INVENTORY TIGHTENS--BUT THE MARKET AVOIDS A RUN UP IN PRICES,SO FAR

Before you get too excited by this headline, let's face the fact that prices are very robust.  As previously reported in every local paper, the Wall Street Journal and the news, housing prices, particularly in California have rebounded about 75% of the lowest recessionary crash prices.  Despite an early article in the LA Times on March 18th,  touting a 9% increase in inventory in LA county, with multiple factors drawing in the home sellers, such as equity position, stable employment or gaining incomes, and the desire and hope of moving up themselves, that inventory has vanished almost as quickly as it was reported.  In fact, the National Housing Trend Report shows inventory has actually decreased 10.9% year over year (February the most recent month available).  What happened?  Buyers who have sat on the sideline for years, finally feeling good about exactly the same scenarios, have swept into the market and started buying up the inventory as quickly as it can come onto the market.  Why no run up in prices?  Yes we are seeing a 4% to 6% increase year over year for February, the market is tight after all. In fact, February pending sales surged beyond expectations.    But a 15% or 20% run up in prices?  Not this year.  The cash investors are largely gone, flippers are the minority, and buyers are savvy.  They will not over pay.  Therefore, the only houses that are sitting, are the ones perceived to be overpriced.  Challenge the market and you are likely to sit...and sit.  Price it correctly and the house will be gone in a week.  Who are these buyers?  Perhaps you missed the article from the National Association of Realtors that announced that Millennials have shifted their focus from careers, paying down student loan debt, easing off from living with Mom and Dad, where they have been saving money, and heading towards their own home ownership.  And the ones not living with Mom and Dad?  Since the Millennials have been dramatically shaped by the Great Recession, frugality is in their second nature.  Rents have risen in often cases, higher than what it would cost to buy.  Not willing to succumb to overpaying for any one item in their life, they are looking toward real estate.  Remember that this newsletter predicted, based on a Gallup Poll, that Millennials would become the driving force in real estate before the end of this decade, because over 64% believe in home ownership and also believe that a home is a better investment than stocks.  The best news for the single-family resale property?  The Orange County Business Council, the leading council for OC, reports that OC homebuilding isn't keeping up with the expanding workforce.  According to an article in the OC Register, it's creating a shortfall of "50,000 to 62,000 homes."  Homeowners are poised to maintain an edge as supply and demand economics drives housing.

WHAT ARE THE ACTUAL NUMBERS

Homes listed as of March 26th -- 5,429 -- That is down from 5,560 just two weeks earlier.  When you consider that the 1 Million-plus market equals 33.4% of all listings, the inventory on a median priced home is even tighter.  Notices of Default were at 385 for February, up 12.2% from January's 343, but significantly lower than the recession and the 3 years post recession.  There were only 93 actual foreclosures for the month of February in all of Orange County, signifying a very healthy housing market.  The total number of sales for March, the latest complete month available, was 2,074.  Single-family was 1,305 of that total, condos came in at 553 and new homes comprised 216 to complete the total.  The median price for all homes was $590,750 which was up 4.2% for the same month the year before.  The resale median was $640,000, which was up 3.1% for March, compared to March 2014.  Condos came in at $407,000 and that was a 5.8% increase.  New homes, always the highest, followed suit at $909,000, which was a 16.4% increase over the same period of 2014.  (Source: Dataquick)

COULD THINGS BE LOOKING UP FOR ORANGE COUNTY ECONOMY?

It would seem that there are some good reasons for cautious optimism in the OC.  A survey was published by the California Economic Forecast, a Santa Barbara based consulting firm.  It published in conjunction with the UCLA Anderson School of Management.  It stated that driving the local economy will be tourism, apartment construction and housing, and that we can expect a resurgence in wages and salary growth.  Orange County, according to the report, is leading Southern California.  Salaries are expected to rise 2.8% for 2015 and 4.1% in 2016, the most healthy advances in over a decade.  Those Millennials will also be key, as they avoid frivolity and buy the items that creates jobs; houses, cars, appliances, technology, and travel.   Life enhancement purchases are what they are all about...not "stuff."

A REMINDER FOR THE HOME SELLER

It's easy to drink the Kool Aid, and think that your house can be sold for whatever you want it to be...in other words, testing the market beyond its capabilities.  This can be a very good way for the exact opposite to happen and actually get less for your home and have it take a lot longer to do so.  This market does favor the seller.  But it favors the "fair" seller.  John Knight, recipient of the University Distinguished Faculty Award from the Eberhardt School of Business, actually did research on the cost of both time and money to a seller who priced high at the beginning of their listing period and then lowered their price.  Knight states, "Homes that underwent a price revision sold for less, and the greater the revision, the lower the selling price.  Also, the longer the home remains on the market, the lower its ultimate selling price."  There are various reasons for this phenomena.  Firstly, buyers doubt the motivation of the seller; thinking they don't really wish to sell, they lowball.  Or, they think there is something "wrong" with the property, because it's been on the market so long and they lowball.  Finally, they may recognize that the seller has built in "negotiation room" into their price and so the buyers give them more than what they bargained for, which is a lowball offer.  And since the property was overpriced, there probably are not competing offers, which would force the buyer to make a better offer.  That only happens when a property is priced correctly, drawing many buyers to it.  

THE NUMBERS ARE IN FOR 2014--PRICES WERE UP, VOLUME DOWN--BUT DON'T EXPRECT THAT TREND TO CONTINUE IN 2015

The New Year, that is 2015, has started with a much bigger bang than 2014 did.  In fact, it started to pick up at the end of 2014.  The total number of sales for November, 2014 (condos, single-family resale and new homes) totaled 15,643 for all of So Cal. (This includes Ventura, LA, OC, San Bernardino, Riverside, and San Diego.)  That number jumped an astonishing amount to 19,205 for December 2014, a 22.8% jump.  So you can imagine how anemic  the numbers were all year as the total for Orange County for 2014 was 33,844, down 8.2% from 2013's total.  That number was for all homes as stated above.  The median price, meanwhile, hit $585,000 and that was up 9.3% from 2013.  This completed two back to back years of fairly rapid appreciation gains, and experts rightly predicted a heavy slowdown, which actually started last winter, with appreciation steadily dropping all last year.  There was a total of 20,496 single-family resale, 9,166 condos sold and 4,182 new homes.  This year already is showing strong signs of volume recovery as interest rates promise to stay down...for now.  But many buyers are getting the message loud and clear from the Fed, that rates will probably rise sometime this summer.  This is a strong motivating factor for "fence sitters", who are waiting for that perfect time to buy.  The perfect time to buy is when you are financially and emotionally motivated, don't worry about the market,  but in particular, inventory is expected to strengthen this spring as more and more sellers are able and willing to sell, having enjoyed two strong years of equity growth.  You can expect to see our strongest "move up" market in over 7 years as people who want to do something, as well as those who have to do something, all enter the market.

FOREIGN BUYING POWER FOR HOMES HITS INTERESTING HICCUP

Most of us have read about or if you were selling a higher end home, may have experienced, the foreign nationals who have been snapping up properties in the US, particularly in So Cal, especially the OC.  Now listing inventory of the higher priced homes are starting to pile up as these buyers grapple with the stronger dollar.  It is a conundrum.  On the one hand, their money doesn't go nearly as far.  On the other hand, compared to many foreign currencies, the dollar is the safest haven and hedge against inflation.  Even said, listing agents might be compelled to obtain price reductions to move their high end properties.  Be patient and be realistic are the watch words for this market.  Even with this being the case, these off shore buyers will still bring competition to the high end.

AFFORDABILITY--A GLOBAL CHALLENGE

So read the headline of a recent OC Register article.  But there was a great chart from Demographia that listed the top 10 cities with the least affordable homes, in terms of the ration of an area's median home price to local median household incomes, from a study of 86 cities.  The good news is that greater OC isn't on the list, the bad news LA is, but the good news is that at least it's #10.  The cities you ask?: 1) Hong Kong  2) Vancouver, BC  3) Sydney  4) San Francisco  4) tied- San Jose  6) Melbourne  7) London  8) San Diego  9) Auckland, New Zealand  10) Los Angeles