by Gene Wunderlich
Sometimes you wonder why the talking heads at the top of the totem pole can’t figure this stuff out. Earlier this year while ‘the experts’ were cautioning about a pending real estate bubble, I was predicting that the market would stabilize and that we might actually see price declines by yearend. By mid-year, as sales slumped and prices plateaud, these ‘experts’ were changing their tune. Instead of a bubble they were worrying about what could be done to ‘stimulate’ the housing market. By November, when we spoke with FHFA Director Mel Watts, he was talking about loosening credit requirements, relaxing regulations put in place by Dodd-Frank and getting back to 3% or even 0% down loans. They’re still talking and the market is still foundering.
It’s a tough call. On the one hand you’ve got critics who worry that relaxing requirements will lead to a repeat of mistakes that led to the housing boom and bust. Steps to reduce down payment and credit standards also increase the role of Fannie and Freddie and signal a shift from the Obama administration’s efforts to shrink, and ultimately dissolve, the two mortgage giants. On the other hand you have a stagnant housing market which is not contributing to the economic recovery. Fannie and Freddie control some 90% of secondary market liquidity and if they’re not underwriting loans, nobody’s getting loans. Something needs to change.
As I’ve noted here before, investors and first time buyers who drove our market from 2009 – 2012 have largely abandoned the current market due to escalating prices. First time buyers are at their lowest rate since 1987 and household formation is the lowest it’s been since 1995. Millenials, that generation we assumed would be entering the market in record numbers, are opting to live at home into their 30’s or 40’s. And while prices have appreciated nicely over the past 3 years, the increase has not been sufficient to motivate a horde of move-up buyers. Aggregate negative equity of California homeowners has remained virtually unchanged since August leaving nearly 12% of California homeowners underwater and unable to move up. Add to that the vast numbers of homeowners who lost their homes from 2007-2011 who are as yet unable to re-enter the market and you have a combination that leaves us exactly where we are today – a paucity of buyers which equals a lagging housing market.
Locally November produced our lowest sales volume since February, down 20% from October and down 5% from November 2013. Temecula volumes were off 30% and Murrieta was down 35% from the previous month and pending sales numbers don’t portend jolly December sales either.
Prices didn’t fare much better. While it appears that median price across the market was up 1% over the prior month, Canyon Lake had an anomalously high month based on a $million+ sale which skewed the average. A weighted average of median prices actually shows a 2% month over month drop with a 2% drop from last November as well. Discounting a couple blips mid-year, our median price has remained virtually flat all year.
Inventory of homes for sale has also dropped nearly 15% in recent months and homes are staying on the market a little longer again. From less than 1 month just a 1 ½ years ago, we now have about a 4 month supply of homes on the market. Distressed property sales remain minimal, although there may be a slight uptick in Q1 2015 as the first phase of loan modification reset. The number of homeowners who may not be able to meet the increased obligation may bump the volume of foreclosures or short sales but not in significant numbers.
All the experts say 2015 will be our recovery year. Maybe they’re right this time.
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/.