August Realtor Report

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August Realtor Report

  1. 1. Good News, Bad News or Just News? According to the National Association of Realtors, it’s almost as hard to afford a house today as it was back before the financial crisis started to hit in 2008. But is that good or bad for the economy? Well, maybe a little of both. As the housing market has recovered, prices are on the rise. That’s generally seen as a positive sign. At the same time, mortgage rates have risen dramatically over the past year. However, median household income hasn’t risen as quickly. At the end of this report I’ve attached some of the most recent data from both our state and national associations summarizing the impact of rising prices and interest rates on housing affordability. These Affordability Indices are based on median household income, home prices, and interest rates. The impact of these confluences is also detailed in recent articles from the Washington Post; ‘Buying a House is Harder Than It’s Been for Five Years’, and the Wall Street Journal; ‘Mortgage Lenders, Homebuyers Feeling Rate Squeeze’. As I’ve reported here in the past, this housing ‘recovery’ is of recent vintage and is extremely fragile. Concerns about federal policy regarding mortgage interest deductions for homeowners, the proposed dissolution of Fannie & Freddie, continuing high unemployment (or underemployment) and the end of the Fed buyback of $85 billion worth of bonds every month has investors, lenders and homebuyers feeling very insecure. And insecurity and uncertainty are not friends of the housing market – or the economy in general. Keep in mind that as a result of the 5 year recession and the massive wave of distressed properties, nearly 60% of potential home re-purchasers have been eliminated from the market for the next 3 – 5 years. That’s an unprecedented number that has caused the rate of homeownership to fall to its lowest rate in 18 years. We’re also seeing a pull-back by investors as the bargains they seek have gone away. Add to that the fact that for every 1% increase in interest rates we lose another 4-5 million prospective home buyers, especially first timers, and you can see how the recent surge in sales fueled largely by investors and first time homebuyers may have assuaged some of that pent-up demand and now we’re entering a different phase of the recovery. We’re seeing that borne out locally as sales numbers decline even as prices continue to rise. After a 2% dip in July, median price for Southwest California rose 4% in August keeping us 24% ahead of last August. Year-to-date median price is averaging a 19% gain over last year. That’s healthy but not rampant and with the increase in inventory, should continue to moderate through yearend. Sales dropped 13% month-over-month and are currently running 6% behind the year-over-year run rate. Historically the next few months should continue to see slower sales activity which will also decrease pressure on pricing. At the current run rate, 2013 will end up about the same level of sales as 2011 (7,596), which wasn’t bad. Standard sales accounted for 90% of the active listings on the market again in August and nearly 80% of sold properties. I agree with the conclusions reached by our state association in the newsletter attached at the end of this report which suggests that none of these changes to the housing market in California indicates that the recovery is in jeopardy. On the contrary, real estate markets are moving into a state of a more measured and sustainable housing recovery in which traditional buyers and sellers will play a greater role. Of course we still have the government to worry about…
  2. 2. SW Market @ A Glance Southwest California Reporting Period Current Period Last Period Y ear Ago Change from Last Period Change from Year Ago Existing Home Sales (SFR Detached) August 2013 640 735 698 13% 8% Median Home Price August 2013 $331,081 $318,312 $253,328 4% 24% Unsold Inventory Index (SFR Units) August 2013 1,227 1,098 795 11% 35% Unsold Inventory Index (Months) August 2013 1.9 1.8 1.3 5% 32% Median Time on Market (Days) August 2013 48 46 81 4% 41% Source: CRMLS August Market Activity By Sales Type Standard Sale Bank Owned Short Sale Active % of MKT Sold % of MKT Active % of MKT Sold % of MKT Active % of MKT Sold % of MKT Temecula 311 94% 123 83% 8 2% 7 5% 7 2% 19 13% Murrieta 303 90% 136 81% 11 3% 4 2% 19 6% 23 14% Wildomar 31 78% 26 87% 5 13% 2 7% 3 8% 2 7% Lake Elsinore 156 86% 67 80% 7 4% 1 1% 14 8% 15 18% Menifee 197 86% 124 75% 12 5% 2 1% 15 7% 28 17% Canyon Lake 97 99% 30 70% 0 0% 3 7% 0 0% 9 21% Regional Average 1095 90% 506 79% 43 4% 19 3% 58 5% 96 15%
  3. 3. 0 50 100 150 200 250 3/11 6/11 9/11 12/11 3/12 6/12 9/12 12/12 3/13 6/13 Temecula Murrieta Lake Elsinore Menifee Wildomar Canyon Lake Southwest California Homes Single Family Homes Unit Sales $0 $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 $450,000 3/11 6/11 9/11 12/11 3/12 6/12 9/12 12/12 3/13 6/13 Temecula Murrieta Lake Elsinore Menifee Wildomar Canyon Lake Southwest California Homes Single Family Homes Median Price August Transaction Value: Temecula $59,210,456 Lake Elsinore $23,145,897 Murrieta $60,933,120 Wildomar $9,374,500 Menifee $40,264,802 Canyon Lake $17,020,050
  4. 4. $0 $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 $450,000 3/12 6/12 9/12 12/12 3/13 6/13 Southwest California Murrieta Temecula August Median Price: 2012 2013 % Temecula $347,985 $397,386 12% Murrieta $299,964 $362,697 17% Menifee $191,395 $242,559 21% Lake Elsinore $187,216 $275,546 32% Wildomar $223,344 $312,483 29% Canyon Lake $270,342 $395,815 32% Southwest California $253,328 $331,081 23% Southwest California Homes Single Family Homes Year-Over-Year Median Price
  5. 5. 0 500 1000 1500 2000 2500 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 1 4 6 2 1 4 4 6 1 7 6 7 1 4 6 9 1 5 6 2 1 7 4 4 1 7 9 4 1 9 6 3 2 0 7 2 2 1 9 7 2 1 5 4 2 1 7 1 2 2 2 4 2 2 4 0 2 0 4 5 2 1 2 0 2 0 8 7 2 0 0 9 1 9 9 7 2 0 0 9 1 9 7 8 2 1 3 2 1 8 8 2 1 8 1 2 1 9 9 7 2 2 4 0 1 4 1 9 1 1 8 8 9 7 4 8 6 2 8 4 1 7 9 5 7 7 8 7 2 5 7 8 2 5 8 1 6 7 9 6 1 7 6 0 2 6 3 9 6 7 7 8 6 3 1 0 9 8 1 2 2 7 0 50 100 150 200 250 300 350 On Market (Supply) Pending Closed (Demand) Days on Market Months Supply Absorption rate * 3 3 7 1 9 5 1 6 8 4 5 2 . 0 1 . 2 3 3 0 1 8 9 1 4 9 4 3 2 . 2 1 . 0 1 9 2 1 4 4 8 4 4 2 2 . 3 1 . 0 2 3 0 2 1 9 1 6 6 3 9 1 . 4 1 . 5 9 8 2 4 4 3 8 0 2 . 3 1 . 5 4 0 4 7 3 0 3 7 1 . 3 1 . 4 Murrieta Temecula Lake Elsininore Menifee Canyon Lake Wildomar * Absorption rate - # of new listings for the month/# of sold listings for the month August Demand Chart All signs point to a healthy market. Inventory levels are continuing to increase and, while not back to a ‘healthy’ 6.5 month level (as dictated by national standards), we’re back up to 2 months worth of homes. With buyer demand down last month, we added another 200 homes to our inventory, which has increased some 45% since May (677/1,227). Pending sales, that precursor of market health, is still strong but has dropped off some indicating that September sales will likely be close to August numbers.
  6. 6. California real estate markets in 2013 have so far been riding on a fast and furious road to recovery. Housing prices rose so precipitously in some markets, particularity in the Bay Area, that some experts even started talking about reoccurrence of a bubble. Dramatic increase in prices however was largely driven by lack of available inventory of homes for sale, as well as significant presence of investors and cash buyers. Tight market conditions led to a substantial rise in multiple offers, sales occurring on the day of listing, and selling prices far above the asking ones. While market conditions are clearly favoring sellers, there are indications that some of the California’s real estate markets may be at a turning point. Rising mortgage rates initially presented a sticker shock for many potential buyers who may have already been discouraged by fiercely competitive bidding wars and the number of cash offers. Their first reaction was to postpone their home purchase. The slowdown is suggested by a slight decrease in the buyer traffic reported in the REALTORS® Confidence Index. Rapidly increasing home prices also put a dent in affordability. The percentage of home buyers who could afford to purchase a median-priced home in California dropped to 36 percent in Q2 2013, down from 44 percent in Q1 2013 and from 51 percent in Q2 2012. However, as everyone realizes that mortgage rates will most likely not be coming down to levels observed last year, and that housing is still relatively affordable by historical measures, buyers are slowly readjusting their expectations and coming back to the market. Other indicators also suggest that real estate in California may be at a turning point. Fewer listings are under contract within a week or two than what we saw just couple months ago. The statewide median time on the market started inching up in June and again in July, after continuously declining since January 2012. Additionally, investors are playing a smaller role. Rising prices and interest rates have shrunk investors’ profit margins and the share of investors decreased to 16 percent in July from 22 percent at the beginning of 2013. Investors are also hard- pressed to find any supply of distressed properties, which has dwindled to less than a month of inventory. Distressed sales as a share of total sales have also come down dramatically to 17 percent, which was the lowest level since the end of 2007. Fortunately, however, supply of inventory of equity sales has increase 9 percent from June to July, and almost 20 percent from the year before. Increase in inventory is a much needed development and will aid the market to continue to grow going forward. None of these changes to the housing market in California suggests that the recovery is in jeopardy. On the contrary, real estate markets are moving into a state of more measured and sustainable housing recovery in which traditional buyers and sellers will play a greater role. The sharp rise in interest rates did cause a pause in the market but continued recovery is on the way as everyone adjusts to new norms. Is California’s Housing Market at a Tipping Point?
  7. 7. The Last Word In a shameful display of political gamesmanship, when our state legislature ends it’s session this Friday one bill that will likely not see the light of day is SB 30. SB 30 is the bill jointly authored by Senators Ron Calderon (D) and Joel Anderson (R) and sponsored by the California Association of Realtors®. SB 30 would have granted tax relief on phantom income to thousands of California homeowners who short-sold their home this year. SB 30 started life as a bi-partisan bill which was expected to sail through the process and be signed as an urgency measure. After all, we had a similar bill poised to do just that last year just waiting for Congress to extend their tax relief provision so we could keep California in compliance with federal regulation. But the feds delayed passage last year only sneaking it through as a provision in their last minute budget bill which was not passed until the early hours of 2013. So California had to introduce this as a new bill for our 2013 session. Still, nobody was expecting any problems. But somewhere along the way things got messy. First, Democratic Senators who never met a tax they didn’t love, decided that linking SB 30 – a tax relief bill, to SB 391 – a tax increase bill, was a great idea. SB 391 would raise ‘fees’ on real estate transaction by $75 per document (from the current $3 – $10), which would be siphoned into some pet projects and ‘affordable housing’. That bill, and similar predecessors, has met defeat either in the legislature or by the Governor several times in the past and has always been opposed by Realtors as it increases the cost to a select group of individuals (homebuyers) to give money to another group. There is no nexus and it’s not fair. So this year they thought if they linked it to our bill, we would be forced to support it, giving a (supposed) $50 million tax break to some (SB30) while increasing taxes by an estimated $500 million on others (SB391). WRONG! But as we fought to get the bills de-linked, another issue came up – the Central California Senate race pitting Republican Andy Vidak again Democrat Leticia Perez. Now the California Association of Realtors is notoriously bi-partisan in our support of candidates but the decision was made to support Vidak in this race against Perez, who was the anointed candidate of Senate Pro-Tem Darrell Steinberg. Needless to say, when the dust settled on this very costly and largely negative campaign, Vidak won. (http://www.fresnobee.com/2013/07/04/3374710/vidak-perez-race-features-negative.html) Not one to take defeat gracefully, Steinberg has pulled out all the stops to see that our bill does not progress. Under the watchful eye of Assemblymember Mike Gatto, SB 30 has been stalled in committee where it will likely perish at the close of business Friday. What this means is that any California homeowner who short sold their home in 2013 will get a tax bill from California for the amount of forgiven debt. If you owed $300,000 on your home and sold it for $200,000, that $100,000 in forgiven debt will be considered regular income by the state of California and you will pay taxes on it to the state but not to the IRS. This is a shameful display or political ‘gotcha’ with California’s beleaguered homeowners squarely in the crosshairs. There’s an outside chance we can get a retroactive bill through next session but with Steinberg still at the helm for another year, chances are slim.

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