Extremely weak sales is the new normal in housing

After nine consecutive years of extremely weak sales, low sales rates are starting to look like the new normal.

A lie, if repeated often enough, becomes accepted as truth. The mainstream media is reporting that home sales are strong and demand is robust. Compared to the depths of the housing bubble crash, sales are up somewhat, mostly due to investor demand, but sales are still very low by historic standards, and we’re nowhere near a healthy real estate market. If not for the dearth of inventory, the anemic demand wouldn’t be pushing prices up at all.

Just how anemic have sales been? The percentage of houses sold each year, the turnover ratio, plummeted during the bust, and over the last nine years, it’s remained 37% below the average of the 8 years that preceded.


The period from 1998 to 2005 marked the recovery from the previous California housing bubble. Perhaps if you consider recession sales normal, then the recent nine-year lull is not out of the ordinary.

Resales per 1000 Residents, Orange County, CA 1988-2012

It’s not only Orange County that’s seen this decline in turnover.


New home sales aren’t doing any better.

new homes sold west 2015

The mainstream media doesn’t want to analyze the data and provide a true picture of sales health. They would rather paint a Pollyanna picture of a recovering housing market to make everyone feel good. So be it.

Home sales are stronger than they were in 2008, but they are still far weaker than normal — unless you believe the last 9 years establish a new normal, then everything is copacetic.

Housing affordability in 2016: Increasing rents, home prices will drive more people away from O.C.

Jeff Collins, Jan. 3, 2016rising-rates-sales-prices

Xochitl Collazo won’t be spending 2016 in Orange County, her home of three decades.

Instead, the longtime Santa Ana resident plans to move in with a friend in central Arizona, driven away by unaffordable rents and high health insurance premiums.

“It just doesn’t make sense for me to be struggling like that anymore,” said Collazo, 36, who could barely afford her $1,000-a-month rent from what she earned managing a Mission Viejo doctor’s office. “What am I supposed to do? Have no savings? Have nothing? It literally makes no sense.”

At the very bottom of the housing ladder, those buyers who can only afford the least expensive properties get priced out by higher wage earners substituting downward. If the inventory restriction is bad enough, large swaths of wage earners are priced out of the market, prompting many to leave the state. (See: Tepid wage growth and rising house costs prices out low-income households)

If forecasters are right, there’s little relief in sight for Orange County residents who, like Collazo, struggle to find affordable housing. …

“We expect housing to remain strong in Orange County and also in California,” said Jerry Nickelsburg, senior economist with the UCLA Anderson Forecast. “There will be appreciation in both rent and home prices.”

If mortgage rates remain low, he will be correct. If rates rise above 4.75%, he will be wrong.

Lawrence Yun, chief economist of the National Association of Realtors, said that because Orange County is such a sought-after market, housing here “will always be expensive.” …

Lawrence Yun’s comments on Orange County provided the best laugh I had in 2015.resale_value

Home sales

Local forecasts didn’t include a sales projection for Orange County. But demand will be highest for houses in the $600,000 to $800,000 price ranges, said First Team Real Estate agent Dean Lueck.

“Everybody wants that below-$1 million single-family home,” Lueck said. “I don’t think we’ll see that part of the market slow down.”

Realtor economists expect sales of existing houses to be up this year in both California and the nation as a whole. They project that the number of existing California homes sold will rise 6.3 percent to 433,000. Their forecasts show existing U.S. house sales rising to 5.4 million or 5.5 million units – a 2 percent to 4 percent gain from 2015 levels. …

Does that agent or the realtor association have any credibility? Given their terrible track record, I wouldn’t feel much comfort in their assurances. I believe home sales will decline in 2016. What happens in housing in 2016 depends almost entirely on what happens with mortgage interest rates. Affordability will be the major housing market issue of 2016, and the inescapable math of higher mortgage rates means that rising mortgage rates will hurt sales or prices.



Rising home prices and increasing rents are taking a toll on house and apartment hunters. Both local and state forecasts predict that housing will be less affordable this year. …

“In spite of low mortgage rates, housing affordability has declined sharply since 2012, when home prices rebounded and income growth was stagnated,” the Chapman forecast said.

Special_Tract_HomeAs more and more marginal buyers get priced out, sales volume necessarily suffers. I don’t have much confidence that prices and rents will necessarily rise.


After hitting a 13-year high in 2015, Orange County homebuilding is projected to decrease slightly this year, according to Chapman economists.

Yes, homebuilding will decline because prices are too high. (See: OC new home sales crater due to high prices)

They predict residential building permits will total 11,936 units in 2015, the most since 2002 and up 12.2 percent from 2014. But their forecast for this year shows developers pulling 11,522 permits – down 3.5 percent from last year’s projected total, though still the second-highest pace of construction since 2002.

The Chapman forecast shows construction jobs in Orange County rising to almost 91,000 this year, the most since the recession.

U.S. housing starts are projected to hit 1.4 million units this year – again, the most since the recession – according to the NAR forecast.

Gullible homebuilders always believe overly optimistic bullshit, and the NAr is happy to provide it. There is little chance of hitting 1.4 million units next year.

housing starts

That gives you a sense of just how delusional these guys are. Someone out there looked at today’s conditions and the trend in place and somehow concluded building starts would increase 50% next year — in the face of rising interest rates.

We need strong job and wage growth and interest rates near 4% for a few years to finally get back to a “normal” market, whatever that is.


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