MEDIAN PRICE -- UP...INVENTORY -- WAY DOWN... SALES VOLUME -- UP

What a month it has been!  It's been chaos if you're a buyer trying to find a property, and a little déjà vu if you are a seller that is getting multiple offers on your property that's for sale.  That being said, however, we are not seeing the double digit appreciation that was present in 2005 and 2006.  That is a good thing, as that was the start of the bubble that burst and caused the subsequent crash and the very slow recovery we are now enjoying.  September numbers brought some interesting news for Southern Californians.  (More specific numbers to follow.)  The median price was up 5.9% versus September a year ago.  There were 23,977 sales and that was up 16.2% from the previous year.  October numbers that are found in the next section, were even better.  But a really interesting fact from the last month of the third quarter was that local zip codes showed improvement in 53 of 83 for the county.  That shows that there isn't a concentration of business or growth in just hard hit areas such as Santa Ana, or south Orange County, where investors are flipping properties.  In fact, sales for October, the last complete month available, show that move up buyers, that elusive quadrant, has finally reemerged and these buyers are entering the market.  Obviously we need more to do so, because of inventory limitations, but it has started.  The upper end of properties over 2 million is moving more robustly than it has since 2006.  Finally, a last bit of good news is that home construction is finally on the rise, seemingly for good, not just a sputter of one or two developments, but begun in earnest by multiple builders.  In fact, 1,700 construction jobs were added as compared to September 2011, according to the Employment Development Department. This is good news, because without that vital addition of new homes, we would really see an inventory bog down in the next 2 years.

WHAT WERE THE ACTUAL NUMBERS?

According to DataQuick, southern California home sales rose sharply in October as the previously discussed move-up buyers joined investors, shifting the mix of homes selling from the first time buyer, or investor looking for rental scenario.  Foreclosures hit a 5 year low, as short sales continued to move front and center as the primary distressed listing.  Make a note, however, that standard, or equity sales, are making a comeback as non-distressed owners may enter the market in an effort to sell and move up, or exit Orange County to become a retiree and move elsewhere.  The October total was 21,075 homes sold in Los Angeles, Orange, San Bernardino, Riverside, San Diego, and Ventura counties.  That was up a whopping 18% from the 17,859 sold in September.  The median price for the Southland was $315,000 in September and October, and that was up 16.7% from the $270,000 of September 2011.  Short sales made up an estimated 26% of the resale market in the Southland for October.  The total number of sales for Orange County was 3,148, which was up 40% from the same period a year ago.  The total number of resale houses was 2,066 and condominiums had 882 sales. New homes came in at 200.   The median price for all homes was $455,000 and for single-family it was $511,000.  The median price for condos was an even 300. Interestingly, buyers paying with all cash hit a near record 32.1% for southern California.  A final number which is somewhat sobering... 57% of all homes for sale, had multiple offers.

ORANGE COUNTY ECONOMY REBOUNDS IN FORECAST

So read the business section headline of the Orange County Register on October 25th.  Specifically, it was talking about the Cal State Fullerton economic forecast for next year.  They expect a continued rise in home prices, and lots of construction jobs in 2013.  The next highest sector will be professional and business services, followed by leisure and hospitality.  What's really interesting is that earnings of large companies have outpaced their own forecasts, yet no one really seems to feel really good about it.  More jobs were added in September than originally forecast for the nation, and Orange County seems to be holding its own in this parameter.  Interest rates are at a 15 year low, home prices throughout California have risen for 8 straight months, and the job sector is looking positive.  Recovery?  You didn't hear it here, but could it be Orange County's dirty secret?

INVENTORY SLIDES, GEN X AND Y, WANT TO BUY, AND THE SMALL INVESTOR

Los Angeles inventory is down 37.1% and Orange County is about there too.  The city taking national honors for the biggest slide is our own San Diego with 40.7% (according to the national KCM Blog.)  Generation X and Y, in a recent survey, were asked, "what is a fundamental indicator of success?"  A whopping 75% said it was owning a nice home and only 12% said an extravagant vacation.  Home ownership is in America's DNA.  Should the small investor attempt to buy a single-family property as a rental.  Only a discussion with your financial planner can tell you what's right for you, but here are some thoughts... 1) Nationally, rental leasing volumes were up every month for 2 years.  2) Supply of available rentals is down 11% in the same period.  3) Rent growth is expected to increase at a very strong clip in 2013. 

WHAT WILL NEXT 5 YEARS BRING TO HOUSING PRICES?

Does this sound like a loaded question?  There may be as many answers to that question as there are people in the USA, but it seemed like a good lead off question for this month's report.  In fact, the opinion reflected in the following numbers are reported by "Pulsenomics", a group of 100 economists, investment strategists, and housing market analysts.  After their conference they reported housing prices to start upward in 2013.  Here is the 5 year projection:  (A) 2012 - (-).4%  (B) 2013 - (+)1.3 %  (C) 2014 - (+)2.6%  (D) 2015 - (+)3.2%  (E) 2016 - (+)3.5%.   The average pre-bubble (1987-1999) annual appreciation was 3.6%.  How can Pulsenomics make such a prediction when the housing market still seems in such dire trouble?  There are several factors to consider.  Firstly, the plummet of "shadow inventory."  It is at its lowest number since 2008.  In fact, according to Mark Fleming, the chief economist for CoreLogic, "Since peaking at 2.1 million units in January of 2010, the shadow inventory has fallen by 28%.  The decline in the shadow inventory is a positive development because it removes some of the downward pressure on house prices.  This is one of the reasons why some markets that were formerly identified as deeply distressed, like Arizona, California and Nevada, are now experiencing price increases."  Prices in southern California certainly have not skyrocketed, nor does any Realtor or economist wish them to do so.  A lesson, hopefully, has been learned regarding ascending markets that rise on false theories or practices.  However, there are slight bumps upward in certain areas only.  Literally, a price may rise for a certain neighborhood, based on competing properties, or simply more buyers for that area than sellers.  But you will note that overall, prices remain flat for 2012, even slightly down.  Those are national numbers and obviously California is on different footing, particularly southern California, which has been projected to recover more quickly than northern California, and the rest of the country. 

IF INVENTORY IS SO LOW, WHY AREN'T PRICES RISING NOW?

This is a good question.  Isn't housing economics simply the law of supply and demand?  And if it is, with inventory so low, (and inventory is low, with the possibility that pending sales will rise above available homes for sale, a true market anomaly), why aren't prices rising more quickly right now?  The answer to these questions may not be obvious, but there are some reasonable answers.  First of all we are in a counter-intuitive market.  So what would seem to be an obvious outcome is not, and in fact, the opposite occurs.  In this case, prices are still going down, despite some listings that sell over list price, in some price ranges or neighborhoods.  Remember that the list price was aggressively LOW, not HIGH, to begin with.  And although historically low interest rates, (seriously 3-4%??), are driving the demand which is rapidly lowering available inventory, there is a key factor which is keeping a lid on housing prices--- WAGES.  In fact, this column will report it first, that as long as wages stay flat, and they have been flat for the last 7 years, prices will be forced to keep a lid on it.  Why?  Simple.   Housing affordability is part and parcel to a healthy housing market.  We saw what happened in 2006 with double digit appreciation.  That was appreciation that was so fast, there was no way wage increase percentiles could keep up.  Housing appreciation went to 11% in southern California, and the industry created unsustainable financing, (a nicety for horrible loan programs), that propelled a booming market well past when it should have adjusted and created the terrible mess we have been in for the past 5 years.  Some industry analysts believe we are in for 5 more years of pain, some believe, as in the previous article, that we are beginning to climb out now.  Time will tell, but it does appear that the housing market has and is stabilizing.

WHAT WERE THE ACTUAL NUMBERS?

The total number of May sales for Orange County, (the last full month available), was 3,124, not including trustee sales auctions, where investors paid cash at the courthouse steps for 169 properties.  There were 1,542 equity sales, (non short), for single-family, and 506 equity sales for condos.  The short sales numbered 371 for single-family and 238 for condos.  Bank owned listings sold nearly all that was listed with 304 single-family and 163 for condos.  There were 1,294 Notices of Default recorded, down nearly 35%, and 987 Notices of Trustee Sale, which has declined sharply from monthly highs of over 1,700 in 2011.  The median price for all of Orange County for all homes was $435,000 which is up 2.4% for year over year for May (2011).  The slight increase comes from rises in condos and new homes, not single-family which actually declined 1%.  However, the big news is in the volume of homes sold which rose 23.1% in May 2012 compared with May 2011.  It would seem we are headed in the right direction.