OC house sales plunge; prices level at affordability limit

[dfads params=’groups=165&limit=1′]Nothing interesting happens in real estate in December. Few people hunt for houses, inventory usually declines, and both inventory and sales hit a low for the year. This year is similar to others.

The differences in the housing market this December arise from the unique circumstances of today’s market. Ordinarily, house prices also decline in December because sellers are motivated and reduce their price to sell. This December, we witnessed no decline in price–mostly because cloud inventory sellers can’t lower their price–so instead we endured a larger than normal decrease in sales volumes. Housing bulls interpret the steady price as a sign of strength; they ignore the dramatic decline in sales volumes brought about because sellers didn’t reduce their asking prices.

Higher house prices fatigue weary investors who no longer find bargains. Potential owner-occupants lack jobs so sales to this group remains muted. Only the cloud inventory restrictions that keep inventory off the market keeps prices as high as they are. With investors priced out, owner-occupants languishing, and sellers trapped, I expect to see low sales volumes again next year as the market limps along.

Southland Home Sales Drop; Median Sale Price Edges Sideways – Again

December 16, 2013

Southern California’s housing market downshifted last month, with sales falling well below a year earlier as investor activity waned again and buyers continued to struggle with higher prices and a thin supply of homes for sale. The median sale price held nearly steady for the sixth consecutive month, though it was still almost 20 percent higher than a year ago, a real estate information service reported.

A total of 17,283 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was down 14.2 percent from 20,150 sales in October, and down 10.4 percent from 19,285 sales in November 2012, according to San Diego-based DataQuick.

On average, Southland sales have declined 7.6 percent between October and November since 1988, when DataQuick’s statistics begin.

Last month’s sales were 19.8 percent below the average number of sales – 21,559 – in the month of November. Southland sales haven’t been above average for any particular month in more than seven years. November sales have ranged from a low of 13,173 in November 2007 to high of 31,987 in November 1988.

The words “down” and “low” permeate that description. We are down from last year, and last year was weak by historic standards. Any dreams of escape velocity are fading fast.

Sales in Orange County lumber 21.7% below last year. Sales plunged since interest rates rose this spring.

The median price paid for all new and resale houses and condos sold in the six-county region last month was $385,000, up 0.3 percent from $383,750 in October and up 19.9 percent from $321,000 in November 2012. Last month’s $385,000 median price ties June, July and August as the highest for this year. The last time the median was higher than $385,000 was in February 2008, when it was $408,000 (the median was $385,000 in March and April of 2008).

The median sale price has risen on a year-over-year basis for 20 consecutive months. Those gains have been double-digit – between 10.8 percent and 28.3 percent – over the past 16 months. November’s 19.9 percent year-over-year gain is the lowest since the median rose 19.6 percent last December.

The November median was 23.8 percent below the peak $505,000 median in spring/summer 2007.

Coastal California is near the peak, but inland California has a long, long way to go. That’s why there are still good cashflow properties in Riverside County.

November sales were pretty underwhelming. The exact cause is tough to pinpoint, but we see likely culprits: The inventory of homes for sale still falls short of demand. Also, any pullback in home buying during the early-October fiasco in Washington D.C. would have undermined November closings, and we know investor and cash buying continued to drop,” said John Walsh, DataQuick president.

Perhaps the reason sales are so weak is because house prices are too damn high! Did that even occur to him?

“Meanwhile, home prices aren’t soaring anymore but they’re also proving to be sticky,” Walsh said.

Many of the wouldbe sellers who maintain listings during the off season can’t lower their price because they would be short sales. Prices are stickier than usual due to this effect.

“The price jumps we saw earlier this year were driven in large part by the supply-demand mismatch. This spring could bring a substantial surge in inventory as more homeowners look to cash in on higher values. If that happens it’s going to make big price jumps less likely.”

In my opinion what really makes a big jump unlikely is the lack of affordability. Markets are hitting the affordability ceiling, and financed buyers are unable to push prices higher.

Orange County Housing Market Update

The December doldrums weigh on the market. Little is selling, and prices remain flat.

Prices slammed into the affordability wall. Next year will demonstrate the rigidity of this barrier.

Resale prices are leveling off, and for the last four months, the market held at its normal stable relationship between the cost of ownership and rent.

Our current rate of rent growth is marginally acceptable, but less than stellar.

Rents rise slowly while the cost of ownership bounces like a pinball.

Owner occupants can still enjoy a relatively low cost of ownership — at least for a while longer.

The OCHN rating system reflects the recent return to fair value. The superior ratings of the last few years are giving way to slightly lower ratings.

Next month, I doubt the results look much different. The market is in a holding pattern waiting to see if buyers return next year. Unless the economy improves, there’s good reason to think they won’t.

Real estate news coverage suspended for holidays

Real estate news coverage is suspended from December 21 through December 31. Regular real estate related news posts will resume on January 1, 2014. I apologize for any inconvenience. Since the end of the year is a time of family and reflection, and since it’s not a time many people focus on real estate, I decided to offer something different.

Tony Bliss was a close friend of mine who lost his heroic battle with cancer in late 2012. He wrote about his experience in a series of gripping posts that reveal a beautiful and courageous man. I was deeply moved by these posts — some of which are admittedly difficult to digest. This writing is raw. Real. Be forewarned that if you read his posts, you will never be the same. You will laugh, cry, fear, hope, and stare into the abyss of your own mortality. I am honored to share this great work with you here starting December 21st and concluding December 31st.

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5480 COPPER CANYON Rd Unit 1B Yorba Linda, CA 92887

$379,900 …….. Asking Price
$265,000 ………. Purchase Price
5/10/2010 ………. Purchase Date

$114,900 ………. Gross Gain (Loss)
($30,392) ………… Commissions and Costs at 8%
$84,508 ………. Net Gain (Loss)
43.4% ………. Gross Percent Change
31.9% ………. Net Percent Change
9.9% ………… Annual Appreciation

Cost of Home Ownership
$379,900 …….. Asking Price
$13,297 ………… 3.5% Down FHA Financing
4.48% …………. Mortgage Interest Rate
30 ……………… Number of Years
$366,604 …….. Mortgage
$116,284 ………. Income Requirement

$1,853 ………… Monthly Mortgage Payment
$329 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$79 ………… Homeowners Insurance at 0.25%
$412 ………… Private Mortgage Insurance
$330 ………… Homeowners Association Fees
$3,004 ………. Monthly Cash Outlays

($410) ………. Tax Savings
($485) ………. Principal Amortization
$22 ………….. Opportunity Cost of Down Payment
$67 ………….. Maintenance and Replacement Reserves
$2,199 ………. Monthly Cost of Ownership

Cash Acquisition Demands
$5,299 ………… Furnishing and Move-In Costs at 1% + $1,500
$5,299 ………… Closing Costs at 1% + $1,500
$3,666 ………… Interest Points at 1%
$13,297 ………… Down Payment
$27,561 ………. Total Cash Costs
$33,700 ………. Emergency Cash Reserves
$61,261 ………. Total Savings Needed
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