September 29, 2014
We’ve seen a number of reports about real estate trends in the last few days. Let’s review them briefly.
New Home Sales Increase
Several media outlets reported that new home sales rose 18% in August 2014, and reached their highest level since May of 2008.
Actually, the headlines said that new home sales “surged,” but when you realize that this means that sales reached a seasonally adjusted annualized rate of 504,000 units, the news doesn’t sound so exciting. Back in the old days, when the market was overheated because all you needed to qualify for a mortgage was a heartbeat, new home sales reached a seasonally adjusted annualized rate of 1,389,000 units (July of 2005). This makes the most recent month’s surge look pretty anemic.
Pundits tried to make the numbers sound more positive than they are, but actually said we may see a slight downturn in the numbers soon, followed by a “choppy,” i.e. inconsistent, market.
Actually, if the trend line just holds steady for the next 12 to 18 months, that will be positive, considering the still stumbling economy. The sales rate could decline if the economy slows again, and that is something that none of us want to see.
The Resale Market Declines
While new home sales were “surging,” the more sobering news was that the resale market saw a decline in the number of sales.
On Monday, September 22, the National Association of Realtors (NAR) reported that existing home sales in August 2014 declined 1.8% to a level of 5.05 million units on a seasonally adjusted annualized basis, compared to a downwardly adjusted rate of 5.14 million units in July 2014. In August of 2013, the seasonally adjusted annualized rate stood at 5.33 million units. The decline in August 2014 vs. August 2013 is about 5.3%.
These numbers are considerably below the seasonally adjusted annualized number of sales when the market peaked in September 2005 at 7.26 million units. Of course that whole period was an aberration and returning to an overheated market like that will only ensure another real estate crash. It’s difficult to determine how many sales to expect in a “normal” real estate market, since sales are so cyclical and tend to vary from boom to bust and back. The lowest number of sales in the last 20 years was 3.45 million, recorded in July 2010.
Fewer Investors Buying Homes
One of the reasons cited for the decline in sales is the departure of investors from the market. In August 2014, only 12% of homes sold were bought by individual investors, down from 16% in July 2014, and down from 17% in August 2013. It’s interesting that the decline in August is being linked to investors leaving the market, since the level of investor activity has been declining for the last several years. At one point, more than 30% of sales were attributed to investors.
As home prices have risen, and the number of distressed sales (short sales and foreclosures available at below market prices) have declined, there have been fewer opportunities for investors to “flip” homes. That occurs when an investor can buy a home at a price substantially below market, refurbish it with paint, carpet, appliances, landscaping, etc., and then quickly resell it at a much higher price. With prices up and the number of buyers down, the days of the easy property flip are now part of history.
Not having competition from investors will make it easier for owner-occupant buyers to buy, and will help avoid bidding wars for certain properties. But, like most aspects of real estate, the smaller number of buyers is a double edged sword, because fewer buyers in the marketplace reduces demand, which means prices can remain static, or even decline.
Median Home Prices
NAR also reported that the median home price nationally for all types of housing in August 2014 was $219,800, which was 4.8% higher than the median price in August 2013. (The median price is the price in the middle of the total price range, so that half the homes sold for more, and half for less than the median price.) This marks the 30th consecutive month of year-over-year price gains.
The California Association of Realtors also published median prices from around the state. While the NAR reported all housing types, California reports various types of housing. For single family homes (not condos, townhomes, mobile homes, etc.) in California as a whole, the median price in August 2014 was $480,280 compared to $464,750 in July 2014, and increase of 3.3%.
The Inland Empire saw its median price decline very slightly to $275,240 in August from $275,990 in July. The median price in Riverside County declined to $318,640 in August from $319,960 in July, while San Bernardino’s median price declined to $209,200 in August from $216,570 in July.
As you might expect, counties in the San Francisco/Silicon Valley area had much higher median prices than most counties in the rest of the state. San Mateo County led the pack with a median price of $1,000,000 (yes, that’s one million dollars!) in August, down from $1,117,500 in July. The county with the lowest median price was Siskiyou County (one of the Northernmost counties in the state, bordering Oregon) at $127,500, down from $160,000 in July. The price drop in the county is probably attributable to the fact that it is not a populous county, with only about 45,000 residents, which means fewer people live in that large county than live in the city of Lake Elsinore (population above 50,000). Month-to-month price volatility is more likely when few homes sell each month.
© September 2014 Terry & Kathy Slavin All rights reserved.