate of appreciation slowed dramatically during the year. Prices jumped 11% from Q1 – Q2, but slowed to 6% from Q2 – Q3 and to just 2% from Q3 – Q4. A drop in demand propelled this price move as sales dropped from 735 in July for the region to 530 in December. Current inventory is up nearly 3X to 1,345 homes, or a 2 1/2 month supply.

It’s probably just coincidence that interest rates jumped by 1% during the same time the market contracted. Increasing prices and interest rates slowed the flow of first-time buyers, who had buoyed the market for the past 3 or 4 years. With prices up and fewer REO’s and short sales to bargain hunt, investors also drew back as ‘deals’ just didn’t pencil as well. The share of distressed properties on the market averaged about 15% or less in most cities, down from a high of 92% just 4 short years ago. The market is healing.

Now if we could only convince our government to stop over-regulating the housing market. Don’t get me wrong, the increase in inventory is good. A 1-month or less inventory is not healthy – 6 to 7 months is considered a balanced market. We’re just half that. Interest rates are still very attractive but every point of increase puts homeownership out of reach for tens of thousands. The return to standard sales is fantastic. Even the rumors that banks will accelerate their foreclosure on remaining properties, many of which have been delinquent for years, isn’t bad news. Foreclosures are down by more than half this year and nearly 80% from their peak.

The biggest threats to a sustainable housing recovery remain in Sacramento and Washington DC. Consumer uncertainty amidst conflicting regulation contributes to ongoing consumer uncertainty. This year’s interest rate hike is almost solely attributable to a ‘rumor’ that the Fed was going to discontinue their QE3 bond purchase program. It hasn’t happened yet and new Fed Chair Yellen indicates it may be awhile before much is done. But rates have not receded and it’s unlikely they will.

A reduction in conforming loan limits for our region from $505,000 to $350,000 won’t help going forward either. Uncertainty about the future of Fannie Mae & Freddie Mac, additional lending restrictions from the CFPB, fear that some or all of the mortgage interest deduction could be eliminated, concerns about the added cost of the Affordable Care Act and employment statistics all conspire to rattle consumers.

What the market needs right now is clarity and firm direction so that real estate professionals, lenders, home builders, small businesses and buyers & sellers can get on with planning for the future. Of course that’s just my opinion. I could be wrong.

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/.

by Gene Wunderlich

It’s been quite a year. We started 2013 with dwindling inventory, strengthening sales and appreciating prices. While sales improved toward mid-year, a 1 point increase in interest rates, tougher lending criteria, legislative & regulatory hurdles and consumer uncertainty reigned in the last half of the year. By the end of the year sales were lackluster, inventory was climbing and price appreciation had stagnated. It seemed like everybody was just tired and ready to get into the new year.

Let’s start with sales. Single family re-sale home sales slowed for the region, off about 8% from last year to 7,361 single family units. That’s just 200 fewer than 2011 so it’s not bad – way ahead of the 4,015 units sold in 2007. It did slow more sliding into 4th quarter so we’ll have to see what the new year brings.

Last December inventory of homes for sale was just 581, or less than 1 month supply. Some months we sold 3 homes for every new listing that came on so inventory shrank steadily. Strong demand coupled with low inventory drove prices up by an average 25% across the region for the year. However, the rate of appreciation slowed dramatically during the year. Prices jumped 11% from Q1 – Q2, but slowed to 6% from Q2 – Q3 and to just 2% from Q3 – Q4. A drop in demand propelled this price move as sales dropped from 735 in July for the region to 530 in December. Current inventory is up nearly 3X to 1,345 homes, or a 2 1/2 month supply.

It’s probably just coincidence that interest rates jumped by 1% during the same time the market contracted. Increasing prices and interest rates slowed the flow of first-time buyers, who had buoyed the market for the past 3 or 4 years. With prices up and fewer REO’s and short sales to bargain hunt, investors also drew back as ‘deals’ just didn’t pencil as well. The share of distressed properties on the market averaged about 15% or less in most cities, down from a high of 92% just 4 short years ago. The market is healing.

Now if we could only convince our government to stop over-regulating the housing market. Don’t get me wrong, the increase in inventory is good. A 1-month or less inventory is not healthy – 6 to 7 months is considered a balanced market. We’re just half that. Interest rates are still very attractive but every point of increase puts homeownership out of reach for tens of thousands. The return to standard sales is fantastic. Even the rumors that banks will accelerate their foreclosure on remaining properties, many of which have been delinquent for years, isn’t bad news. Foreclosures are down by more than half this year and nearly 80% from their peak.

The biggest threats to a sustainable housing recovery remain in Sacramento and Washington DC. Consumer uncertainty amidst conflicting regulation contributes to ongoing consumer uncertainty. This year’s interest rate hike is almost solely attributable to a ‘rumor’ that the Fed was going to discontinue their QE3 bond purchase program. It hasn’t happened yet and new Fed Chair Yellen indicates it may be awhile before much is done. But rates have not receded and it’s unlikely they will.

A reduction in conforming loan limits for our region from $505,000 to $350,000 won’t help going forward either. Uncertainty about the future of Fannie Mae & Freddie Mac, additional lending restrictions from the CFPB, fear that some or all of the mortgage interest deduction could be eliminated, concerns about the added cost of the Affordable Care Act and employment statistics all conspire to rattle consumers.

What the market needs right now is clarity and firm direction so that real estate professionals, lenders, home builders, small businesses and buyers & sellers can get on with planning for the future. Of course that’s just my opinion. I could be wrong.

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/

 

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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