California Economy and Housing Markets
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Two weeks ago I spoke at the California Association of Mortgage Professionals (formerly the California Association of Mortgage Brokers) in San Jose regarding the economy, housing issues and trends. It was a great break from the heat (which previously that week when I left Wichita, Kansas was 111—so weather in the 50s was almost chilly).
California continues to crawl out from under the hangover of get rich quick in housing. Good news is that housing sales are finally recovering some from the lows seen in 2007 and 2008—and getting all of the excess inventory off the market and back into the hands of owners either paying cash or making payments is the first step in a recovery.
Good news is that California is finally seeing some job growth, having added 28,800 jobs in June 2011 and 109,800 since the beginning of the year. Bad news is that the state is still down 1.134 million jobs since the peak in July 2007. At the current pace of job growth it will take more than three years just to get back to where the state was in July 2007. Hopefully the rate of growth accelerates quickly. While the weather temperature in California is great, the business temperature is downright cold. The Tax Foundation (and Washington, D.C. non-profit) ranks California 49th out of 50 states for being business friendly based on tax policies.
The National Association Realtors® data (which are provided by the California Association of Realtors®) show that in the second quarter of 2011, existing home sales were at a pace of 439,600 (seasonally adjusted annualized rate –SAAR). While up significantly from the 300,000 +/- level seen in late 2007 and early 2008, this remains 22.4 percent less than the average of 2002 (which I believe was the last normal period in housing following the recession of 1991 and prior to the stupidity of the subprime debacle of 2004-2007). The current rate of sales is also 28.7 percent less than the peak reached (on a SAAR basis) in the second quarter of 2005.
From another perspective, the DataQuick housing sales data for California (which includes the 15 most populated counties which make up approximately 74 percent of the State’s population) shows a decline in housing sales through June 2011 since the expiration of the $8,000 homebuyer tax credit in June 2010. The table below is the average number of home sales for the prior 12 months. By doing the 12-month average, eliminated any seasonality issues in the data series, allowing a clearer picture on trends.
I prefer the DataQuick numbers over those from the Realtors for two reasons. First, these data are available each and every month. And perhaps more importantly, DataQuick’s numbers are all deed recordings at the respective courthouses regardless of the reason of sale (foreclosure, short sale or arms-length transactions). Part of the decline in sales, however, is likely from the intermission on foreclosures, which are off nationwide in the first six months of 2011 by 84 percent in cities with more than 200,000 people across the country.
Prices are down significantly. The first graph below is based on data from the NAR and the average of the median prices in six metropolitan statistics areas including Anaheim-Santa Ana, Los Angeles-Long Beach, Riverside-San Bernardino-Ontario, Sacramento-Arcade-Roseville, San Diego-Carlsbad-San Marcos, San Francisco-Oakland-Fremont, and San Jose-Sunnyvale-Santa Clara. The second graph shows DataQuick numbers and are based on a 12-month moving average of monthly data. That said, prices are down roughly 40 percent from the peak but do not appear to still be in a decline. Perhaps California housing prices have finally hit bottom and stabilized.
Building permit activity, which currently is running at a 50,000 total dwelling unit pace per year, likely is not keeping pace with the population growth which translates to even more absorption of the current housing supply—and that is good news also.
The bottom line is that both the California economy and housing markets appear to be stabilizing somewhat—and that is the first step towards returning to a normal market.