November 18, 2009, Pasadena California: This year, I was once again fortunate to attend a presentation by Leslie Appleton-Young, Vice President and Chief Economist for California Association of Realtors (C.A.R.) on the real estate sales and housing market outlook in Pasadena California.
First, let’s take a look at Leslie’s forecast for 2009 in a presentation a year ago on November 21, 2008 to the Pasadena Real Estate Board and see how close she was to reality.
National Economy Forecast for 2009:
- Recession through mid–2009
- Improved outlook in second half 2009
- Weak job picture, unemployment rate up
- Inflation no longer a concern – for now
- Stimulus package all but certain in early 2009
- CRITICAL CONCERN: How soon will financial system stabilize and enable economic activity to return to normal?
National Economy Data YTD 2009:
- There was a huge rebound in the Gross Domestic Product. Federal Government threw a lot of money into our economy with special programs like the tax credit for first time home buyers, unemployment benefits, cash for clunkers and so on. Fiscal policy has been “Spend Now – Worry Later!”
- To date: $3 trillion in government spending: MBS purchases ($693 billion), TARP ($372 billion)and Obama stimulus package ($304 billion). RESULT: Federal budget deficit will reach 1.6 Trillion Dollars this year!
- Personal Consumption is down. As UCLA Forecast 09/09 quoted “Credit imparied lower income consumers can’t spend the way they used to and wealth impaired affluent consumers won’t.”
- Inflation is not a big issue right now, but two years from now could be a problem.
- Nationally unemployment rate is in double digits in October of 2009.
Real estate observations for 2009:
- Resale house volume is up, but the median price is down. The median price of detached homes in California for September 2009 is at $296,090. The median price in Los Angeles County is 351,680. Pasadena’s median home sales price is $617,000.
- In recent past, housing prices were pretty sticky on the way down due to the number of discretionary sellers. Sellers that did not need to sell and could hold on to their homes until prices moved up. This year, we’ve seen foreclosures drive the sales and no longer, are these home sellers discretionary.
- Months of real estate inventory in Pasadena dropped to 3.6 months in October 2009 from 13.8 months in January 2009. Inventory is getting leaner!
- In Los Angeles, 58% of all home sales were distressed sales this year.
- California tops all states in FHA lending with 10% market share. FHA loans have become very important to getting home buyers into homes especially for first time home buyers.
- Over 1/2 of homes sold in 2009, have sold with multiple offers.
- All cash sales went up to 19.6% this year. There are a lot of investors putting their cash into real estate.
- A ton of government intervention took place to delay the foreclosure process and to provide home owners with option. From a real estate sales perspective, we have a lot of demand for property, but the inventory is lacking. Take a look at the graph below:
Areas of concern for the next few years:
Two major issues will affect us in 2010 – commercial market and FHA delinquency rates.
- The commercial real estate market is in trouble. Distressed commercial real estate is growing. Commercial debt crisis is ahead.
- FHA program is in trouble. Delinquency rates on FHA are very high. Many home owners are relying on this program today for financing and a low down payment alternative of getting into houses. As you can see by the graph below, the number of FHA loans has increased dramatically over the last couple of years as conventional loans are more difficult to get.
So what is the real estate forecast like for 2010?
- Have we turned the corner and are on the way to recovery? Yes… ABSOLUTELY! Is it going to be a quick recovery. No… it will be a long and lackluster road ahead of us.
- Great time for a first time home buyer! First time tax credit will continue to drive home purchases – 39% of first time home buyers would NOT have purchased their home without the tax credit per C.A.R. survey. In 2010, the tax credit was expanded to include higher income buyers and will allow folks to buy property up to $800,000 and still be eligible to receive the credit. It will also allow for a “step up” home buyer – not just first time home buyer.
- A step up home buyer is someone who has lived in their current home for 5 out of 8 years AND they do NOT have to sell their current residence, but the new one must be their primary residence. Their credit is up to $6,500.
- It will continue to be difficult to obtain a loan especially in the higher price points. Luxury home sellers will be affected more than lower price property sellers.
In summary, what can real estate consumers expect? to see next year?
Looking at the recent sales levels and price gains, as well as the lack of inventory in many locations for the last couple of months, it’s clear that we are moving towards a normal real estate market.
However, there has been a lot of government intervention and efforts by lenders to manage the flow of distressed inventory which helped the current real estate market conditions and have held the supply of homes steady.
As a result of steady housing inventory, the median home price in most California real estate markets has stabilized. With continued government policies and lender practices in place, home prices in much of the state should hold steady especially through mid 2010.
High-end real estate market will soften in the next six months due to challenges in getting loans. First time home buyers should continue to expect stiff competition from investors and multiple offers will rule. These buyers should be fully prepared and approved for a loan and work with an experienced real estate agent that can guide them through the process of buying a home.
Articles of Interest:
IRINA NETCHAEV & ASSOCIATES
Pasadena Views Real Estate Team
445 South Fair Oaks Avenue
Pasadena, CA 91105