Don’t look now, but the housing market isn’t exactly booming
Sales are down over the last six months, and no one seems to know why. Lack of inventory is one possible explanation, along with high prices, but jobs and income are both growing. So why aren’t more people buying houses?
Has Southern California’s housing recovery ground to a halt?
That question is open to debate, but one thing is certain: the last few months don’t paint an encouraging picture of the region’s housing market, as single-family home sales have dropped substantially during that time.
If nothing else, the recovery has lost a lot of momentum during the past half-year or so, says CoreLogic DataQuick, publisher of a monthly report on the six-county region’s housing market.
“The market is definitely underperforming, and it has been for awhile,” said Lesile Appleton-Young, vice president and chief economist with the Los Angeles-based California Association of Realtors. “The question is why, and we know it’s not a demand issue. There’s still plenty of demand for housing.”
Single-family home sales in Southern California fell four times between last August and January and showed only modest gains the other two months, according to data compiled by San Diego-based CoreLogic DataQuick.
August sales set a four-year low for that month, as sales dropped 18.5 percent compared with August 2013. The market was essentially flat in September, with sales rising 1.2 percent, but in October the numbers were down again, by 4.4 percent, followed by a 9.5 percent year-over-year drop in November.
December, usually not a good month for home sales, offered some hope that the market was turning around, when sales rose 4.3 percent. Unfortunately, that wasn’t the start of a trend, as sales dropped 6.3 percent in January, the most recent data available.
The Inland Empire housing market more or less mirrored the Southern California housing market during that time, posting either drops in sales or modest gains during every month except December.
August was by far the worst month for the two-county region, as sales in Riverside County fell 22.7 percent and sales in San Bernardino County declined 21.1 percent, according to CoreLogic DataQuick.
Rising prices were undoubtedly a factor in the drop in sales.
From August through January, the median price of a single-family home rose an average of 7.2 percent every month in Southern California compared with the previous year, 8.9 percent in Riverside County and 10 percent in San Bernardino County.
By January, the median home price in Southern California was $420,000, in Riverside County $300,000 and in San Bernardino County $240,000, all substantial gains compared with the first month of 2014, according to CoreLogic DataQuick.
Several local housing experts cautioned against blaming the drop in sales on high prices alone. Other factors – lack of inventory, not as many distressed properties on the market, still too many investment buyers – also played a role.
The real question is how long will this trend last, and how much will it affect the overall recovery, particularly in the Inland Empire where housing construction all but drives the economy.
“Right now, I think the housing market is slowing down, and it isn’t slowing down, if that makes sense,” said John Karevoll, a real estate consultant based in Running Springs who has been following the Inland housing market for more than 25 years. “Some parts of the market are doing well, but others are not. I think there’s a lot of pent-up demand, but the market has an ebb and flow feel to it, which is unusual.
One reason sales have slowed is that the zero-down loans that were available before the recession aren’t available anymore.
A down payment of 20 to 25 percent on a home is again the norm, meaning people who get a home loan are more likely not to default. However, the tighter regulations mean it’s tougher to buy in the first place.
“Mortgages aren’t as easy to get now, and that’s a good thing,” Karevoll said. “Those crazy loans that Wall Street was bundling were greasing the skids before. Bundling loans isn’t a bad idea, but the way they bundled them was horrible. Also, those loans weren’t backed by the government.”
Higher prices, especially in the move-up market, might be holding back sales as much as anything.
“A lot of people want to buy a second home but they can’t afford it, so they’re staying put,” Karevoll said.
The Southern California housing market – the Inland Empire plus Los Angeles, Orange, San Diego and Ventura counties – is hurting because not enough houses are being built, and no one can say when that will change, according to Appleton-Young.
“I think the investment buyers are still hurting the market, but the biggest issue has to be inventory,” Appleton-Young said. “The market seems to be gridlocked, even though jobs and income are both growing, and that should mean a greater demand for housing. So it must be that not enough houses are being built.”
Jordan Levine, director of economic research with Beacon Economics in Los Angeles.
“There’s no question that not enough houses are up for sale,” Levine said. “We’re starting to see some new construction, but not enough to make up for what hasn’t been built over the past five years.”
Distressed properties are also disappearing from the market, and that might be holding back some first-time buyers, Levine said.
That California is so heavily regulated, especially regarding environmental laws, might also be discouraging some home builders from entering the market.
“I think all of those things are contributing factors,” Levine said.