We have bantered about why sales have slowed down, and some are jumping on the affordability (or lack thereof) issue as a contributing factor:
http://www.car.org/newsstand/newsreleases/2013releases/Nov2013sales
LOS ANGELES (Dec. 17) – A run-up in home prices, coupled with higher interest rates, put downward pressure on housing affordability and led to the fourth straight month of sales declines in November, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) reported.
“Improving home prices are a double-edged sword for the housing market. While welcomed news for homeowners and prospective sellers, diminished affordability is squeezing out many buyers and dampening their enthusiasm for home purchasing,” said 2014 C.A.R. President Kevin Brown. “Buyers are playing the waiting game and putting their home search on hold until prices stabilize and more inventory becomes available in the market.”
When you dig into C.A.R.’s own research, there is this graph from the 2013 Realtor Survey taken early this year:
It appears that 50% of the potential buyers just need to find the right house. The motivated buyers won’t let higher prices and rates stop them; they will just be more critical about what they are buying.
Sellers will be smart to do more home tune-ups prior to listing, be sharper on list price, and pick a great realtor to help create a more attractive package for buyers. With higher prices and rates, they will want a better value now!
“Difficulty in finding the right property” and “Difficulty in obtaining mortgage financing” are two sides of the same coin.
If a buyer could “afford” a higher loan amount, they certainly would have an easier time finding the right property.
Did I just put on my Captain Obvious suit?
Eldest progeny is “wanting” a house/home. Eldest progeny knows better than to buy the scraps left on the floor after recent run ups and carefully managed supply.
That said all spawn are both privileged and know it (we don’t let them forget). They aren’t going to waste time or money on the bottom rungs and instead planning on jumping to a comfort/quality zone.
It seems to be about value more than price. They are also more in tune with the less obvious impairments like schools, HOAs, Mello-Roos, etc. That’s my fault. It takes a lot of either lower price or appreciation to overcome taxes twice equivalent properties.
Current thinking is renting a monster house with roommates. Three young professionals $1200/mo can either occupy a 3000sf 5br/4.5ba McMansion or three studio apartments in a sketch area. If anything I’ve taught to exploit price gaps.
@Just some guy
I’d tend to think Captain Obvious suit are out of season.
“Difficulty in finding the right property” and “Difficulty in obtaining mortgage financing” are not two sides of the same coin.
Easier loan conditions would probably help some. But if it was the whole story, all segments of the market would see the same slowdown.
But it’s not the case.
Quality properties sell, no problem. That sale in Ocenside Jim reported two days ago is probably an extreme case. But it’s a good illustration of the dynamic.
It looks rather like buyers are reluctant to buy unless they are very confident of the value of what they buy, still quite afraid of getting stuck in a market slump with too much house on their hands and too much debt on overvalued properties.
In fact, the survey probably shows two different populations within individual buyers. People actually on the market, qualified buyers, who come in with a lot of cash and no contingency, and people who would like to be on the market but who, realistically, still cannot afford it, marginal players in the current market.
And for that second group, it’s all about affordability, plain and simple. Rates being still very low, it means it’s an income problem (flat for most people and unlikely to change a lot in the short term), and may be a problem of collateral (aka savings or equity in the previous house).
(Jim, please erase the previous unfinished comment, a case of fat finger 🙂 )
Lack of new builds and Affordability is key IMO, Like it or not more sprawl into lower cost areas is likely IMO. (back to the future or is that the past LOL).
If you wanted to call the whole post somewhat suspect just because it is a survey of realtors, I’ll understand.
‘Difficulty in obtaining mortgage financing’ can be a result of agents doing a lousy job of pre-qualifying their buyers. When people who were never contenders anyway get rejected for a loan, it’s easy for their agent to blame ‘tight credit’.
Seems like a combination of factors but mostly what Rob Dawg wrote about people are expecting to arrive at the top instead of fixing up a place and then trading up.
Add to that a lack of motivation to sell. Nobody here needs to sell and it’s hard to beat this area. I also think the baby boomers will “age in place”.
Buying a home will need to be a decision about how you want to live and quality of life, not how much money you can make on your house.
2014 will be a Seller’s market.
Low rates for 3+ more years and no catalyst for price declines. If that isn’t a green light to buy now, I don’t know what is.
Mozart++
I agree Sellers Market for next couple of years in North County Coastal areas. After that probably a New “New Normal”. Prices will keep on increasing but rather moderately. I am not seeing Rents going down either.
Would-be-buyers should carefully calculate the cost of wait-and-see.
For Rob Dawg:
When my wife and I bought our first house I earned R2000 a month. The Bond (mortgage) payments were R1000 per month plus insurance lights water rates and taxes. As it had 4 bedrooms we ran it as a commune and rented out 3 of them (your logic – R1000 is a lot of money but R250 from 4 young people is what each would be paying for a cheap flat in a bad area)
SO why not stand surety for the mortgage and let the room renters think you are the landlord while the offspring pay of the mortgage on a large house and gain maybe 5 years equity? It worked for us, after 6 years R1000 a month was 25% of my salary thanks to inflation and we no longer needed to rent out the rooms, plus we expectedoffspring of our own.