by Gene Wunderlich
March was generally a good news month for the local housing market – and a much needed boost for both sales and prices. We hope it’s the beginning of a recovery, or a trend, or at least a few months of good news.
However, the general outlook is more mixed. I read a lot of articles on housing and the economy and one recent days bounty illustrated the difficulty faced even by the people who get paid big bucks to figure this out. One article pointed to stalled consumer housing sentiment while a second article, by the same author the next day, points to a surge in demand. How do you make sense of that? Esmael Adibi, Director of the Gary Anderson Center for Economic Research at Chapman University says the first quarter was ‘way below expectations’ but overall ‘not too bad’. He believes we’ll see much better numbers for the economy the rest of the year. If bad numbers are ‘not too bad’, would better numbers be ‘not too good’?
And based primarily on job growth reports, you’d have to agree that certainly part of the economy was recovering nicely even if that had not yet translated to a strong housing market. But then March job numbers came out and poked some holes in that recovery. Turns out job growth had not been as strong as reported in the previous months (the dreaded ‘downward revisions’) and March was not only dismal but again, ‘way below expectations’, jolting a number of rosy forecasts. In fact when you look at the real numbers under the reported 5.5% unemployment statistic, you realize that actual labor force participation dropped again by nearly 100,000 jobs, leaving job force participation at just 62%, its lowest level since the 1970’s.
So people feel a little optimism when unemployment declines but then get even more pessimistic when they realize those numbers are bogus, especially if they’re out of work and have given up trying. And then the Fed steps in hinting that interest rates will finally rise off the floor maybe about mid-year and that sends the market into another funk. It’s a funny thing that the market only looks strong enough to raise interest rates when people don’t think they will. As soon as it looks like rates will rise, the economy stumbles and the Fed has to back off.
I can tell you that after a dismal January and a slightly stronger February, March home sales jumped by over 30% locally. For the region we sold 614 single family homes in January, 636 in February and 934 in March. Sales were up in almost every city with Temecula enjoying its best month since July of 2013. For the quarter regional sales were up 2% (2,146/2,184) and prices edged up 3% over Q1 2014 ($289,868/$299,130).
Between a drop in inventory and the increase in sales, demand jumped 32%, homes remained on the market fewer days and inventory of available homes fell from 4 months to 2.7. That should put us directly in the center of a strong Sellers market, but your average Seller is just not aware of that and most Buyers still think they’re in the drivers seat. It’s a funny market.
Demographics tell us we’re in a good place. Our region is adding jobs, we’re still an affordable oasis bordering several faster appreciating areas (buying a median price home in Manhattan Beach requires an income over $300,000), the cost of gas should stay low all summer, perhaps encouraging people to buy here while working there, and our cities and schools continue to perform well (at least most of them).
But one good month does not make a trend any more than one bad one, so we’ll hold off judgment for at least another month or two and see where this market takes us. The wild card today is WATER. Increases in water rates could offset savings on fuel costs and any impact on the nascent building industry could rock our market.
Figuring that out is way above my pay grade.
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/
t @ A Glanc