Greg Bulanti: Real estate rebounding
Special to The Union
As we close out 2015 and look ahead to 2016 we see a healthy, appreciating real estate market. House sales prices have increased about 6 percent in California and almost 12 percent in Nevada County. Additionally, existing home sales have increased in 2015 in California by about 7 percent and in Nevada County by a whopping 16 percent…16 percent more homes were sold in 2015 compared to 2014 in our neck of the woods.
We finished the year with almost a record low inventory of homes for sale in Nevada County. A couple of weeks ago there were just over 300 houses for sale in Nevada County listed as active on the NCAOR MLS. This number represents less than two and a half months of inventory when the average for the past decade is around 6-7 months of inventory statewide.
The low inventory of homes for sale has brought the issue of Home Affordability to the forefront. The lack of supply coupled with a higher demand has pushed both sale prices and rental rates upward. The higher the prices and rates go the more they push consumers out of the market or delay their entry into the market as buyers or renters.
We have seen a decrease of home affordability in the California since the first quarter of 2012. It has been a steady decline. 2015 finished with a dismal 29 percent of households being able to buy a median-priced home in California compared to a nationwide 56 percent of households being able to buy. California is the higher-priced spread and many of us know this based upon our experiences.
In the third quarter of 2015 only 10 percent of households were able to afford to purchase in San Francisco, 13 percent in San Mateo, and 19 percent in Santa Clara counties. This compares to 45 percent of households in California being able to afford Nevada County prices. Of all the California counties only Kings County beats the U.S. percentage of affordability.
Lack of supply and heightened demand for housing has raised the sales prices and rental rates. It is market theory at work: Supply and Demand. In Nevada County, there is tremendous competition for affordable and available housing. Increasing supply is the solution but it won’t be easy or fast.
The Economists at the California Association of Realtors estimate that there is an average of 165,000 households forming on a yearly basis. Reviewing construction building permits in California from 1980 to 2015 shows only 13 years did builders hit or exceed 165,000. Over the period of the past 35 years there have been a total of 22 of the years when builders fell short of this goal. More importantly, multi-family units were a good portion of the construction boom from 1983-1990. In the next construction boom in 2002-2006 there fewer houses built than the 80’s and there was a much lower percentage of multi-family units to single family homes. From 2008-2012 construction of both types of housing dropped to its lowest level in 35 years. However, in 2014-15 we have seen a decent rise in new construction with a more favorable balance of single family residences and multi-family units. The prediction is for the production of 124,600 units in 2016 … well below the 165,000 households forming in that year. Since 1980, we have been missing an average of 100,000 units annually being put into the housing pipeline in California
2015 marked the lowest level of home ownership since World War II. In the United Sates, it is down to 63 percent of households are home owners. In California it has plummeted to 54 percent. Certainly the Great Recession had a lot to do with folks losing their homes and investors scooping up the REOs by the bushel. Today boomerang buyers are coming back into the market. They have tasted home ownership and know how good it is. They have healed their credit and obtained steady, higher paying jobs. But inventory is low which means they don’t have as many choices and they are weary of overpaying on the purchase price.
Millennials (18-35 years of age) have their own unique set of home affordability issues. Last year saw the student loan debt issue come into focus. From 2004-2013 the student loan debt tripled in size. The Student Loan Debt has gone from a total of $250 million to almost $1.4 trillion in 11 years. This exponential growth in student loan debt continues today. First-time home buyers who have a loan debt of $60,000 have a barrier to home ownership. There are a good number of students graduating with a $100,000 student loan debt. Even with good-paying jobs and stock options, these student loans are difficult to pay off in a few years while trying to save for a down payment. Postponing the purchase 5-10 years adds more financial burden on first-time buyers. Typically, the energy to quickly solve this dilemma comes from forming a household or increasing the members of a household (making room for baby). Millennials are increasingly benefiting from help from their family or tight social network to come up with the down payment and closing costs. It helps that their parents and grandparents have seen a huge increase in the equity on their homes and are in a position to help their younger family members. Once they save or borrow or be gifted down payment and closing costs, Millennials can usually qualify for a purchase money loan, especially if this is based upon two incomes.
Still a hurdle for first-time buyers and boomerang buyers is the competition from all-cash and investor buyers who can close the deal quickly and have the wherewithal to purchase property in as-is (or, more accurately, as-disclosed) condition. The lack of contract financing contingencies, a lack of buyer repair requests and a quick escrow timeline to close makes it extremely difficult for first-time and returning buyers to compete on a level playing field.
Increasing housing inventory in California is the solution. We need new single-family and multi-family units added to the inventory to stabilize the housing market and bring rental prices under control. This will increase the percentage of Americans who can own a home and thereby make the American Dream obtainable for many once again.
Greg Bulanti is 2016 president of the Nevada County Association of Realtors
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The MEME stocks are on fire again. You remember these. My last article on the MEMEs was the called “The Game that is Gamestop.”