An Unstable, Irrational And Unsustainable Market
The Inland Valley Daily Bulletin reports from California. “A report released from the U.S. Census Bureau looking at regional migration patterns shows 42,000 new residents moved from Los Angeles County to San Bernardino County between 2007 to 2011. Experts say the major reason for the numbers is that people are attracted to the affordability of housing in the area. The median home price in the San Bernardino County market is about $218,000, according to Inland Empire economist John Husing. The price is about $57,000 cheaper than the median price in Riverside County, $233,000 cheaper than in Los Angeles County, and $412,000 cheaper than in Orange County, according to Husing.”
“‘The historical reason has always been price,’ said Randall Lewis, principal of the Lewis Operating Company, a major developer in the region. ‘People go on the freeway and drive until they can find a house they can afford.’”
The Los Angeles Times. “Despite staggering rates of unemployment, the Inland Empire continued to pull tens of thousands of people from Los Angeles County. The migration occurred even as Riverside and San Bernardino counties lost some 144,000 jobs. ‘People respond to prices,’ said John Husing, chief economist for the Inland Empire Economic Partnership. ‘The difficulty is that people move before the jobs move.’”
The San Jose Mercury News. “Squeezed by astronomical home prices and rents that are almost as unaffordable, a growing number of Bay Area residents are pulling up stakes and trading long commutes for cheaper housing. They’re heading to places like Tracy, Mountain House, Patterson, Hollister and Los Banos. The demand for housing also has helped push up prices on existing homes, according to DataQuick. In the fourth-quarter of 2013, the median sales price in Tracy for a resale single family home was $339,500, up 28 percent from the fourth quarter of 2012; Patterson’s median was up 45 percent to $228,750; Hollister was up 29 percent to $375,000; and Los Banos rose 37.5 percent to $185,000.”
“That compares to San Jose’s fourth-quarter median price of $645,000; Sunnyvale’s $964,000; Milpitas’ $648,000; Oakland’s $435,500; and San Francisco’s $867,000. Shawneequa Badger, a San Jose real estate agent, said she’s changed her business to accommodate clients who want to move to Tracy and Mountain House, which is just over the Altamont Pass. She said half her clients are ‘new transplants into the San Joaquin Valley’ looking for more for their money. ‘I just put couple into a home (in Mountain House) that’s over 2,000 square feet, was built in 2008 and has all brand new appliances, for $349,000.’”
From AAP. “Jobs, income and investment keep soaring in Silicon Valley, but the growth is also driving up housing costs and widening the gap between the rich and poor. ‘The economy is sizzling any way you slice it and it’s about to get hotter, but having said that, we are quick to point out there are perils with our prosperity,’ said Russell Hancock, president of Joint Venture Silicon Valley.”
“The group has released its annual Silicon Valley Index in conjunction with the philanthropic Silicon Valley Community Foundation. The growing divide between rich and poor is driven by an overwhelming demand for housing, according to the report. ‘It’s been tough because we’ve seen the cost of housing skyrocket and we’ve seen our pay plummet,’ said James Gonzales, a 13-year veteran of the San Jose Police Department and a leader of the police union.”
“Public employees lost wages and benefits during the recession, cuts that made it impossible for Gonzales and many of his colleagues to make their mortgage payments. He sold his condominium and now lives in nearby Sunnyvale where he rents. Recent pay increases aren’t enough to get him back into the housing market, he said, and new hires aren’t even looking for homes in San Jose.”
The Bakersfield Californian. “Despite recent softening, Bakersfield’s single-family home market will likely see price increases in the 12 percent to 15 percent range this year as previously foreclosed homeowners look to buy houses again, a leading local observer predicted. Bakersfield appraiser Gary Crabtree made the forecast in a monthly housing update stating that median home sale prices in the city fell 6.1 percent in January to $195,250.”
“The signs of cooling were fairly pronounced in January data, however. The number of home escrows that closed that month was 371, 6.5 percent less than December’s totals. Meanwhile, the inventory of homes for sale in the city grew by 1.6 percent to 945, Crabtree reported. Cash investors who flooded the local market in recent years, sometimes squeezing out would-be homeowners, have already begun exiting the market, Crabtree noted, largely because rental prices have not kept up with local home price appreciation.”
“Their exit may present buying opportunities for people who lost their homes to foreclosure during the recession, even as it could hurt the rental market, Crabtree wrote. ‘In 2014, I expect to see the ‘boomerang’ (previously foreclosed homeowner turned tenant) buyer replace the investors, thus supplying demand for a moderate increased in pricing,’ he wrote. ‘However, this will also place a downward pressure on rental prices as the single family rental vacancy (rate) increases with the loss of this market segment.’”
The Salinas Californian. “While December data show home prices in Monterey County blew past 2012 levels, month-to-month figures show a definite slowing, bringing back some degree of normalcy in the real-estate market, according to area Realtors and data released from CoreLogic. Prices in Salinas increased by 26.2 percent in December 2013 compared to December 2012. But on a month-over-month basis, prices were flat, even decreasing by 0.1 percent in December 2013 compared to November 2013. Some degree of braking is a positive trend, because hyperinflation in prices would be unsustainable over time and could lead to another home-price ‘bubble’ similar to the one that burst in 2007-2008, economists and real-estate experts say.”
“‘We simply couldn’t keep going at this rate,’ said Sandy Haney, the CEO of the Monterey County Association of Realtors. In fact, the number of home sales statewide fell for the fifth straight month in December, according to the California Association of Realtors. In a normal market – one which both Haney said we are transitioning back into – a homeowner would build equity in her home and then sell it to move up to a more expensive property she’s been eyeing, Haney said.”
“But when the market collapsed in 2008, so much equity was lost that prospective sellers either don’t have enough equity built back up or they are gun-shy about making the move. ‘There is a lot of caution in the market,’ Haney said. ‘The sellers that have been through the [2008] market and didn’t lose their homes are still uncertain if the time is right to move up.’”
“Exacerbating the inventory problem is the falling number of so-called distressed sales, including short sales and sales of foreclosed homes. After six years, the number of foreclosures is falling dramatically as they continue to work their way through and out of the market. That’s also a reason area Realtors are forecasting a transition period in 2014 – moving from an unstable, irrational and unsustainable market to one that is governed by the basics and fundamentals.”
