The California real estate market has shown some signs of
improvement over the past few months. Home prices have received upward
pressure from a demand-heavy marketplace amidst limited supply of available
listings. Highly competitive bidding wars are being commonly
reported. In fact, C.A.R. October press release shows 57 percent of home sales received multiple offers,
representing the highest percentage in the last 12 years. Moreover, on
average, each home received 4.2 offers, up from 3.5 in 2011.
Another
welcomed trend, as reported by DataQuick, shows the share of equity sales in
California in September to have reached its highest level in 4 years, climbing
to 63 percent, as compared to a mere 50.8 percent of all sales as recently as
September 2011. Let’s not get too excited, however. The percentage
shift being seen is a result of a more constrained
REO-dominated market as opposed to an increase in equity sale numbers.
Regardless, this market shift is a welcomed discovery, as it does lend to an
increase is median home values.
Despite
the above reports, I still find myself reluctant to label these recent
developments as the start of a full-blown market Recovery. I’m no
pessimist, and I do regard the glass as being half full. But simply
categorizing home price appreciation as the start of the full-fledged Recovery
may be a bit premature. Instead, let’s call my sentiment regarding these
real estate market improvement one of Cautious Optimism, and below I will
explain why…
For
starters, Freddie Mac’s study of fixed mortgage rates continue to reveal
mortgage rate indexes are hovering near record lows. Frank Nothaft, chief
economist for Freddie Mac, remarked “Mortgage
rates remained relatively unchanged this week on signs of a growing economy and
low inflation.” The increased affordability of home loans should help
fuel sales, but prolonged levels of low rates [as recent forecasts show] are
good barometers of the overall economy condition, indicating the real estate
market is not yet strong enough to support interest rate hikes.
Additionally,
C.A.R. Vice President and Chief Economist Leslie
Appleton-Young, even amidst positive indicators of an improving market as noted
above, still maintains the 2013 forecasts are inconclusive. “The wildcards for
2013 include federal, monetary and housing policies, state and local government
finances, housing supply, and the actions of underwater homeowners – not to
mention the strength of the overall economic recovery,” says Appleton-Young.
All that being said, I am very pleased the market is finding ways
to improve, and optimistic such trends will continue their upward climb, albeit
more slowly than we would like. My hesitance to label market improvement
as an all-out Market Recovery is largely predicated on forecast studies like
the below C.A.R. October press release…
2013
California median home prices are expected to rise slightly, but not
necessarily due to a strengthening of the marketplace, but more so due to
supply shortages. The most intensive bidding wars are still predominantly
among cash investors, edging out first-time homebuyers and handicapping a more
comprehensive market rebuilding process. Interest rates are expected to remain
at historic lows, which is perhaps a leading indicator the market will not be
strong enough to be labeled as being amidst full Recovery. Instead, these
forecasts do show the market will continue to be quite fragile, not yet strong
enough to sustain higher mortgage rates nor healthy levels of available
supply. Any unanticipated changes in monetary and housing policies could
derail these trends of improvement. As a result, I will maintain my
stance of Cautious Optimism when it comes to my analysis of the market
recovery.
