IE Business Daily Business news for the Inland Empire.
Sales have been down for several months now, but several experts say the market’s long-term prospects are still strong, in California and the Inland region
Is the Southern California housing market headed for another bubble, or worse?
Several local economists say no, the local housing industry is still on the rebound and that all indications are the market is still coming back.
But two reports released recently for the month of February – one for Southern California, the other covering the entire state – aren’t anything to celebrate.
On March 12, San Diego-based DataQuick released its report on the second month of the year, data that contained some discouraging numbers and maybe a few red flags.
Home sales in February in Southern California totaled 14,027, down 12 percent from February 2013. That was the lowest sales total recorded for the month of February in six years, and the fifth straight month that single-family home sales experienced a year-to-year drop, according to DataQuick.
As it often does, the Inland Empire mirrored Southern California: February sales were down 13.8 percent year-to-year in Riverside County, with 2,443 units sold, and were down 5.9 percent in San Bernardino County, where 1,843 units were sold, according to DataQuick.
Only Ventura and Los Angeles counties performed worse than Riverside County, with drops of 22 percent and 16.2 percent respectively.
DataQuick President John Walsh, usually an optimist, didn’t try to spin those numbers or explain them away.
In a statement, Walsh called the February sales figures “lackluster,” and said the next three months will give a better indication of what is holding down housing sales. The most likely culprits for the weak numbers are either not enough houses being built or the “double whammy” of higher prices and higher mortgage rates, Walsh said.
Home prices have risen enough to drive some potential buyers out of the market. The median price of a home in Southern California last month was $383,000, nearly 20 percent higher than in February 2013.
Likewise in the Inland Empire, where the median price jumped 25 percent in Riverside County, to $285,000, and 28.6 percent in San Bernardino County, to $225,000.
Affordability is definitely a problem. The median home price of a Southern California has risen year-to-year for two years, with increases as high as 23.8 percent, according to DataQuick.
“The drop in housing affordability is enough to nudge some [people] out of the market,” Walsh said in the statement. “Other would-be buyers have no-doubt called time-out while re-evaluating their housing priorities or watching for signs the market has overshot a sustainable price level.”
Five days after DataQuick released its February numbers, the California Association of Realtors in Los Angeles came out with its assessment of the statewide housing market during February.
Once again the numbers were discouraging and showed a market losing momentum, as the headline on top of the association’s press released noted.
Single-family home sales in California last month totaled 361,210, the fourth consecutive month that sales were below 400,000 units. That was a 13.7 percent compared with February 2013, the seventh consecutive month that home sales in the state were down year-to-year, according to the association.
Sales in Riverside and San Bernardino counties were no better, declining 9.4 percent and 13.2 percent respectively year-to-year.
Diminished affordability – prices have been rising steadily for about three years, and interest rates are nearly a full percentage point higher now than they were one year ago – are the main reasons for drop in home sales, said Ken Brown, association president.
The jump in interest rates alone adds about $150 a month to a mortgage payment, enough to discourage some potential first-time home buyers, Brown said in the release.
Not all of the news was bad. Housing inventory was up in February throughout the state and mortgage rates were lower: the 30-year, fixed-rate mortgage was 4.3 percent in February, down from 4.43 percent in January but up from 3.53 percent in February 2013, according to the association.
So are California and the Inland Empire headed for another housing collapse? Not according to Inland economist John Husing, who said the local and state housing markets are taking a hit because not enough houses are being built.
“The problem is still a lack of inventory,” Husing said. “There are plenty of buyers but there aren’t enough houses for sale. Not as many people are participating in the market as there should be.”
Just as he did during the height of the recession, Husing blamed investment buyers for artificially driving up housing prices, especially in the Inland region.
“But they’re getting out of the market now, because they can’t get the capital gains benefit they used to from flipping a house,” Husing said. “The good news is that prices are going up, so people can sell their houses and move up if they want to. So we’re still in a recovery, but it’s a long process.”
Steve Johnson, director of Metrostudy’s Riverside office, admitted he doesn’t like the lnland Empire housing numbers from the past few months, but said he’s not hitting the panic button.
“I’m not calling it a slump, but the reports we’ve been getting lately do get your attention,” said Johnson, whose company supplies housing data to clients in the public and private sectors. “If nothing else, it looks like 2014 is going to be pretty lethargic compared with 2013.”
The state housing market, like the regional markets in Southern California, aren’t even close to being in a slump, said Chris Thornberg, principal with Beacon Economics in Los Angeles.
“There’s more equity in the market now than there has been in a long time, and that means more buyers,” Thornberg said. “I don’t think there’s any reason to worry about the housing market.”
With more jobs coming online in Riverside and San Bernardino counties, the housing market in the two-county region can only improve.
“I’ve been predicting that the housing market will be strong in 2015 and back to normal in 2016, and I’m going to stick with that,” Husing said. “And ’m going to enjoy the good housing data we’ve been getting from the state lately.”
