January 2018

January 2018
Coasting Downhill in Neutral
THE VALLEY BUSINESS JOURNAL
www.TheValleyBusinessJournal.com
25
REAL ESTATE
by by
Gene Steve Wunderlich Fillingim
Well, we’re in the home stretch of
2017 and we’re just kind of coasting
through the next few weeks, down a
gentle slope applying neither gas nor
brakes. Kind of like when you were in
college and too broke to buy gas so you
saved a few pennies by free-rolling your
car whenever you could. (Or was that
just me?) With the possible exception
of Congressional Republicans, there’s
no sense of urgency right now. Let’s
get through this year and see what 2018
brings. Depending on what H.R.1. finally
looks like, and which ‘expert’ you listen
to, the housing market will either be a
little better, a little worse, or about the
same next year. I agree.
Regardless, we’ll still be facing a
housing shortage of staggering proportion
in California - about 1 million units
short of what’s needed over the past decade.
Our region currently leads the state
in construction job growth right now so
that means our cities are addressing the
issue. Thank you. I know it’s a balancing
act between adding more residents,
keeping traffic moving, and bringing in
more commercial base and jobs, but our
region appears to be doing a far better job
than many parts of the state.
We’re finally starting to see an influx
of those long-anticipated Millenial
buyers moving into the market. Economists
have been predicting this wave
for the past five years and the leading
edge of that wave started in 2017, albeit
with a trickle rather than a flood. That’s
probably good news because with the
constrained inventory, a flood of new
buyers would simply force prices into an
even steeper appreciation incline which
would, in turn, eliminate many of those
new buyers from the market. In 2017,
first-time buyers held steady at 34% of
the market nationwide, (-30% in CA), but
that’s well under the 40% historical rate
considered to be a ‘normalized’ market. It
should come as no surprise that if you’re
a millennial living in California, buying
your first home doesn’t come any harder,
according to a recent survey. California
ranked as the toughest state in the nation
for first-time home buyers.
Closer to home, November sales
were a little more lackluster than anticipated.
Not only were sales down 11%
month-over-month (941 / 837), they
were down 14% from last November.
Based on pending sales in the pipeline
for December, my prediction of 12,000
sales for the region this year may be a
bit rosy. We should still finish the year
slightly ahead of last year, but by a slim
margin of 2% of less.
But while sales are definitely slowing
toward year-end, prices continue
their upward trajectory rising another
1% month-over-month and maintaining
a 7% lead year-to-date over 2016. Our
regional price appreciation is slightly
better than the state median increase of
6.1%, while our median price remains
nearly $200,000 below the state median
(CA: $546,430 / SWCA: $350,009).
Price stratification is forcing buyers out
of coastal and urban core areas to more
affordable inland areas. That same stratification
prompts buyers who may find
themselves priced out of local markets
like Temecula and Murrieta to find their
dream home in Menifee, Perris and
Hemet.
Inventory continues to be the sticking
point, dropping another 7% monthover-month
and declining 22% from last
year. Our inventory has been on an almost
steady decline. Since hitting peaks of
2,500+ units back in mid-2015, it’s just
1,618 units today. It doesn’t take a math
major to figure out that if your inventory
has been dropping for the past three
years while sales have been increasing,
you’re exerting upward price pressure
as demand continues to outstrip supply.
The statewide Housing Affordability
Index (HAI) fell to 29% last month,
meaning just 29% of our residents could
afford a median price home in the state!
Our region currently enjoys a 39% HAI,
which isn’t great but better than most.
Across the region we’ve got just a 1.9
month supply of homes for sale, which
is less than the 3 month supply statewide,
and homes are flying off the market at a
median time of 22.2 days.
IF some forecasts are accurate, that
enactment of H.R.1 slows demand and
drops prices by some percent, maybe that
will provide the breathing room our communities
need to get ahead of the housing
curve and infrastructure demand. I am
very doubtful that the bill will have any
negative impact on the housing market
and will continue to suggest that SUPPLY
= SOLUTION! Wishing you a healthy
and prosperous New Year!
Gene Wunderlich is the Government
Affairs Director for Southwest Riverside
County Association of Realtors. If you
have questions on the market, please contact
me at GAD@srcar.org or to keep up
with the latest legislative and real estate
trends go to http://gadblog.srcar.org/.