NATIONAL HOME SALES STABILIZEJuly housing numbers are in. According to the National Association of Realtors, home sales have risen to their highest annual rate of the year while distressed sales are on an ongoing decline.
Data includes sales of single-family homes, townhomes, condominiums and co-ops which rose 2.4 percent on a seasonally adjusted rate of 5.15 million in July from 5.03 million in June, but remain 4.3 percent below the 5.38 million unit level from last July when it peaked, reports the National Association of Realtors.
Lawrence Yun, NAR chief economist, does warn “Although interest rates have fallen in recent months, median family incomes are still lagging behind price gains, and mortgage rates will inevitably rise with the upcoming changes in monetary policy,” which signals a decline in affordability.
SOUTHERN CALIFORNIA SALES DROP DRAMATICALLY
While national data shows promise, Southern California has seen a dramatic drop in home sales in July. The LA Times reports that the drop follows declines from buyers struggling to afford houses after last year’s price surge.
At the end of July, housing inventory rose from 3.5 percent to 2.37 million homes available for sale, representing 5.5-month supply at the present sales pace. When inventory rises, buyers have more choices—creating more supply and less demand.
The median time spent on the market for all homes was 48 days, up from 44 days in June. The longer these homes stay on the market, the less hot the market is.
New home sales dropped last month after rising 4.4% in June. The broad drop in sales comes from less demand not only from families but also from investors. Foreclosures—which appeal to investors most—flood inventory after the market bubble bursts, depress values and ruins credit for those forced to leave their homes. However, with all that low-priced inventory shrinking, investors have pulled back.
The report goes on to describe its economic repercussions: Because new home buyers spend on furniture, renovations, redesigns and moving services—those business too will feel the domino effect of the decline. Leslie Appleton-Young, chief economist for the California Assn. of Realtors states, “The housing multiplier effect is very significant, because there are so many things that happen with a home purchase.”
Real estate analyst Bill McBride says this is part of the recovery process, “We are just getting rid of the foreclosures.” During this recovery, buyers are no longer
investing in the surplus of homes and families haven’t been able to afford the inventory–despite mortgage rates being at near historical lows.
An analyst with CoreLogic DataQuick, Andrew LePage states, “Prices came a long way in a couple of years, and now a lot of would-be buyers just can’t stretch their finances enough to buy in today’s more conservative lending environment.”
“Move-up buyers are certainly not as prevalent as in years past. If you have credit and liquidity you’re going to get a mortgage, but the experience is miserable. It’s like having a root canal. There are not a lot of people saying I’d like to sign up for a root canal. The process is more an issue than the number of people with good credit,” says Susan Andrew of Luxury LA Homes.
NORHTERN CALIFORNIA SALES SOAR
On the flip side, San Francisco has seen tremendous growth, inching toward pre- recession levels. Prices increased 18.2 percent in April compared to the previous year, but have gone up 47 percent over two years from April 2012-April 214, according to S&P/Case-Shiller Home Price Index.
San Francisco Business Times reports that in all recoveries, the market regains peak values (of the previous cycle) within one to two years.
The data above indicates that while national sales are stabilizing, Southern California is still in the midst of recovery. If and when the jobs market improves so too will housing if mortgage rates remain low and housing prices don’t soar. SoCal has tremendous potential to be a buyers market.