Flat is the New Black

California’s Ho-Hum Housing Market is Disturbingly Flat and Unexciting

 

CALIFORNIA, NOVEMBER 18, 2015 – Seasonal forces continued to exert downward pressure on the sales of California single-family homes and condominiums. October sales fell 2.9 percent to 35,182 from a revised 36,232 in September.

On a year-ago basis, sales were nearly unchanged, down 1.0 percent from 35,541 in October 2014. When the extra business day in October 2014 is taken into account, sales were unchanged year-over-year.

Year-to-date sales through October 2015 were up 6.5 percent compared to the same period in 2014 buoyed by strong sales in the first half of the year. Despite the increase, sales remain 30 to 40 percent below 2002 through 2006 sales volumes.

“Flat is the new black,” said Madeline Schnapp, Director of Economic Research for PropertyRadar. “Sales posted healthy increases in the first half of 2015 relative to 2014 but beginning in July, sales weakened as rising prices began to meet resistance from prospective buyers. That scenario is unlikely to change anytime soon.”

“The California real estate market has been surprisingly resilient,” continued Schnapp. “Sales while weak historically, remain higher than we’d expect given limited inventory. Prices are higher than we’d expect given virtually no wage growth. Despite a terrifying drought and financial and stock market volatility, things are quite stable, if not flat out boring. Where would we be without foreign investors and money flowing in to wage growth for a few of the unicorns of the tech industry?”

The median price of a California home in October was $407,500, nearly unchanged from a revised $407,000 in September. Prices peaked in July at $416,000 but have retreated to April 2015 levels.

“On a monthly basis, prices have fallen in 17 of California’s 26 counties,” said Schnapp. “Rapid price appreciation seen in the first half of the year has fizzled in all but a few of the most affluent counties.”

The counties with the largest price increases were Marin (+11.1 percent), Monterey (+5.7 percent), Merced (+2.4 percent) and Stanislaus (+2.0 percent). The counties with the largest price declines were Contra Costa (-5.1 percent), San Mateo (-4.7 percent), Santa Barbara (-13.6 percent) and Santa Clara (-4.3 percent).

On an annual basis prices are still appreciating but at a sluggish pace. On a year-over-year basis, the median price of a California home was up 4.9 percent from $388,500 in October 2014, down from an annual increase of 7.0 percent in October 2014, and 25.2 percent in October 2013.

Annual price gains were five percent or less in 12 of California’s 26 counties. Of those 12 counties, six experienced annual price declines up from three in September and one in August.

“Price appreciation has definitely slowed,” said Schnapp. “As we transition into the fall and winter selling season, buyers have become more cautious and sellers more negotiable.”

In October, only 6.2 percent, or almost 545,000, of California’s homeowners were underwater, down from 1.2 million in October 2014.

“What a difference a year makes,” said Schnapp. “In October 2014, one in eight homeowners were underwater, today that number has dropped to one in 16. That’s half a million homeowners headed into this year’s holidays without the stress of being underwater.”

In October, Foreclosure Notices of Default and Notices of Trustee Sale jumped 8.1 percent and 8.8 percent, respectively. Foreclosure sales were nearly unchanged.

“It is quite possible that banks are becoming more aggressive in unloading their distressed properties via a Trustee Sale before year’s end,” said Schnapp. “While the one month jump in October does not make a trend, the potential for an increase in distressed properties for sale is good news for investors.”

In other California housing news:

• Flip sales fell 1.8 percent in October but were up 2.3 percent over the past 12 months. Flip sales peaked in June, coincident with a peak in median prices. As price appreciation slows, flip sales are also slowing.
• Cash sales fell 1.5 percent in October to 7,400 and represented 21.0 percent of total sales up 0.3 percent from 20.7 percent of total sales in September. Cash sales as a percentage of total sales remain elevated but have been steadily declining since reaching a peak of 40.0 percent of total sales in August 2011.
• Institutional Investor (LLC and LP entities) purchases fell 3.2 percent to 1,286 during the month of October and were down 1.3 percent from October 2014. Since reaching a peak in December 2012, institutional investor demand has declined 44.7 percent.
• Trustee Sale purchases by LLC and LPs were down 82.9 percent from their October 2012 peak but have trended mostly sideways since May 2014.
• Institutional Investor sales were nearly unchanged for the month and down 19.5 percent from October 2014. Investor sales have been on a downward trend since March 2015.