HOMES SELLING AT A BRISK PACE, INVENTORY IS LOW AND SO ARE INTEREST RATES AND FORECLOSURES

The last time homes sold at today’s pace, it was 2009 and there was a very good reason--the tax credit.  So, for homes to be outselling that pace, there must be some pretty good reasons now...and there are.  Interest rates, for one thing, are screaming low, “in the high 3%’s low.”  Lots of investors have bought up the true foreclosed messes out there, have rehabbed them, and are now “flipping” them, meaning the investor is putting them right back up for sale.  These properties generally have a lower price point and demand for them is great.  Next up we have the fact that housing affordability ratios are at their highest level since the early 1990’s.  In fact, homes last month moved in California at the fastest pace and had the biggest year-over-year gain since 2009, according to the California Association of Realtors.  Another fact: homes sold at an annual rate of 572,260 up 21% from the previous year.  The statewide median home price for single-family resale was $312,110, up 6.6% in a year.  And although the median price for a single-family in Orange County fell 1.2% from  ($538,340), the overall median price for all properties, condos, new homes, and single-family, had risen in Orange County by 1.8% from last year.  More on the numbers later, but for now, let’s concentrate on yet another factor -- inventory.  Or better put, lack of inventory.  May of 2011 saw inventory of 5.7 months, almost normal.  By May of  2012, inventory is at 3.5 months and this month was less than 2 months in many Orange County cities.  Any time you have this level of scarcity, demand exceeding supply; homes will sell briskly, lowering the days on market by as much as 30% to 40%.  The next logical question is: If there really is such low inventory, why aren’t prices being driven up?  The answers make some logical sense.  First of all, in certain areas, prices are climbing faster.  There are multiple offers on many properties, and bidding wars are not unheard of right now.  So there are pockets of higher appreciation.  What keeps a bit of a lid on it are two factors: 1) Appraisals.  Many appraisers are hesitant to buy into any hype created by multiple offers, and the entire appraisal system has been re-hardwired to prevent a run up in prices.  Secondly, and this column has written about this before, wages.  Real estate prices ran up so fast and for so long at the beginning of 2000 and on to 2006, that wages were left way behind.  When you take away the “funny money” loans and qualify people for loans the old fashioned way, with the prerequisite that they be able to repay it, wages must be able to withstand market appreciation.  So Cal, along with the rest of the country, is a far cry from this yet.  Realistically, maybe 5-10 years away.