Real Property Report – California, May 2016

Flat is Back: May Sales Down 4.7 Percent Year-over-Year, Median Price Unchanged

Investor Purchases by LLCs and LPs Jump 16.1 Percent in May

In a Low-Yield Environment, Real Estate Investing Remains Attractive

CALIFORNIA, JUNE 16, 2016 – California single-family home and condominium sales were 37,093 in May 2016, an increase of 2.2 percent from a revised 36,287 in April 2016. On a year-ago basis, sales were down 4.7 percent from 38,921 in May 2015.

“Sales continue to be lackluster state-wide,” said Madeline Schnapp, Director of Economic Research for PropertyRadar. “Without an increase in affordable inventory, high prices continue to depress sales. Unfortunately,our 2016 forecast of anemic sales in the face of high prices and low inventory is shaping up to be right on.”

Year-to-date sales (January through May 2016) totaled nearly 156,000 properties, down 3.8 percent from the same time period in 2015 and nearly unchanged from the same period in 2014. Year-to-date sales in 2014 and 2016 were the lowest since 2008.

The May 2016 median price of a California home was $430,000, unchanged from a revised $430,000 in April. On a year-ago basis, median home prices were up 6.2 percent from $405,000 in May 2015. The median price of a condominium was $405,000, down 2.4 percent from $415,000 in April 2016 but up 1.3 percent from $400,000 a year ago.

“Price appreciation took a breather this past month amidst lackluster sales,” said Schnapp. “How many buyers are there in the Bay Area willing to spend a million dollars on a 1,200 square foot, 2 bedroom, 1 bath home built in 1961? At some point buyers are just going to say, ‘No Thank You’.”

Within the 26 largest California counties, the highest year-over-year price appreciation was concentrated in counties of the greater Bay Area: Santa Clara (15.1 percent), Contra Costa (13.1 percent), Monterey (12.4 percent) and Santa Cruz (12.2 percent).

Cash sales of single-family homes and condominiums in May 2016 were 20.7 percent of total sales, up 1.5 percent from April 2016 but down 6.7 percent from May 2015. Single-family residences and condominiums purchased by trusts represented 36.4 percent of total cash sales.

“Despite lower year-over-year sales volumes, cash sales continue to represent one in four transactions,” said Schnapp. “As the yield on the 10-year U.S. Treasury note continues to fall, parking cash in real estate continues to look attractive.”

“We believe one of the reasons cash purchases remain high is due to a phenomena we have named ‘Millennial Phantom Ownership’,” said Schnapp. “It appears there are increasing numbers of parents and grand-parents of Millennials buying houses and condominiums as a place for their children to live while they attend college or start new careers and ‘safely’ park cash.”

Within the 26 largest counties in California, the counties with the highest percentage of cash sales were Monterey (31.0 percent), Fresno (25.9 percent), Marin (25.2 percent), San Francisco (24.2 percent), Riverside (23.9 percent) and Santa Cruz (23.3 percent).

In May 2016, institutional investor purchases by LLCs and LPs rose 16.1 percent from April 2016 to the highest level since October 2013. On a year-ago basis purchases were up 5.1 percent.

“The jump in institutional investor purchases by LLCs and LPs caught our eye this past month,” said Schnapp. “While a one month surge in sales may simply be an anomaly, the lack of attractive alternative investments with real positive returns may be driving interest. Recently, investments in Real Estate Investment Trusts (REITs) have generally outperformed the wider stock market indices.”

In other California housing news:

• Flip Sales. Flip sales in May 2016 increased 4.5 percent for the month but were down 1.1 percent over the past 12 months. Flip sales accounted for 3.1% of total sales, tied with April 2016 for the lowest since April 2015.
• Negative Equity. The number of homeowners in a negative equity position fell this past month to 525,000, or 6.0 percent of homeowners. In the past 24 months, nearly 625,000 homeowners, or 7.1 percent, have exited their negative equity positions.
• Trustee Sale Purchases by LLC and LPs gained 3.5 percent for the month and were up 19.5 percent from a year ago. The volume of Trustee Sale purchases is so low that small changes from month to month register as big percentage moves. Over a longer period of time, Trustee sale purchases have been trending mostly sideways since November 2013.
• Institutional Investor Sales by LLC and LPs fell 2.9 percent for the month and were down 11.0 percent from May 2015. When the seasonal fluctuations are removed, investor sales have been on a steady downward trend since reaching an interim peak in December 2012.
• Foreclosure Notices. Notices of Default (NODs) fell 9.7 percent from April 2016 to its second lowest level in our records dating back to January 2007. Notices of Trustee Sale (NTS) edged up 2.1 percent from April 2016 to May 2016 but are down 9.5 percent from May 2015.
• Foreclosure Sales fell 6.1 percent for the month and are down 27.9 percent from May 2015. Foreclosure sales are at the lowest level in our records.