California reports thriving November home sales

Posted by mhopkins on 12/12/12 at 2:14pm

California continues to be the talk of the housing recovery, logging its highest November sales in six years.

The Golden State’s median sale price jumped nearly 17% year-over-year to $321,000. This appreciation indicates a shift away from distressed sales and toward traditional sales

Last month, 19,285 new and resale houses and condos sold in Los Angeles, San Diego, Ventura, San Bernardino and Orange counties. This was up 14.2% from November 2011, real estate analytics firm DataQuick reported.

Last month’s numbers were the highest for the month of November since 2006.

High buyer demand and record low mortgage rates are playing a large role in the California price appreciation. Additionally, more expensive homes are replacing discounted foreclosures, creating upward pressure on the median sales price.

“The government’s offered people an amazing gift in the form of extraordinarily low mortgage rates. But that’s not the only thing fueling these sales gains. Investor activity and cash purchases remain unusually high, and more buyers feel confident about their jobs, the economy and the likelihood housing prices have bottomed and are likely to rise. We’re also seeing more nondistressed sales, where people sell at a profit and buy another house, triggering more move-up activity,” said John Walsh, DataQuick president.

Home sales between $300,000 and $800,000 rose 34.6% since November 2011. Even more, sales of homes priced at more than $800,000 jumped 46.8% year-over-year.

Conversely, homes that sold below $200,000 decreased 18.7% from a year earlier.

Indicators of market distress continue to move in different directions. Foreclosure activity, while above long-term averages, continues to drop and is far below peak levels. Financing with multiple mortgages is very low, and down payment sizes are stable, DataQuick reported.

See the chart below for the housing market changes in several California counties.


Housing Recovery Is Sustainable, According to Market Analysts

Despite a number of potentially damaging headwinds, the ongoing housing recovery will remain sustainable for the foreseeable future, analysts for Capital Economics say in a recently released report.

The housing industry’s rapid rebound took many experts by surprise-even the researchers who authored the report admit they “have been slightly taken aback” by the recovery’s speed. However, they point to several major indicators that show the current upturn is more than a temporary blip or a false recovery.

Sustained rises in demand, home prices, homebuilding activity, and new and existing-home sales all demonstrate that the market is seeing a lasting recovery, they say. They also forecast further price growth of 5 percent in each of 2013 and 2014.

What’s more, even as prices rise, valuation and affordability-“the cornerstone on which the improvement in housing is being built”-remain very favorable.

The major threats to the market at this juncture, the analysts say, are the potential for a new American recession (brought on by complications from the fiscal cliff and the potential of a partial euro-zone break-up) and the risk that properties in the shadow inventory will flood the market and drive prices down.

As far as the economy is concerned, Capital Economics’ working assumption is that Washington will avoid throwing the country into another downturn. Beyond that, the firm notes that trade links between the United States and Europe are relatively small, and the financial links aren’t significant enough to tip the country back into recession should the euro-zone see problems.

Turning to the shadow inventory, analysts estimate that the backlog of homes at risk of coming onto the market may be as large as 3.8 million (1.5 times the number of properties actually for sale). If those homes were allowed on the market too rapidly, supply would balloon and disrupt the price recovery-but they don’t expect that to happen.

“The signing of the $25bn foreclosure settlement has not led to a wave of foreclosures hitting the market,” the economists write. “With foreclosure timelines still protracted, and banks wary of the effects that a glut of supply would have on the recovery, we anticipate a continued trickle of homes from the shadow inventory, rather than a flood.”

Of bigger concern is the recovery’s dependence on investors and cash buyers. According to Capital Economics, “[m]ortgage-dependent buyers have made next to no contribution to the improvement in housing market demand,” mostly because of tight credit. Instead, it’s been buyers and investors-who are less dependent on mortgage finance-who have driven much of the recovery so far.

The problem, though, is that investment buying won’t last as discounts start fading. According to data from Zillow, the availability of deeply discounted foreclosures has been dropping sharply in states most targeted by investment buyers. While the trickle of properties from the shadow inventory will keep some bargains on the market, cheap, high-yielding homes are disappearing.

In fact, the analysts note, some of the most popular investment cities (such as Phoenix) are quickly becoming “no-go” areas for institutional buyers as the local markets recover. Even though the number of “overheating” cities is fairly small, there is a lesson to take away from those markets.

“What should be clear from all this is that the housing recovery cannot be driven by investors indefinitely,” the report says. “The very recovery that investors are driving will eventually price them out of the market.”

In order to keep the market healthy, credit conditions are going to have to loosen so the current heightened demand can actually make an impact.

According to a recent survey released by the Federal Reserve, one of the biggest factors keeping today’s credit market tight is the risk of put-back requests from Fannie Mae and Freddie Mac. However, as the economy shows improvement and mortgage delinquency continues to fall, Capital Economics anticipates put-back risk will fade.

“All in all, if we are right that the economy will continue growing, it’s reasonable to expect lenders to loosen the reins somewhat. The upshot is that we think mortgage-dependent buyers will gradually play an increasing role in the housing market recovery,” the report says.

“The bottom line is that the U.S. housing recovery is sustainable. The key point is that the fundamentals of housing valuations and affordability are very favourable, reflecting a market that has adjusted.”

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