What has been reported nationally about the resurgent single-family housing market and the reasons for its recent growth spurt undoubtedly applies to California. Low inventory, rising median sales prices and a swarm of cash investors are just a few of the explanations, but it’s important to remember that the local market is unique inits own right. From low-income homes to vacation homes, Long Beach in many ways reflects the range of economic and social dynamics at play in the real estate market today.
Housing, in general, is creeping back to pre-recession form. “The market is just booming right now,” said Geoff McIntosh, owner of Main Street Realtors in Long Beach. The median sales price in California increased for the 10th consecutive month in December, settling at about $367,000. An inventory of less than two months accounts for last year’s surge in prices, flipping what had for years been a buyers market into a seller’s advantage. McIntosh said that most listings receive multiple offers these days, adding that the median amount of days a home is on the market before selling has fallen to about 35. Moreover, when considering low interest rates, nearly half of all Californians can afford the median priced home in the state, McIntosh said.
Meanwhile, foreclosures continue to decline, helping to clear out the detritus of properties responsible for the collapse of the housing market. A few years ago, distressed properties – REOs, foreclosures, short sales – accounted for nearly two-thirds of home sales. Now, that figure is more like one-third, or less, McIntosh said. The return of equity sales bodes well for the market, as Americans have long made housing a prime asset of their wealth.
So what’s the bad news? Actually, the caveats are many.
For example, the 27 percent increase in median sales prices in the state last year is not likely to be repeated in 2013. Appraised values can be tenuous to begin with, and the fact that cash investors are flooding the market means asking prices are not only being met, but in many cases exceeded. This has the effect of pushing out first-time homebuyers and homeowners looking to move up, said Kirk Mulhearn, owner of Prudential California Realty – The Mulhearn Group in Bixby Knolls. “It’s very frustrating as a residential broker right now,” he added. The median sales price for Prudential properties in Bixby Knolls last year was $350,000, lower than it was statewide and elsewhere in Long Beach. Mulhearn described residents in Bixby Knolls as more blue-collar, which makes the influx of cash investors and equity purchases unsustainable.
The rise in median sales prices – both Mulhearn and McIntosh said they expect the market to see about a 10 percent increase in prices this year – has some agents readying for a sort of micro-bubble, particularly if inventory remains as tight as it is now. Mulhearn said he is seeing equity investors offer $20,000 and $30,000 above asking price.
Compounding this potential price inflation could be the long-rumored shadow inventory of distressed properties that banks are continuing to hold. But McIntosh doesn’t think it will come to fruition like some have forecasted, if only because the banks are watching the market closely and don’t want to risk sending sales prices south by unloading a bulk of risky properties on the market. “I’m here to tell you it’s not there,” he added.
Whether Washington’s appetite for new tax revenue has been satiated with the recent fiscal cliff tax deal remains to be seen. For example, talk of establishing new caps on the mortgage interest deduction, or eliminating it altogether, would disproportionately impact Golden State homeowners because median prices are higher here than in most other states, McIntosh said.
If there is one trend that highlights the fluctuation in the single-family market in recent years, perhaps it is this: The luxury market is on fire right now, but lower-end properties are short on supply. If inventory picks up and sales price increases remain slow and steady, the market might achieve a better balance by year’s end.
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