by Gene Wunderlich
That was one of the questions posed to recent homebuyers in an annual poll conducted by the California Association of Realtors® . The study helps pinpoint a lot of the economic and demographic data on who’s buying and selling, why and where. For example, it shows that investors have been leaving the market in droves as higher home prices squeeze the profits. It shows that Millenials are also staying out of the market in droves, and household formation has faltered. It also shows that 7% of recent Buyers would rather undergo a root canal than go through the mortgage process again. Another 7% would rather spend a night in jail while 23% would prefer to gain 10 pounds rather than try to get a home loan!
As we’re seeing in our local market, housing sales have plateau’d amid rising prices, rising inventory and dropping consumer confidence. It’s the same for the state and for much of the nation as well. In fact for our region unless things pick up remarkably against all historic trends, 2014 will be the lowest home sales since 2007.
Across Southwest California, we’re running 8% off last year’s pace for single family home sales. (5,732 / 5,301). September sales were up 5% over last September but what should be remembered is that last September it was a trough, this year it’s a peak. Sales are off 26% from their peak year in 2009.
On the plus side of the equation, prices continue to rise but ever so feebly. Regional median price was down 2% from last month but still 5% ahead of last year. And while we’re at 5% now, we started the year 21% ahead of the game. It’s slowing. While forecasting that prices would rise statewide about 5% in 2015, our state Chief Economist, Leslie Appleton-Young said she wouldn’t be surprised if we saw some more softening in some markets and even post a few declining price months before long. September was a ‘declining price’ month for us.
Most economists still believe there’s a sizeable pent-up demand that’s waiting for some stability in the housing market and a return to ‘normal’ lending standards. Since 2009 the rate of household formation in California has lagged its historic pace by nearly 1 million households (page 27). Sooner or later even those Millenials will get tired of living with Mom & Dad, won’t they?.
Global uncertainty — including Ebola, war in the Middle East and Europe’s faltering economy has wreaked havoc in stock markets recently. Does this most recent downturn in the stock market impact housing? There are two schools of thought on that. The big sell-off in stocks that began last week has already sent mortgage rates plummeting, but so far that’s only translated into bigger demand for refinancing. The bigger questions for housing markets are whether stock market volatility will undermine homebuyer confidence, and whether declines in equity prices will mean buyers will have a harder time scraping together down payments. The really big losers are first-time buyers, especially those who had their down payment money in the market. The first-time buyer market is already at the lowest point in years — this could hit it even harder.
However, historically, stock market downturns have created a flight to real estate. This normally creates increase demand and along with it, higher prices. I guess we’ll see.
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/.