The dramatic 29.7 percent year-over-year increase in California median home prices belies the fact that May sales, a month normally characterized by rising sales, declined 11.1 percent year-over-year.. Taking a longer-term view, year-to-date market sales were down 6.4 percent from 2012 and have actually been nearly unchanged and relatively flat since 2009. In this bifurcated market, non-distressed sales are up smartly for the year but distressed sales are falling faster than the rise in non-distressed sales.
Driving the divergence in trends is the weird alchemy of artificially low interest rates driving up demand, thwarted by millions of underwater homeowners and government policies that are starving the housing market of inventory for sale.
Given the fact that an estimated 370,000 California homeowners are delinquent, more than 72,000 properties are in foreclosure, and nearly 47,000 properties are bank-owned, there “should” be plenty of inventory. Instead, market activity is at its lowest level in four years for the following reasons:
Nearly 2 million California homeowners remain underwater — 1.1 million of them by more than 25 percent. That means 20 percent or more of all California homeowners cannot materially participate in this housing market (outside of a short sale).
Short sales are likely declining due to government policies. The $25 billion National Mortgage Settlement has largely been fulfilled, taking the pressure off the five largest banks to conduct shorts sales. Also, the political football in the California Legislature over the fate of SB30, the California version of the extension of the federal mortgage debt relief act , is likely depressing short-sale activity.
Rising prices and low inventory create a seller’s market, so homeowners who do not have to sell are waiting on the sidelines to take advantage of rising prices.
Given these factors, the rapid price increases are likely to fizzle out sooner rather than later.
The dramatic 29.7 percent year-over-year increase in California median home prices belies the fact that May sales, a month normally characterized by rising sales, declined 11.1 percent year-over-year.. Taking a longer-term view, year-to-date market sales were down 6.4 percent from 2012 and have actually been nearly unchanged and relatively flat since 2009. In this bifurcated market, non-distressed sales are up smartly for the year but distressed sales are falling faster than the rise in non-distressed sales.
Driving the divergence in trends is the weird alchemy of artificially low interest rates driving up demand, thwarted by millions of underwater homeowners and government policies that are starving the housing market of inventory for sale.
Given the fact that an estimated 370,000 California homeowners are delinquent, more than 72,000 properties are in foreclosure, and nearly 47,000 properties are bank-owned, there “should” be plenty of inventory. Instead, market activity is at its lowest level in four years for the following reasons:
Nearly 2 million California homeowners remain underwater — 1.1 million of them by more than 25 percent. That means 20 percent or more of all California homeowners cannot materially participate in this housing market (outside of a short sale).
Short sales are likely declining due to government policies. The $25 billion National Mortgage Settlement has largely been fulfilled, taking the pressure off the five largest banks to conduct shorts sales. Also, the political football in the California Legislature over the fate of SB30, the California version of the extension of the federal mortgage debt relief act , is likely depressing short-sale activity.
Rising prices and low inventory create a seller’s market, so homeowners who do not have to sell are waiting on the sidelines to take advantage of rising prices.
Given these factors, the rapid price increases are likely to fizzle out sooner rather than later.
Madeline Schnapp
Property Radar