by Gene Wunderlich
I like Arthur Laffer, he of the famed Laffer Curve. During a recent appearance with Ed Schultz on MSNBC, Laffer offered this reasonable rule of thumb – “When you’re in a strange city and need directions, ask at least two people. If they give you the same answer, odds are its correct. If you’re really risk averse, ask three people”. Good advice even if you have a smartphone with GPS.
He went on to note that if you really want to find out what’s going on in the economy, the last person you should ask is an economist. “You can always find an economist willing to tell you what you want to hear. In fact, as any law firm can attest, if you pay an economist enough, that economist will tell you exactly what you want to hear.” I recall Alan Greenspan sharing his similar view with us a few years back when he told us ‘the first rule of economists is that for every economist there is an equal and opposite economist.’
So for you, dear reader, I always try to garner at least three opinions in hopes of providing some balance to the economic worldview of housing. This month’s headlines include ‘National Housing Market Recovery Making Slow Progress’ from a DS News article citing Freddie Mac indices. But while Freddie was more optimistic, Fannie weighed in with this headline ‘Fannie Mae More Cautious On Housing Outlook. Kids! Why are you going to do? Data from Reuters was used to support this headline in RealtorMag stating ‘Economists Grow More Optimistic About Housing’s Outlook’.For my last source, I went directly to Laffer and his recent article ‘Three Signs of a Feeble Economy’, where he asks: ‘How is the economy doing five years after the recession? If you consult data on GDP, employment and housing you can conclude things aren’t going well.’
Well, that about sums up our local market five years after the recession. I suspect if you asked a local audience of business owners and homeowners, most would not be aware the recession ended in June 2009. I did that last month and they aren’t.
Locally our market continues with mixed results as well. Interestingly, though sales were down about 5% from last month, August sales were only 3 units under where they were last August. Does that mean sales are picking up? No, it simply means last August sucked as well. So much for our summer boost!
Prices were up moderately year over year, 10% overall and 2% up from a month ago. That’s not a bad thing as we can sustain an 8%-10% appreciation rate for quite awhile without worrying about a bubble. But this slow appreciation rate is keeping a lot of move-up buyers on the sidelines because even though they have a little equity in their homes again, it’s not enough to make the leap into their next home. At the same time, first time buyers are declining as a share of the market due to those same rising prices. So it’s a double whammy – too slow to attract move-up buyers but too steep for first timers and investors resulting in a very stagnant appearing market. A glance at the bottom chart on Page 6 shows that since 2011 inventory has dropped from over 2,000 units to just over 500 and now back up to over 2,000. Meanwhile sales have hovered in the 500-600 range the whole time.
I had the opportunity to hear NAR Chief Economist Lawrence Yun address the Hawaii Association of Realtors last week optimistically forecasting a good year in 2015 for resort and 2nd home sales. He also believes we will see a more solid growth year for general residential sales next year. Well, you know what they say about economists.
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/.