The Return to a Normal Market?

This Los Angeles Times article (July 23, 2006) may not stay available online much longer, but it's a good discussion of the current Southern California market picture. People afraid of a return to the '90's recession may be worrying unnecessarily. As has been stated often, the market fundamentals today are vastly different than those of the '90s, says John Karevoll of Dataquick Information Systems. He, and many other economic sources including California Association of Realtors, still predict an overall appreciation in the median home price of 6% or more, in the Southland and statewide. While one simply cannot know all the future events, Karevoll is willing to be quoted saying in a worst-case scenario, homeowners should not lose more than 7% of their homes' value. So the current standoff between buyers and sellers, with buyers waiting for a huge drop in prices, is not supported, not in this article anyway. Areas with overbuilding in condos have seen a drop, but that does not mean all condo prices in all areas are losing. Some sales figures, or lack thereof, reflect a dropoff in activity after a long held back huge demand has been met, and then overmet. The frenetic activity from selling a home in a week or two has definitely slowed, but many younger buyers see that as a "drop in the market" because they never experienced anything else, or what the historical "norm" has been of 30-90 days on the market.

Housing Demand Keeps Prices Up

California has the second-highest increase in the number of housing units of any state last year, adding over 181,000 new dwellings. Yet house building sources and others say that California should be building 250,000 new units per year, and that we are not keeping up with the demand in this state. This demand will maintain the real estate for many years into this future in the west, due both to immigration from other states and other countries, and natural population growth.

Dataquick: Median Prices Still Higher Than 2005

While numbers of homes sold are lower according to Dataquick's information, median home prices (single family and condo prices together)in the Southern California counties, except San Diego County, are still higher than the same time in 2005. Typically the condo market is a lower priced market than single family homes within most areas. The zip code charts provide a much more specific breakdown by zip code and by type, so carefully check your area to view comparison information and actual local market sales medians.

Federal Reserve: No Changes for Now

After 24 increases in the federal funds interest rate, the Federal Reserve holds off on further increases this week. There may be more increases in the future, but the cooling in the housing market and moderated economic growth are the current reasons cited for no further hikes at this time.

Rent vs. Buy: Buying Is Better

According to the National Association of Reators, the Federal Reserve Board estimates that homeowners have a net worth nearly 36 times more than that of renters. Over the past 10 years, the cost of rental housing in the United States has increased an average of 3 percent per year; average rents are projected to rise 4.1 percent this year alone. With a 3 percent annual increase, a current rental payment of $1,000 per month would increase every year and amount to $137,567 after 10 years, with no wealth accumulation.

In contrast, a $210,000 home purchased today with a downpayment of $10,000 and a 30-year fixed rate mortgage at 6.5 percent would cost a steady $1,100 per month and yield a net worth of $138,521 after 10 years, assuming an historic 4.5 percent annual appreciation rate.

Current Housing Price Picture

Just lately there's been a lot of media focus on the condo prices, i.e., they're falling, but if you read closely, the articles are about certain markets. Condos closer to the coastline in Long Beach are anywhere from $300,000 up to $1,000,000 plus. With the slower market, buyers and sellers are each hugging their own trees, waiting for other's to fall down first. Condo conversions are in oversupply in some markets, but in the coastal areas of Long Beach, condos are still an entry level home buy for otherwise expensive single family neighborhoods. As Kenneth Harney says here, "scour the market for properties that may never be cheaper, or even available."

California Median price Over $575,000

The number of single family home sales decreased by 26.3 percent from June, 2005, but the California median price is at a new high of $575,800, according to California Association of Realtors on July 25, 2006. This data is drawn from regional MLS's maintained throughout the state. Statewide, the median price for condos was $430,600, a 1.3 percent increase from June 2005.

"Statewide, the 10 cities and communities with the highest median home prices in California during June 2006 were: Beverly Hills, $1,877,500; Burlingame, $1,725,000; Manhattan Beach, $1,575,000; Los Altos, $1,543,500; Newport Beach, $1,347,250; Saratoga, $1,309,000; Mill Valley, $1,294,500; Palos Verdes Estates, $1,225,000; Orinda, $1,207,500; La Cañada Flintridge, $1,150,000.

"Statewide, the 10 cities and communities with the greatest median home price increases in June 2006 compared with the same period a year ago were: Delano, 94 percent; Beverly Hills, 44.9 percent; Barstow, 36.9 percent; Culver City, 35.5 percent; Porterville, 34.6 percent; Paramount, 31.7 percent; Inglewood, 31.3 percent; Laguna Hills, 30.6 percent; Arroyo Grande, 30.5 percent; California City, 28.3 percent."

The UCLA Anderson Forecast: No Recession

Buyers and sellers seem to be in a kind of standoff this summer--buyers are waiting for real estate home prices to fall and sellers are just waiting for an offer. More than a month ago, UCLA discussed its national and California forecasts, and for both, certain declines in real estate and jobs are present in certain sectors, "but absent job losses in manufacturing or other sectors, there will be no recession," according to economist Ryan Ratcliff. Anderson Forecast director Edward Leamer, "does not expect real estate prices to fall significantly, notes that sales volume is what typically drops, and drops more precipitously than prices, as the price cycle lags behind the volume cycle," which is what we are seeing on the market now, as Southern California sales volumes (although higher in June than April and May) lag behind last year's, the median price remains strong. http://www.juliahuntsman.com

Rent Increases in State Outpace Much of the West

Average rents in Orange County and Los Angeles County range from $1400 to $1600 a month, and may increase approximately 6% this year. A strong economy is one of the reasons, but the conversation of over 11,000 apartments into condos is another. In recent years low interest rates allowed many renters to become homeowners so rents were not raised, but now with home prices and interest rates rising, renters are stalled as landlords raise rents to match the current market. And until more multidwelling units are constructed, a shortgage of rental units allows some landlords to play catch-up to the tune of rent increases of several hundred dollars a month.

Median Price Increases in Southern Calif.

The six counties of Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange saw a median home price of $493,000--an increase from the May median price. The overall price increases have slowed, but the number of sales was also up from May. National and local Realtor associations have claimed 2006 will see an overall median price increase, nationally and locally, of about 5-6% for California statewide. Some local markets may fluctuate, but the overall appears to be stabilizing. See the Mid-Year Report at my website.