Tight inventories and lending may curb 2013 California home sales
CAR: Housing wildcards include underwater homeowners, 'fiscal cliff'
California home sales and prices will likely rise this year and in 2013, though low inventory and restricted lending will continue to curb housing market growth, according to a forecast from the California Association of Realtors.
Sales of existing, single-family homes are up 6.5 percent through August compared to the same period last year. After a slight 1.1 percent increase in 2011, CAR expects sales to jump for the second year in a row this year to 530,300 homes, up 5.1 percent from 2011. CAR anticipates a further 1.3 percent increase in 2013, to 530,000 homes.
"The market has improved moderately over the past year, and we expect that to continue into 2013," said CAR President LeFrancis Arnold in a statement.
Arnold said sales would be even higher if inventory were less constrained in markets dominated by sales of bank-owned properties, particularly in the Central Valley and Inland Empire, "where there is an extreme shortage of available homes. Sales will be stronger in higher-priced areas, where there are more equity properties and a somewhat greater availability of homes for sale."
Leslie Appleton-Young, CAR's vice president and chief economist, said in a conference call that low inventory and "defensive lending" by lenders were "the speed bumps in the California housing highway."
Lenders "are not lending to hold the mortgage. They're lending to sell the mortgage on the secondary mortgage market and they want to avoid having to buy that back," she said.
"The primary constraints on the market and market growth are the inventory situation and the lending situation, which we do not see changing significantly in 2013," Appleton-Young said.
After a 6.2 percent decline in the statewide median home price in 2011, CAR expects the median to rise nearly 11 percent this year, to $317,000, and 5.7 percent next year, to $335,000. That median will remain 43.7 percent below the $594,530 peak seen in May 2007.
"As I look at the price changes in 2012, a significant amount of those increases are due ... to an increased share of equity sales that tend to be in higher-priced areas," Appleton-Young said. "The
Case-Shiller (home price) index has shown appreciation in the low single digits, so there's some home appreciation when looking at same-home sales."
The share of California sales where homeowners have some equity in their homes has been rising since early this year and in August stood at 62 percent of overall sales. Real estate-owned (REO) sales fell to 14 percent of sales, down sharply from 60 percent in January 2009. Short sales made up 23 percent of the market in August.
While a six-to-seven month supply of inventory is considered a balanced market, California's housing supply now stands at 3.2 months, Appleton-Young said. That's a considerable drop from a more than 16-month supply at the peak of the crisis in 2006, she said.
Inventory varies somewhat when broken down by sale type. Equity sales in August stood at a 3.3-month supply while short sales were at a 3.7-month supply. REOs posted a 1.6-month supply, but in some areas had a less than three-week supply, Appleton-Young said.
Interest rates for 30-year fixed rate mortgages are at 50-year lows, she noted. CAR predicts 30-year fixed-rate loans will average 3.8 percent this year, down from 4.5 percent last year. In 2013, the trade group expects a slight jump to 4 percent -- the first increase after six straight years of declines. Appleton-Young doesn't anticipate the increase will have a significant impact on demand.
"People started to realize the opportunity in the market," she said, referring to increased buyer demand this year. "It is a once in a generation opportunity in California real estate, if you can qualify. The sellers that had been on the fence for the past four or five years ... realized that even though " values are not going to go back to where they were in 2006, they're still rising, she said.
The share of home sellers planning to buy another home rose for the second straight year this year, to 40 percent, after six years of decline.
A combination of restricted supply and increased demand has resulted in the highest share of California home sales with multiple offers in at least the last 12 years, CAR said. Nearly six in 10 of surveyed California Realtors said they had been in a multiple offer situation with homes receiving an average of about four offers each.
All-cash deals have made up 30 percent of overall sales this year, the highest level since at least 2005. Among REO buyers, 43.1 percent paid in cash, while 26.7 percent of short sale buyers paid cash.
"It's a very, very competitive market. I think this is one of the biggest challenges we face about educating consumers about the market," Appleton-Young said.
"Pent-up demand from first-time buyers will compete with investors and all-cash offers on lower-priced properties, while multiple offers and aggressive bidding will continue to be the norm in mid- to upper-price range homes," she said in statement.
Appleton-Young said it doesn't appeal to her to characterize the current California real estate market as "distorted" by low inventory and high shares of cash buyers and investors.
"It certainly is a unique market that's responding to unusual circumstances. Certainly since I've been here we've never seen a market like this," she said.
She pointed to a series of "wildcards" that represented potential risks to the future of the housing market.
"The wildcards for 2013 include federal, monetary and housing policies, state and local government finances, housing supply, and the actions of underwater homeowners -- not to mention the strength of the overall economic recovery," she said.
"The actions of underwater homeowners will play an important role in housing inventory next year, with rising home prices inducing some to stay put and others to list and move forward."
At the national level, there's "a tremendous amount of uncertainty" surrounding the fall election, healthcare reform, the Eurozone crisis, and the so-called "fiscal cliff," Appleton-Young said. The fiscal cliff refers to tax increases and spending cuts that will go into effect starting in 2013 unless Congress acts to prevent or alter them.
"I think the fiscal cliff is clearly one that could be devastating for the economy and send us into a double-dip recession," she said.
Anything that throws the economy "off-kilter" could affect jobs and therefore the housing market, she said. California's unemployment rate, which trends higher than the national rate, averaged 11.7 percent in 2011 with job growth at 1.2 percent. CAR predicts the jobless rate will drop to 10.7 percent in 2012 with 1.4 percent job growth, and will decrease even further to 9.9 percent in 2013 with 1.6 percent job growth.
The California labor market is "gradually improving -- bouncing along the bottom, if you will -- and keeping the economy constrained," Appleton-Young said.
The trade group forecasts that U.S. gross domestic product growth will clock in at 2 percent in 2012 and 2.3 percent in 2013, up from 1.7 percent in 2011. CAR expects a 1.6 percent increase in real disposable income in both 2012 and 2013 in the U.S., up from 1.3 percent in 2011. The trade group's forecast assumes the reality of the impending fiscal cliff, but "that we won't fall off it," Appleton-Young said.
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