SUMMER OUTLOOK: REAL ESTATE HEADS INTO BUYING SEASON ON FIRM FOOTING

INMAN REPORTS: The US housing market, after understandably sputtering this spring due to COVID-19, is showing resiliency as the market picks up substantial steam all over the country. Realtor.com reported that after listings started dropping drastically in March, in the face of unknown science at that time, regarding the virus, the slowdown in listings bottomed out toward the end of April. The rapid response of both CAR, and NAR (California and National Assoc of Realtors), of quickly mobilizing both standards of protocol for showings and listings, but also disclosure forms for transactions to protect and inform both buyer and seller. Also effecting the return of transactions was Real Estate quickly being shifted into the “essential” category during the lockdown, where housing should be considered in any crisis. Zillow economist Skylar Olsen told Inman that the summer market is now considered, “Robust,” after sales bottomed out at a full 50% down compared with year over year. (More on that in next story). Having standards of personal protection for both the client and Realtor has made all the difference. The biggest challenge to the market is the same as before the pandemic and that is inventory. The tight supply seems not to have to do with COVID-19 panic any longer and has more to do with homeowners staying in their homes longer. If you need to sell, now is the time for optimal pricing. If you need to buy, you will never find a more equitable time for buyers given a sellers market. Why? Interest rates of course, remain very low. Pimco CEO states that inflation is such a thing of the past as we once knew it, that rates (the rate that banks pay set by The Fed), could remain low for years. That rate isn’t directly tied to real estate rates, but the 10 year treasury and bonds, which do relate to real estate should be closely aligned. 

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TIGHT INVENTORY, EVER RISING RENTS, KILLER INTEREST RATES, THE MARKET IS A LITTLE CRAZY

Tenants are struggling with 9 straight years of rent hikes, as we continue to have a housing crisis of epic proportions. That may sound dramatic, but we need housing, and more rental and cross economic levels of housing. We need it all; apartments, condos, affordable housing, single level, high rise density housing. But from where shall it come? Cities are at odds over development and density, price points remain an issue as the median housing price climbs again for unprecedented months continuously. Driven by equally historic low inventory across all of Southern California, and equally historically low interest rates, early February is seeing the lowest bond rates in 20 years, which if you’ve been following the market, is truly saying something, housing is hot. According to the Harvard Center report, the middle income renter, is struggling. (Exact numbers are in the next story). One lender, who is a monthly columnist for the Orange County Register, predicts a 25% minimum price adjustment, DOWNWARD, in the next decade. No one sees it now, but there may be a smidgen of truth or at least reality, in this prediction. Our affordability index is too high, for our median income ratios. Simply put, the general population will not be able to sustain or afford these high prices after the top tier quits buying. People still will need to sell, so logic says, prices will come down at some point as demand wanes and inventory increases. We’ll see.

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C.A.R. RELEASES ITS 2019 CALIFORNIA HOUSING MARKET FORECAST

Market shift underway as housing shortage issue becomes demand issue
LOS ANGELES (Oct. 11) – A combination of high home prices and eroding affordability is expected to cut into housing demand and contribute to a weaker housing market in 2019, and 2018 home sales will register lower for the first time in four years, according to a housing and economic forecast released today by the CALIFORNIA ASSOCIATION OF REALTORS®’ (C.A.R.).

C.A.R.’s “2019 California Housing Market Forecast” sees a modest decline in existing single-family home sales of 3.3 percent next year to reach 396,800 units, down from the projected 2018 sales figure of 410,460. The 2018 figure is 3.2 percent lower compared with the 424,100 pace of homes sold in 2017.

“While home prices are predicted to temper next year, interest rates will likely rise and compound housing affordability issues,” said C.A.R. President Steve White. “Would-be buyers who are concerned that home prices may have peaked will wait on the sidelines until they have more clarity on where the housing market is headed. This could hold back housing demand and hamper home sales in 2019.”

C.A.R.’s forecast projects growth in the U.S. Gross Domestic Product of 2.4 percent in 2019, after a projected gain of 3.0 percent in 2018. With California’s nonfarm job growth at 1.4 percent, down from a projected 2.0 percent in 2018, the state’s unemployment rate will remain at 4.3 percent in 2019, unchanged from 2018’s figure but down from and 4.8 percent in 2017.

The average for 30-year, fixed mortgage interest rates will rise to 5.2 percent in 2019, up from 4.7 percent in 2018 and 4.0 percent in 2017, but will still remain low by historical standards.

The California median home price is forecast to increase 3.1 percent to $593,450 in 2019, following a projected 7.0 percent increase in 2018 to $575,800.

“The surge in home prices over the past few years due to the housing supply shortage has finally taken a toll on the market,” said C.A.R. Senior Vice President and Chief Economist Leslie Appleton-Young. “Despite an improvement in supply conditions, there is a high level of uncertainty about the direction of the market that is affecting homebuying decisions. This psychological effect is creating a mismatch in price expectations between buyers and sellers and will limit price growth in the upcoming year.”

Outmigration, which is a result of the state’s housing affordability issue, will also be a primary concern for the California housing market in 2019 as interest rates are expected to rise further next year. The high housing cost is driving Californians to leave their current county or even the state. According to C.A.R.’s 2018 State of the Housing Market/Study of Housing: Insight, Forecast, Trends (SHIFT) report, 28 percent of homebuyers moved out of the county in which they previously resided, up from 21 percent in 2017. The outmigration trend was even worse in the Bay Area, where housing was the least affordable, with 35 percent of homebuyers moving out because of affordability constraints. Southern California did not fare any better as 35 percent of homebuyers moved out of their county for the same reason, a significant jump from 21 percent in 2017. The substantial surge in homebuyers fleeing the state is reflected by the home sales decline in Southern California, which was down on a year-over-year basis for the first eight months of 2018. Outmigration will not abate as long as home prices are out of reach and interest rates rise in the upcoming year.

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WHY 5% MORTGAGE RATES AREN'T A THREAT

Source: REALTOR® Mag

Mortgage rates are on the rise. Could that derail sales? According to First American’s Potential HomeSales model, even if the 30-year fixed-rate mortgage rose to 5 percent, the impact on the housing market would be modest.

Many economists are predicting that the 30-year fixed-rate mortgage will average 5 percent by the end of 2018 or early 2019.

First American’s Potential Home Sales model estimates the potential for existing-home sales based on market fundamentals. The market potential for existing-home sales based on current fundamentals is 6.11 million at a seasonally adjusted annualized rate. If the 30-year fixed-rate mortgage rose to 5 percent, the impact would be a slight decline to 6.1 million existing-home sales, according to the model.12 months.

Full story: 

https://magazine.realtor/daily-news/2018/06/19/why-5-mortgage-rates-aren-t-a-threat

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CALIFORNIA'S HOUSING MARKET HAS REACHED A BOILING POINT, AND A TYPICAL HOME COSTS $600,000

Source: Business Insider

For the first time in history, California's median home price hit $600,860, according to the California Association of Realtors (CAR). The record was based on home sale prices in May and was up 2.8 percent from April and 9.2 percent from May 2017.

California's median-priced home — where half of the homes sold below that number and half sold above— is more than double the national median home price of $264,800.

California's median price previously peaked at $594,530 over a decade ago, according to CAR.

"As we predicted last month, California's statewide median home price broke the previous pre-recession peak set in May 2007 and hit another high as tight supply conditions continued to pour fuel on the price appreciation fire," CAR Senior Vice President and Chief Economist Leslie Appleton-Young said in a press release.

The upward pressure on prices is caused by a major shortage of housing supply in the state, particularly in the bottom end of the market where homes are priced below $200,000. In the last year, availability of those homes declined by nearly 29 percent, while the supply of homes on the market priced at $1 million and up increased by more than 18 percent.

Still, buyer demand is in high gear. The median time it took to sell a single-family home in California in May was 15 days.

Full story: 

http://www.businessinsider.com/california-home-price-hits-record-high-2018-6

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MILLENNIALS MOVING OUT OF MOM AND DAD'S PLACE, STUDY SHOWS

Source: CNBC

If you have an adult child living at home, you could become an empty nester sooner than you thought.

The number of 18- to 34-year-olds living with parents last year edged down from 2016, according to new data from CoStar Group, a commercial real estate information company in New York.

Last year, 31.5 percent of that age cohort were living with Mom and Dad, down slightly from more than 32 percent in 2016. While still higher than the long-term average of under 28 percent, it's a downward trend the firm expects to continue due to the strength of the job market and overall economy.

"There are more individuals in that age cohort who are employed," said Michael Cohen, director of
advisory services at CoStar. "We also should see some wage gains in that age range. ... Both of those things help."

Cohen said the tight labor market — overall unemployment is about 3.8 percent — has led to a higher rate of workforce participation among younger adults.

Full story: 

https://www.cnbc.com/2018/06/20/millennials-moving-out-of-mom-and-dads-place-study-shows.html

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WHAT YOU SHOULD KNOW

• Mortgage application volume increased 5.1 percent from the previous week, according to the Mortgage Bankers Association's seasonally adjusted survey.

• The gain was driven by applications to refinance a home loan, which rose 6 percent for the week but were still 31 percent lower than a year ago, when interest rates were lower.

• The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) remained unchanged at 4.83 percent, with points decreasing to 0.48 from 0.53 (including the origination fee) for 80 percent loan-to-value ratio loans.

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