Two things you don’t hear when ‘analysts’ are describing 2014 home sales:
1. We are comparing Y-o-Y numbers to one of the hottest frenzies of all-time.
2. Sales are down because sellers are asking too much.
Instead, we get this explanation below: We have higher inventory, but supply falls short of demand so we have lower sales. (?)
From DQ:
http://www.dqnews.com/Articles/2014/News/California/Southern-CA/RRSCA140611.aspx
La Jolla, CA—Southern California home sales lost momentum in May, falling from both April and a year earlier as investor demand fell and buyers continued to face inventory, affordability and credit constraints. Prices climbed again but at roughly half the year-ago pace, a real estate information service reported.
A total of 19,556 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was down 2.3 percent from 20,008 sales in April, and down 15.1 percent from 23,034 sales in May last year, according to San Diego-based DataQuick.
On average, sales have increased 5.8 percent between April and May since 1988, when DataQuick’s statistics begin. Sales have fallen on a year-over-year basis for eight consecutive months. May sales have ranged from a low of 16,917 in May 2008 to a high of 35,557 in May 2005. Last month’s sales were 23.0 percent below the May average of 25,393 sales.
“We expected rising prices to unlock more inventory this spring and that’s happened. But the supply of homes for sale still falls short of demand in many markets, contributing to a rise in prices and a below-average sales pace. The drop in affordability has also hampered activity, helping to explain how sales could be lower now even though today’s inventory is higher than a year ago. The recent dip in mortgage rates will help fuel demand, adding pressure to home prices. But the sort of price spikes we saw this time last year – annual gains of 20 percent or more – are less likely today given affordability constraints, higher inventory and the drop-off in investor purchases,” said Andrew LePage, a DataQuick analyst.
If prices were lower, most likely inventory would be lower.
Catch 22
Wage inflation needs to catch up IMO. Not going anywhere fast until then.
Yes – we’d have more sales.
The analysts will lead you to believe that it is about affordability – that buyers can’t go higher. I give buyers more credit – they can go higher, but won’t.
What is the rationale? There are always buyers with more firepower – just because some reach their price limit, doesn’t mean all do.
…and I’ll add that buyers are more educated in recognizing and understanding the difference between a value buy and a premium property. There are still a lot of sellers out there who think that zip code alone commands top dollar.
There’s a lot of investors and speculators in real estate right now. I could see the potential for a bunch of new inventory if prices were to start to move down. Why sell when the prices are going up but if they start coming down people might be inclined to try to get out at the top.
You’d think the banks would giddy up but they are probably paralyzed by bonuses and greed.
Last time they created more exotic financing to keep the punch bowl full. A lender at the agent marketing session this week was pitching no tax returns required for self employed – just bank statements and adequate reserves.
You need the low end buyers at this point IMO.
That is where the bottle neck is you also need someplace to move too (up or down), right now not a lot of incentive unless (make me move price) IMO.
Big backlog of first-timers and low-enders standing by, waiting for the cash buyers to thin out.
I don’t think it has ever been so hard to be a low-money-down buyer. You have had to be willing to buy a home that nobody else wanted, and the choices have gotten worse every month.
If you are willing to drive I think you options get much better.
These days seems everyone wants a move in ready (no fixing for several years home) near the coast.
Not a lot (or maybe even any) of new low end homes being put-up near the coast.
My first home was 30 miles from the coast (as the crow flies) and even further from my Job.
I definitely agree, except those who are renting at the coast are reluctant to go inland.
Everyone gets fixated on keeping their kids in the ‘right’ schools too.
This touches on the same topic:
http://finance.yahoo.com/news/many-seek-homes-near-cities-070225209.html
City living has been a blessing for Tim Nelson.
The Phoenix lawyer moved downtown a few months ago into a new $389,000 home with a warehouse-style floor plan, a Jacuzzi tub and kitchen counters made of Caesarstone quartz. His favorite coffee spot is three blocks away. When the Arizona Diamondbacks play on Friday nights, he can watch postgame fireworks from his deck.
“I like the views,” said Nelson, 50. “My commute is almost nonexistent.”
Nelson has plenty of company.
Americans increasingly say they prefer to live near the centers of cities and towns, where commutes are typically shorter and culture, restaurants and entertainment close by. It marks a shift away from the yearning for open suburban space that drove U.S. home construction for decades.
But it carries a costly trade-off: Land in many cities has surged in price. And fewer Americans can now afford newly built homes in the walkable neighborhoods they desire.
The average price of a newly built home nationwide has reached $320,100 — a 20.5 percent jump since 2012 began. That puts a typical new home out of reach for two-thirds of Americans, according to government data.
Yet many builders have made a calculated bet: Better to sell fewer new homes at higher prices than build more and charge less.
After 60 years of migrating to car-dominated suburbs, polls show more Americans want out of long commutes in favor of neighborhoods where jobs and stores are nearby.
Stuck with pay that’s barely budging, many face a tough choice: Keep renting. Pile up huge mortgage debt to buy a home near their job. Or buy a cheaper home that requires a lengthy commute.
“Middle-class Americans are (being) squeezed out,” said John McIlwain, a senior fellow at the Urban Land Institute.
Homebuilder Toll Brothers spent $24 million in 2012 to buy two-thirds of an acre near Nationals Park in Washington. That’s equal to roughly $830 a square foot, compared with $5 a square foot before the ballpark existed, Leinberger said.
At the Walnut Hill Townhomes in Chattanooga, prices start at $610,000. The figure reflects a revival of that industrial city. A pedestrian bridge spans the river, carrying locals to gastropubs, gourmet tacos and a waterfront park.
Dale Mabee, who’s building the homes, said his material and land costs meant prices had to be $243 a square foot, nearly three times the average in the metro area.
“It’s almost a necessity to build at a higher price point to make the numbers work,” Mabee said.
Among the buyers was Spencer McCallie, a 77-year old former school headmaster. McCallie initially retired to a lakeside cabin about 30 miles outside the city. But its quiet pleasures were undercut by long drives downtown for symphony concerts and Rotary Club meetings.
“We didn’t want to have to come in 28 miles because we knew we’d have to come home late at night,” McCallie said.
The shift in tastes is among factors that are eroding home affordability despite still-low mortgage rates. Among other factors: tighter lending rules and difficulty producing down payments.
All of which helps explain why construction has yet to rebound with vigor. Just 433,000 new homes were sold on an annualized basis in April. Over the previous half-century — when the United States had a smaller population — annual sales had averaged 660,000.
Builders noted in recent earnings calls the higher prices and the decline in construction.
Richard Dugas, CEO of PulteGroup, says building entry-level homes isn’t profitable enough anymore.
Builder D.R. Horton says escalating prices have left first-time buyers “underserved.” It’s introduced a low-cost division with homes priced as low as $120,000, targeted in part at millennial buyers but located at the edges of suburbia where land is cheaper.
For those able to live downtown, the tight supply of new homes has forced them to act fast.
Crews broke ground last month on a 47-rowhome luxury development in Chicago. Every apartment — starting at $562,900 — sold before digging began. The rooftop decks survey the city skyline. Buyers are waiting 12 to 16 months for construction to finish before moving in, said Heather Gustafson of CMK Realty.
The homes are built in the Cabrini-Green area, once occupied by a housing project notorious for gang violence. The city began to demolish the project in 1995 and resettle residents, clearing prime real estate just a 20-minute walk from the office towers and trendy restaurants of Chicago’s Magnificent Mile.
Adam Kriticos, a mortgage broker, bought the last available home at the development, known as Basecamp River North. He had less than four days to make an offer after touring a model home. That didn’t faze him.
“It’s not like we’re overpaying for where the market is now,” he said.