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The Year in Review … Some Good, Some Bad, Some Ugly.

by Gene Wunderlich

There was a simple game plan for 2014 – housing was to step up to its customary role as catalyst-in-chief for the economic recovery and all would be right with the world. After all, in 6 of the past 8 recessions, housing led the recovery. The combination of pent-up demand, low interest rates, increased inventory and attractive prices would lead to more home buying, then more new construction, meaning more new jobs, leading to increased consumer confidence, then more home buying, then… Young families would finally get their piece of the American Dream, existing homeowners would finally start moving up, industry would flourish, employment would really take off and everybody would sit down and sing Kum-ba-ya and Auld Lang Syne. After all, housing got us into this mess, it was now up to housing to help get us out.

That was the plan. The reality, in hindsight, was considerably different. 18 months of explosive price increases priced many would-be first timers out of the market. Investors saw their profitability evaporate so they withdrew. Millenials, who were supposed to start forming households in droves, kept living in their parent’s basements. Interest rates spiked, then retreated. Unemployment abated but the new jobs didn’t pay what the old jobs had. Concerns about Obamacare, oil prices, Ebola, financial problems in Europe and Government dysfunction left many unaware that we are entering our 6th year of economic recovery since the recession officially ended in June of ‘09.

As a result, demand dropped and housing sales stagnated. In Southwest California housing sales were at their lowest ebb since 2007, selling fewer than 7,000 single family units this year, off 5% from last year and down nearly 30% from their 2008 peak. In real numbers we sold 6,974 homes this year compared to 7,361 last year, selling 43 fewer in Temecula, 101 in Murrieta, 106 in Menifee – not that significant really when you realize that new home construction offset some of those declines. Still, the drop of nearly 3,000 units from 9,665 sales in 2008 represents a significant decline, one not offset by anywhere near that number of new homes. We only wish new home construction had brought 3,000 new homes to market in the past few years.

After posting gains of anywhere from 18% to 26% between 2012 and 2013, median price appreciation also stalled out in 2014. The region appreciated nearly 10% with Temecula and Murrieta adding 6%, Menifee, Lake Elsinore, Hemet and San Jacinto increasing 11 – 13%. Appreciation was higher in the first half then tapered with prices actually posting a slight decline in the 4th quarter. Again, not a bad thing as it removed earlier fears of another bubble forming from too-rapid appreciation and gave the market a chance to moderate. Had appreciation continued at the 20%+ pace in 2014, sales would likely have been even slower this year increasing the likelihood of a deeper correction next year.

As it is, this year may have been our correction phase with the market returning to a more normal pace next year. Most prognosticators remain optimistic about 2015 and maybe they’re right. Of course, as referenced in the opening paragraph, most were optimistic about this year too and we see where that went. But the facts remain that there is a fairly significant pent-up demand out there. Lack of equity has so far prevented many move-up buyers from making their move. When they do that will free up more lower cost homes for first time buyers.

At some point millenials will start forming households and whether they choose to rent or buy, that will spark more construction. California has built fewer residential units (single and multi-family) in the past 4 years combined than the state needs to build every year so the need to ramp up construction lurks right behind any increase in demand.

We’re also seeing some loosening of regulatory barriers, reductions in down-payment and credit requirements and easing of lending standards that were ratcheted up too tight following the melt-down. All of these elements might indeed be a cause for optimism in 2015.

As always, you’ll find the local results right here.

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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