California home sales hit six-year low
Despite the happy-talk from realtors, the housing recovery flounders on low volume, sustained only by low inventory.
Most housing analysts expected sales to increase in 2014. They believed an increase in sales and an increase in price would represent “escape velocity,” a virtuous circle where rising prices increases demand and causes more sales and rising prices; in the past, this would have worked because lenders would extend toxic financing terms to new buyers to keep the party going, but the new mortgage regulations changed how real estate markets work. With those products now banned, the party ends when prices get too high — as it should.
In Bold California housing market predictions for 2014, I said sales volumes would decline because investors would pull back and owner-occupants would not step up to take their place, particularly with prices and mortgage interest rates so much higher. Starting the new year, most people preferred to sustain their delusional optimism, so housing pundits and financial reporters clung to their notions of a robust housing recovery. As reality set in over the last several months, first they blamed the weather for declining sales, then they erroneously blamed the lack of inventory (this implies pent-up demand that isn’t there, so it’s more palatable). The reality is that prices are too high relative to income and buying power; affordability limits both sales volumes and price growth.
An estimated 32,923 new and resale houses and condos sold statewide in March. That was up 28.2 percent from 25,680 in February, and down 12.8 percent from 37,764 sales in March 2013, according to San Diego-based DataQuick.
Last month’s sales were the lowest for a March since 2008, when 24,565 homes sold – a record low for the month of March. California’s high for March sales was 68,848 in 2005. Last month’s sales were 23.9 percent below the average of 43,251 sales for all months of March since 1988, when DataQuick’s statistics begin. California sales haven’t been above average for any particular month in more than eight years.
Any way you look at sales, the data doesn’t show strength.
Raw sales numbers should be adjusted for population, which makes them look even worse.
So how far below normal are sales really trending?
Of the existing homes sold last month, 7.4 percent were properties that had been foreclosed on during the past year. That was down from a revised 8.0 percent in February and down from 15.0 percent a year earlier. California’s foreclosure resales peaked at 58.8 percent in February 2009.
Foreclosures are not a current factor in the market. The can kicking through loan modification and governmental delays removed foreclosures from the market.
Short sales – transactions where the sale price fell short of what was owed on the property – made up an estimated 7.4 percent of the homes that resold last month. That was down from an estimated 9.3 percent the month before and 18.7 percent a year earlier.
Lenders stopped approving short sales in circumstances when the sellers had other assets — as they always should have. Strategic default and short sale should only have been a viable option for those people without other assets. In any case, the lack of approved short sales has removed those sales from the market, and it effectively removed all the underwater properties from the market as well.
Trey Garrison, April 16, 2014 11:00PM
Fully 9.1 million U.S. residential properties were seriously underwater, representing 17% of all properties with a mortgage in the first quarter, according to RealtyTrac’s U.S. Home Equity & Underwater Report for the first quarter of 2014.
To be seriously underwater, the combined loan amount secured by the property is at least 25% higher than the property’s market value.
“U.S. homeowners are continuing to recover equity lost during the Great Recession, but the pace of that recovering equity slowed in the first quarter, corresponding to slowing home price appreciation,” said Daren Blomquist, vice president at RealtyTrac. “Slower price appreciation means the 9 million homeowners seriously underwater could still have a long road back to positive equity.”
This is where the missing MLS inventory is located. All these borrowers require a short sale, and since banks won’t approve the sale unless the seller surrenders their assets, if the loanowner want to keep any of their other assets, they can’t list and sell their homes. (See: Low housing inventory is an indicator of residual mortgage distress)
The lack of MLS inventory is causing prices to rise despite the lack of demand. So why is demand so low?
More potential buyers are out trolling the nation’s neighborhoods for their dream homes. Unfortunately, they are finding little to look at and, even worse, they are finding higher prices than they expected.
“People quite frankly came out and got sticker shock because they’re coming out to shop now, or they came out in January and February to shop, and they picked up the price sheet and saw, ‘Wow that’s way more than I thought’ because home prices had gone up so much in 2013,” said Brad Hunter, chief economist at Metrostudy.
Rising mortgage rates and costs, tighter credit conditions, higher home prices. Add it all up, and affordability shrinks.
Even the realtors acknowledge affordability is becoming a problem.
Daily Real Estate News | Wednesday, February 12, 2014
Strong year-over-year price gains are starting to take a bite into housing affordability, particularly in the West …
says Lawrence Yun, NAR’s chief economist. “At the same time, home prices have been rising faster than incomes, while mortgage interest rates are above the record lows of a year ago. This is beginning to hamper housing affordability.”
“Added housing supply will help moderate price growth this year, and should help to stem erosion in affordability, but mortgage interest rates are projected to rise above 5 percent by the end of the year,” Yun says.
How will higher interest rates and the higher prices they predict supposed to help affordability? Does he even think about the nonsense he says? Added supply will only help affordability if that supply pushes prices down!
Perhaps realtors are finally ready to stop using the cold weather excuse and face reality — or not.