Sunday, January 6, 2019

California Real Estate Markets are Changing...Very Slowly

California has come a long way since the housing market hit bottom in 2008. By February 2009, REO sales comprised 60 percent of all home sales, equity sales 30 percent and short sales 10 percent, according to California Association of Realtors senior vice president and chief economist Leslie Appleton-Young.
The keynote speaker at the annual Silicon Valley Association of Realtors Economic Seminar & General Membership Meeting held this month, Appleton-Young said today’s market is the reverse — equity sales comprise 98 percent and REOs just 1 percent.
The economy looks good. Unemployment is the lowest in 40 years. Consumer confidence is the highest in 18 years. Inflation remains low.
Growth, while good, has its side effects. The Feds have raised interest rates eight times since December 2015, may raise rates one more time by the end of the year and up to four times next year. Appleton-Young said the 2019 outlook is for higher interest rates, which will impact housing affordability even more. To add to this, the tax reform law has made homeownership less of an incentive.
Appleton-Young said the country is entering the 10th year of positive economic growth, but the pace of growth is decelerating. By next year it could return to a 2.4 percent level of growth.

California needs 180,000 units a year and is currently at a deficit of three million units. The state is losing its working class and millennials to other states that are building more homes and homes that are affordable.
“The question is, how long can the economy be strong if housing is not?” asked Appleton-Young out loud. Quoting C.A.R. CEO Joel Singer, she said, “At some point a supply problem becomes a demand problem.”
The C.A.R. chief economist believes California will continue to outpace the rest of the country, but job growth will suffer because of affordability. The homeownership rate is falling on a year-over-year basis. It is believed that California will become a majority renter state by 2025.
“We need to build more housing, redefine attitudes toward density, and build adequate infrastructure,” said Appleton-Young.
With its strong economy and expansion of its tech sector, Appleton-Young believes the Bay Area is the most solid in weathering the changes. “Silicon Valley is the hub of economic growth. You are it!” she exclaimed.
“The Bay Area is the juggernaut of growth in income and jobs,” added Appleton-Young. “Prices are not going down, they are just rising slowly. We are in a slow squeeze, but it’s not a cataclysmic. I don’t see the economy faltering.”
Summarizing the state of the market, Appleton-Young told Realtors, “We’re going from great to good. It’s a change you have to talk about with consumers.”
Expect a 7 percent pullback in sales next year, she said, noting Realtors need to counsel and educate consumers about the market. Since interest rates are rising, it is a good time to buy and it is a good time to sell.
“Sellers need to be straight up with their price and not play games,” said Appleton-Young.

Monday, November 26, 2018

Bay Area Real Estate Expected to Cool in 2019

Higher home prices. Weaker demand. Fewer sales. More traffic.
Economists for the California Association of Realtors on Thursday offered a somber forecast for the state housing market in 2019, expecting rising interest rates and a lack of affordable housing to push more prospective buyers out of the market.
“Home ownership is becoming a luxury good in California,” said CAR chief economist Leslie Appleton-Young. Across the Bay Area, the strong economy coupled with a lack of new housing has led to record prices. “There is no quick fix.”
California continues to be among the least affordable states in the nation for housing. Nationally, about 53 percent of families can afford mortgage payments on a median-priced home in their community. Just 1 in 4 Californians can afford to purchase a home.
In Alameda and Santa Clara counties, only 16 percent of residents can afford the typical home, while 14 percent of residents in San Francisco and San Mateo counties can handle the steep mortgage payments.
The residential market seems to be nearing a peak, Appleton-Young said, although the association expects California home prices to climb 3.1 percent next year. Total sales are expected to dip slightly, despite a growing workforce.
The expectations mean a continued windfall for Bay Area homeowners, while renters and lower-income workers scramble for affordable housing options. The median sale price for the nine-county region peaked in April, with sales of existing homes hitting $935,000, according to CoreLogic.
Median sale prices in the Bay Area have climbed, year-over-year, every month since April 2012. The historic run has given long-time homeowners spectacular returns, while forcing home searchers out of the market and sometimes the region.
As workers move into more affordable, outlying counties, congestion on the roads will increase, said association senior economist Jordan Levine.
He expects the pool of home buyers to dip as many Bay Area residents are priced out of the market. But, he added, “demand is not going to disappear.”
The statewide survey expects continued pressure on the housing market. Interest rates have climbed this year, reaching 4.6 percent last month for a 30-year-fixed rate loan, according to Freddie Mac, adding to monthly costs.
Although the market still favors sellers, economists also see signs it has begun to turn. About 40 percent of recent real estate listings have dropped prices this year, and homes have begun to spend a few more days on the market.

Wednesday, November 7, 2018

California Voters Reject Proposition 10

California voters on Tuesday rejected a controversial ballot measure known as Proposition 10 that would have expanded local government authority to enact rent-control laws on residential property, according to an NBC News projection.
Opponents of Proposition 10 claimed that the measure would worsen the state's chronic housing crisis and lead to more than 500 local rental boards setting just how much homeowners could charge to rent out their home.
More than $100 million was spent on the fight over Proposition 10, with opponents spending more than $76 million and backers shelling out about $26.2 million, according to state campaign finance records. The real estate industry, including major landlords operating in California, led the fight against the measure by donating significant amounts of money.
A PAC affiliated with the California Association of Realtors contributed about $8 million to fight the ballot measure while more than $5 million apiece came from New York-based real estate private equity firm Blackstone Property Partners, Chicago-based apartment real estate investment trust Equity Residential, and Essex Property Trust, a California-based real estate investment trust.
The proponents of Proposition 10 received most of their money from Los Angeles-based AIDS Healthcare Foundation, a nonprofit organization which donated about $23.2 million. Michael Weinstein, president of the foundation, helped lead the effort to get the voter measure on the November ballot.
The ballot measure sought to repeal California's Costa-Hawkins Rental Housing Act, a state law enacted in 1995 that weakened municipal rent control ordinances. The law specifically applied to rental control on single-family homes as well as on all housing built after Feb. 1, 1995.
California's renters typically pay 50 percent more for housing than renters living in other states, according to an analysis by the state's nonpartisan Legislative Analyst's Office. It also found that rents in some parts of the state are more than double the national average.
Sen. Bernie Sanders, the liberal Vermont independent and a potential 2020 presidential candidate, supported the ballot measure. He argued that local governments should have the right to set rents to ease the affordable housing crunch and protect tenants against huge rent increases.

Saturday, October 27, 2018

2019 California Real Estate Market Predictions

Last month, California housing statistics varied depending on which city you are in. While sales in Los Angeles, San Francisco, San Diego, San Jose and Orange County grew, prices were on the decline in many districts.
California is still a shining star in US housing markets, and some cities such as San Bernardino were heating up in August/September.
Predictions about California’s housing markets by CAR Realtors sees a slower market with homeowners hanging onto their homes. Without good locations to move to, and high prices for what’s available means everyone is staying put. CAR believes that will subdue sales throughout 2019.
China Tarrifs and Growth in 2019
If you’ve read the 2019 jobs report, you can understand the transition all states are in, including California.
China trade tariffs and US business repatriation could stimulate California’s economy and encourage more home building. You can view the California jobs stats. The question is about how long that process could take. The transition this fall is reducing exports and increasing imports which is obviously not good for the economy. By spring, that will change.
The Jan 1st China tariff date could stem the tide of imports and stimulate US production. You can read in more detail about local/federal political influences for the California market, and how it affects the rental market in the state. California unemployment has hit record lows, real earnings are up, and mortgage rates are rising, which feeds into price demands.
Housing Predictions for 2019
CAR’s 2019 California Housing Market Forecast projects a decline of over just over 3% in single-family home sales next year, at 396,800 sold units, slightly less 2018’s expected year end sales figure of 410,460 and that is 28,000 units less than 2017’s total sales.
Zillow expects California home prices to rise from $554,000 currently to $589,000 in October of 2019. Zillow gives California’s housing markets a 9.6 health rating overall and sees a price growth rate of 8.6%. Oddly, we’re seeing almost 1/5th of homes being sold with a price cut from previous sold price. The average home rental in California is $2500 per month.
Home Prices Expected to Continue to Rise

New residential home construction was down in August, yet is still up 6.5% Year-Over-Year. Construction spending increased $1,315 billion in August, 0.1% over July’s revised estimate and 6.5% higher than August 2017’s rate. That will not help bring housing prices down nor help see sales growth improve.

According to Zillow, home prices rose to an average of $544,000 in September. Top tier homes rose an average of $1.06 million while single family homes rose slightly to $553,000 on average. Prices of condos rose $2000 to $500,000 on average.

Sunday, September 16, 2018

3 Reasons to Worry About Housing

Home prices in the United States have never been higher. In January, housing values eclipsed their 2006 pre-crisis peak and since then have only pushed higher, according to the Case-Shiller home price index. 
The culprits are a crazy tight job market, rising wages and the fact that the homeownership rate is rising again after bottoming in 2016
But storm clouds are gathering as the Federal Reserve pushes interest rates higher, part of its ongoing fight to keep a lid on inflation. Higher rates weigh on home affordability -- and thus depress demand. Here are three growing headwinds the housing market faces:


Thanks to the resolve of Federal Reserve chairman Jerome Powell, who is resisting President Trump's calls for a slowdown of the rate hike pace, monetary policy continues to tighten. That's pushing up long-term interest rates, with the 30-year Treasury yield pushing back over the 3 percent threshold recently, up from less than 2.7 percent in December and a low of 2.1 percent in the summer of 2016.

Looking at the 30-year fixed mortgage rate, rates are at 4.5 percent right now, up from 3.8 percent last September and lows around 3.3 percent in 2012 and 2013.
As a result of rising mortgage rates and higher home prices, Gluskin Sheff economists estimate that housing affordability has crashed to lows not seen since 2008, well off the highs seen in 2011 and 2012 when a combination of lower prices and lower rates helped put an end to the housing collapse.

Sales activity

A slowdown in new home construction during the housing crisis resulted in a backlog of demand for brand-new homes. Builders have responded to consumer appetite for newly constructed homes, which has helped pushed up the average price of a new home from a low of $250,000 in late 2011 to a high of $402,900 in December, before cooling slightly.

But now sales activity is rolling over, threatening to break the recent trend of rising activity. Sales of existing homes has flatlined over the past year.


Millennial homeownership rates are still poor, mired as they are with student loan debt and tepid wages. 
According to the Urban Institute, the homeownership rate of millennials between the ages of 25 and 34 is about 8 percent below Gen X and baby boomers at the same age. If millennial homeownership matched previous generations, there would be 3.4 million more homeowners today, they estimate. 
The risk is that the longer this generation delays homeownership, the more baby boomers looking to downsize will be pressured into lowering their home prices when they enter retirement. 
Indeed, a study by Fannie Mae's Economic and Strategic Research group warns of a "mass exodus" on the horizon as the "homeownership demand from younger generations is insufficient to fill the void left by multitudes of departing older owners."

Thursday, August 23, 2018

Real Estate Market Begins Slight Tilt to Buyer's Market

After several years of rich home price gains, the market appears to have found a limit to what people can afford. Sellers are finally responding by lowering prices more often.
Approximately 14 percent of all listings in June saw a price cut, that's up from a recent low of 11.7 percent at the end of 2016, according to a new report from Zillow. In addition, home price growth is slowing in nearly half of the 35 largest U.S. metropolitan markets.
Rising mortgage rates and affordability are behind the change. As the housing market recovered from its epic crash in the last decade, home prices began to gain slowly. And then they suddenly took off in the last
few years.
The simple reason was supply and demand. As millennials aged into their homebuying years, homebuilders did not and are still not meeting the rising demand. In addition, millions of single-family homes lost to foreclosure were purchased by investors and turned into single-family rentals, further depleting the for-sale housing stock. The market was thus suffering a critical shortage, just as demand was taking off. Prices had nowhere to go but up. Until now.
"The housing market has tilted sharply in favor of sellers over the past two years, but there are very early preliminary signs that the winds may be starting to shift ever-so-slightly," said Zillow senior economist Aaron Terrazas. "A rising share of on-market listings are seeing price cuts, though these price cuts are concentrated at the most expensive price-points and primarily in markets that have seen outsize price gains in recent years."
While Terrazas admits it is too soon to call this a buyer's market nationally, "the frenetic pace of the housing market over the past few years is starting to return toward a more normal trend."

All real estate is local

And of course all real estate is local, so certain markets are tipping faster than others. In San Diego, 20 percent of all listings had a price cut in June, up from 12 percent a year ago. In Seattle, which continues to be the hottest market in the nation, 12 percent of all listings had a cut, the largest share in nearly four years.
In Austin, Texas, also a very strong housing market thanks to a recent influx of technology jobs, more homes are seeing price cuts as well.
"We saw intense bidding on homes over the past few years, but that is calming down with more inventory in the area," said B Barnett, a real estate agent at Reilly Realtors in Austin. "Our inventory of homes is going up with new construction, and it is helping transfer power back to the buyer."
Barnett, who said about 60 percent of her clients are relocating into the Austin market, is still seeing multiple offers, but there are fewer bidding wars, meaning prices are no longer out of reach. Buyers, she said, are getting negotiating power back and some are even able to get repairs in the deal. For the past few years, in most hot markets, buyers had to take what they could get — no contingencies.
There are still some markets where prices gains are increasing, but those are markets that have seen smaller price growth in the past few years. San Antonio, Phoenix, Philadelphia and Houston had fewer listings with a price cut in June compared with a year ago.
Among the largest housing markets, San Jose, CA, Indianapolis, IN and Charlotte, NC could see price growth slow the most over the next year, according to Zillow.

Thursday, August 16, 2018

California Real Estate Shows Signs of Slowing Sales, Rising Inventory

In the California real estate market the “b” word is on the minds of many: bubble. With reports of sharp declines in home sales, shrinking inventory and rising home prices, it might be an understatement to call California’s situation a puzzle, and one that may have implications for the entire country.
June marked the slowest home sales month for California in four years. The state saw an almost 10 percent year-over-year drop in transactions, according to a report by CoreLogic. This number stood in sharp contrast to the record-breaking cost of new and existing houses. The median price, across the state, rose to an all-time high of $500,000.
California’s trends might be exacerbated, but they’re not out of line with what’s going on in the rest of the country, says Eric Sussman, adjunct professor in accounting and real estate at UCLA Anderson.
The tax bill changes limiting home equity loan interest and property tax deductions, lack of affordable housing supply, wage stagnation and higher interest rates are all problems California shares with the rest of the country, Sussman points out.
However, California is unique in many ways, which means it might not be the most accurate barometer for judging the rest of the housing market.
“California is California. People are always going to want to come here. We’ve got 40 million people. We’re the fifth-largest economy in the world. Global capital is going to come here. In that way, we’re different,” Sussman says.

Prices are up, sales down and unemployment is low
Like California, national median home prices are at an all-time high, hitting $276,900 in June. This is a 5.2 percent increase from a year earlier, according to the National Association of Realtors, or NAR. Existing national home sales were sluggish, falling 2.2 percent in June from a year ago.
Meanwhile, the economy is strong. The national unemployment rate has fallen to 4 percent, which is the same on the state level for California. One problem is wages aren’t keeping pace, says Sussman.
“The real wage growth is squat. It’s been persistent for some time. You’ve got wage growth running, nominally, at 2.5 percent and inflation running at 2.5 percent so you’re treading water,” says Sussman. “Those are national trends, they’re just magnified in California.”

California is getting more expensive all the time, wages aren’t keeping pace

In California, price parity is higher than most of the country, according to a report by Money. The results were gathered by calculating the Census Bureau’s median income from the 2015 American Community Survey using the regional price parity method.
This method shows how much cash will buy in any given area. For example, in California the median income was $64,500 but the actual value was $56,878 when you factored in cost of living.
Although California is typically more expensive than the rest of the country, it does share the wage growth problem that the U.S, as a whole, is facing, says Danielle Hale, chief economist at
“Affordability is really important in the housing market. From an economic theory perspective, when unemployment is as low as it is right now we tend to see wages start to pick up,” says Hale.
“This is a question that’s been puzzling economists: Why aren’t wages growing faster? It’s hovered just under 3 percent. As mortgage rates start to move up we might see affordability become a problem nationwide.”

Even the frenzied Silicon Valley market has mellowed

One place where home sales were legendary for their risky offers, stripped of contingencies to woo sellers with full dance cards, is Silicon Valley. Inventory is fattening and sales are slowing.
“At our peak, in my area, if you listed a home you could count on getting 15 to 20 offers. We’re still in a market where we’re getting multiple offers, but things are changing,” says Robert Whitelaw, broker/owner of Whitelaw & Sons Real Estate Services in Morgan Hill, California.
“One, not just anything will get multiple offers. If you have a crappy house, the odds are it’s going to take you longer to sell. And that wasn’t always the case. You could sell absolute crap really quickly. The other part of it is you’re getting less offers, maybe four or five.”
Lack of construction and too much focus on the high-end market are two major problems, says Whitelaw.
Housing starts dropped by 12 percent nationwide in June, according to a joint report by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development last month.
In California, single family residential construction is rising, up 16 percent in June from last year. But these gains aren’t enough to meet demand. In 2005, there were 150,000 single family residential construction starts compared with 58,000 in 2017, a 61 percent drop.
“We have seen increases in construction but not at what we need. At 2007 it was at a high point. We’re not even at 30 percent of normal construction levels,” says Whitelaw.
“I got an email from a builder recently. It was the oddest email, it read: ‘Now affordable housing at the low $1.3 millions.’ The construction folks seemed to have played out their hand when it comes to high-end construction. The really sad thing is that, in the really high-priced homes, the folks that bought them are likely going to have to sell for less than they paid for them.”
In the last recession, California’s home prices were gut-punched, taking a 42 percent hit in home values from the peak of the recession to the bottom, according to a report by CoreLogic. Since the worst days, California home prices have risen by 78 percent, just 2 percent higher than the pre-recession peak.
Nobody can predict whether history will repeat itself, but today’s buyers might want to prepare themselves to stay in their homes for many years to come.