Southern California housing market update: Slowest January for home sales in three years. Median home price back to June 2013 levels.
The latest housing data highlights a stagnant market in Southern California. January home sales came in at a three year low logging in 14,471 sales. With a low number of foreclosure resales now making up the pool of total sold homes, there is little reason to use the excuse that foreclosures are depressing home prices on aggregate. Home prices retreated back to levels last seen in June primarily because investors are having a tougher find picking out good low priced properties and modestly higher rates are still hurting the market with cash strapped buyers. The market is caught in a Catch-22; if the stock market goes up this adds fuel for the Fed to retreat from QE and this will likely push rates higher. If the stock market pulls back, the Fed is likely to dive back in and interest rates are likely to stagnate or fall but investor activity is likely to take a hit. Yet there is little action to be had overall with such an artificially low amount of inventory and crowding out regular buyers with investors is still common. It is more likely that we have a month in 2014 with a negative year-over-year median price versus a repeat of 2013.
An analysis of SoCal real estate
I went back and dug through monthly housing data for SoCal dating back to January of 2000. There is a serious seasonal pattern to home sales. January and February data always reflects the slowdown from buyers and sellers during the November and December holiday months. Escrow and closing could add 30 to 60 days of a delay on data reporting. This data also reflects a seriously manic market.
From 2000 to 2006 a month of 30,000 to 35,000 home sales was not uncommon. Then you will see the collapse that occurred starting in 2006 as sales collapsed first, then home prices. Let us look at this data carefully:
This is very telling of the current market. Since 2007, we have struggled to pullout a month of sales over 25,000. This happened last year during the investor driven mania. Homes sales took a big dip in January recording the slowest January in three years. Keep in mind this is occurring on the back of a year of near record breaking annual price increases.
One thing is certain from the chart above and that is volume has been cut dramatically from the bubble days. It is almost as if two housing markets exist in the same area. Keep in mind this data is reflecting an area where population grew slightly so you would expect higher volume but not when many young Californians are cash strapped or living at home. The number of investors buying homes is still high at 27.5 percent.
Let us look at the last year of home sales data:
You can see the peak hitting in July right before higher rates put the brakes on the market. Home price increases have also come to a screeching halt in SoCal:
Home prices have stalled out for the last year. The current median home price in SoCal is $380,000 down from $395,000 in December. Since last summer, gains have been muted:
The current median home price is back to where it was in June. While the median home price is up 18.4 percent year-over-year for SoCal, home sales are down 9.9 percent year-over-year. The press doesn’t know what to make of this because they can’t come out and say that Fed and banking policy over the years has created a U.S.S.R. like housing market worthy of a gold medal in Sochi. So they mention that low inventory is an issue. Why? Because banks are circumventing accounting standards but you also have 13.2 percent of home owners in LA and OC underwater in spite of the big jump in prices. Next, you have many near negative equity and others looking for bubble like prices. Early last year, this was pulling in the masses with people foregoing home inspections and bidding wars were once again common. This year is not starting out on the same footing. Put those PowerPoint presentations of the family back onto the cloud and keep your sleeping bags for the mountains since it is unlikely you will need to camp out at an open house to get the seller to pay attention to you.
Most are forecasting home gains for 2014. I think it is more likely that we have a negative year-over-year median price for SoCal. What I find amazing is how quickly people are assuming their area is somehow untouchable. There is little doubt that areas like Beverly Hills, Santa Monica, Pacific Palisades, Newport Coast, or Malibu are clearly prime markets. If a home drops from $10 million to $8 million how many people can bounce on this move? But some people think Torrance is now in this category! Well not the entire city but a pizza slice portion of the area. I was surprised to see what cities folks now think will be the new gentrification spot where hipsters will move in and slowly outgrow the blight, low incomes, and crime. Much of this rhetoric existed in 2005, 2006, and even 2007. What has changed? Lower inventory? Sure. Manipulated policy leading to homes being sold to banks? Sure. Yet the elusive income question remains. We do have 4,000,000 Californians on food stamps a 50+ percent jump since the recession ended.
It is also fascinating to see the shift in psychology. Those claiming massive paper gains probably realize that the only way you unlock those gains is by actually selling the home. Some are those cat food eating golden handcuffed baby boomers. Will they leave California? Unlikely. They will sit idly by and watch new neighbors move in, probably a new younger wealthier demographic of two working professionals, and let them pay 10 times the amount of taxes for a similar property courtesy of Prop 13. It is also odd that those that feel they missed the boat don’t bother on buying today. So you missed a one year window and it is game over for you? Why not buy now? Do you mean you are…speculating? Heck, you can even go in with a low rate interest only loan. What these people don’t want to admit is that the housing market is one giant speculation scheme fully hitched to Fed policy and they are merely speculators in the cause. Housing across the nation is actually fairly priced but look at the boom and bust data for SoCal just since 2000 above.
Before people begin saying that SoCal is the next London or Tokyo they may want to look at the median price and sales figures and realize that manias come and go in SoCal. They should also realize that SoCal is one massive region. This is probably why some people get a halo effect and somehow think their property in “X” city is the next Laguna Beach or San Marino.