Market is Reeling

Copy for Real Estate Guide Column for 9-29-06 (469 words)

REAL ESTATE PATTERNS
By Ken DuVall

Market is Reeling

It’s nervous out there. Housing prices have outrun incomes. Americans’ ability to afford a home is the worst in 20 years. It’s to the point where appreciation went so high that it priced people out of the market. In the last five years, home prices appreciated more than 56 percent on average. At the same time, incomes increased only 25 percent. That’s serious.

After five years of growth, the housing market is undergoing a period of adjustment. Even with falling demand and increased supply, home prices, amazingly, are still appreciating in some areas. The Sacramento market, the 2nd most likely in the nation for price DECLINES, saw prices INCREASING again last week. I believe that fundamentals will prevail, as always. Again I remind you that historically, home prices have ALWAYS risen at least at the annual inflation rate, plus 1 to 2 percent. Current rate: 3% +/-. Believe it or not, per the Associated Press, the state median is actually up 3.5% over a year ago!

But home prices have momentarily fallen in some previously high flying areas. As we work our way through the inventory, now up to 3.9 million unsold units, a 7.3 month supply at today’s sale pace, prices should bounce higher at some point in this cycle. When depends on who you ask and where they live. Real estate is a fragmented market. What happens in Palm Beach, FL may be completely different from S.F., L.A. or Chico. Not everyone benefited equally from the boom, nor will everyone suffer now.

The seller’s market is history. The days of fat and fast home value increases are over. However, most economists and Realtors see the market simply returning to more earthly figures after a period of unsustainable growth, and that any decline will be short lived. By next spring/summer, they believe the market will again see increasing sales and strengthening home prices. Note: foreclosures are up. Adjustable rate loans are a ticking time bomb. But interest rates are drifting down again, fortunately.

On the bright side, the Office of Federal Housing Index has NEVER shown an annual home price DECLINE over its entire 30-year history. The smallest gain ever was 1.3% in 1991. For 2006, they expect an average 3.5% RISE in prices. The OFH numbers are very closely watched because they track the sales prices of the SAME HOUSES, over and over again, for decades, a very accurate indicator.

A Realtor bud in Santa Barbara tells me “we’ve had a tremendous number of sales above $10 mil, and several above $20 mil.” The Wall Street Journal reports “homes on the ultra high end have been selling in increasing numbers.” So much for the Rich & Famous! The U.S. Census Bureau reports that total construction spending, even with recent cutbacks, remains above $1 trillion. Still very strong.


Ken owns Ken DuVall & Associates, Realtors at 3rd Ave. & Mangrove in Chico.  Ken was the 2001 President of the Chico Assn. of Realtors and the 1995 Chico Realtor of the Year.  See Chico MLS listings at www.KenDuVall.com and call Ken at 345-3700 for all your real estate needs. Free consulting.

Sales Down, Prices Up?

Copy for Real Estate Guide Column for 9-22-06 (459 words)

REAL ESTATE PATTERNS
By Ken DuVall

Sales Down, Prices Up?

It’s a scenario that defies economics, yet in many markets around the country: Home prices are rising even as sales slow. Whether they’re speeding up or slowing down, buyers are out there. Once sellers price their homes appropriately, sales pick up. A recent Business Week Magazine survey showed home prices nationally increased 3.7% in the 2nd quarter, but in the Top Ten markets, including the L.A./Long Beach area, they were up over 14%, and in Portland, Oregon prices zoomed 19%. Alaska is even (no pun intended) hotter!

U.S. Census Bureau data shows that in metro areas, like Chico, “that are home to healthy technology, manufacturing or financial services, as well as employers like universities, are enjoying equally healthy property values.” Property values are driven by the activity on the land. Case in point: a San Jose Coldwell Banker office recently presented an offer of $10 MILLION for 3 acres (that’s $3.3 mil an acre!) of prime land there, and was turned down!

Chico has only 40 current commercial listings. That market is doing well, as buyers get in while the getting’s good, and also due to a lot of local encouragement for businesses to relocate here. The Federal Reserve just reported: "Commercial real estate markets were uniformly described as strong and, in most cases, increasingly so, while office/leasing markets improved too. As housing and home construction activity weakened throughout the nation, commercial real estate and construction strengthened in most districts."

Fully 20 of the 21 least affordable metros in the U.S. are in California. The California Building Industry Assn. ranked the greater Los Angeles area as the worst, with only a 1.9% affordability factor, that being the percentage of buyers that can afford the median priced home. Presently, 57% of California families own their own homes, compared to 69% for the rest of the nation. More on this topic next week.

Nationwide, the affordability index is 40.6%. In California, only Butte County, at 25.3%, is above a 20% affordability factor. The remaining least affordable areas in America, all with single-digit affordability factors in ascending order, are Orange County, Salinas, Merced, Modesto, San Diego, Santa Cruz, Santa Barbara (of course), Napa, San Luis Obispo, and Riverside, a red hot spot.

In Chico, sales are pretty much holding up, even with up to 600 residential listings, which seems to have become a new threshold, versus 120 in the spring of 2005, and some 300-350 on average for the decades past.  Compared to other large California metros, relocating buyers do get a lot of bang for their buck in Chico. Perhaps that’s why our market just keeps chugging along, that and our desirable way of life. Chico is one of the “Places to Build a Dream On”, and always figures to be.

Ken owns Ken DuVall & Associates, Realtors at 3rd Ave. & Mangrove in Chico.  Ken was the 2001 President of the Chico Assn. of Realtors and the 1995 Chico Realtor of the Year.  See Chico MLS listings at www.KenDuVall.com and call Ken at 345-3700 for all your real estate needs. Free consulting.

A Great Landing!

Copy for Real Estate Guide Column for 9-15-06 (462 words)

REAL ESTATE PATTERNS
By Ken DuVall

A Great Landing!

Comparing housing’s “soft landing” to the classic pilot’s saying: “A GOOD landing is one you walk away from. A GREAT landing is when you can use the aircraft again!” We WILL be able to use the “aircraft” again, but it isn’t going to fly like it did! Remember: ANY commodity priced right sells. People are buying and selling every day in Chico. The experts are all guessing wildly right now.

I don’t see the sky falling- just yet. Interest rates have dropped for 6 weeks. The latest unemployment rate of 4.7%, the lowest in 30 years, is an encouraging economic indicator. Jobless claims are way down too, but giant homebuilders, KB, Lennar, and Beazer, report cancellations up and orders down. It’s not real nice out there right now.  Oh well, gas prices are dropping!

On the flip side, Kiplinger opined last week that the current housing slump will NOT cause a recession. Others say it will. Is housing that big? Yes, accounting for fully 6% of the GDP and 25% of all new job growth since 2002. Is it delivering an economic whammy? Yes. The drop in housing construction is definitely putting a chill on consumer/investor confidence. On the other hand, we never build enough homes, therefore unfulfilled demand continues unabated. So don’t go into “lemming mode” and head for the nearest cliff just yet. I believe that underlying market fundamentals will prevail, as always.  

Nationally, average (Chico will never be average) home prices are projected to stay flat, or even back off, through the middle of 2007. By then the current huge overhang of 3.6 million homes should be absorbed. Sellers may face a less than spectacular spring season. The experts say this does NOT spell a shift from the current correction to a crash. By late 2007- keep your fingers crossed- they say homeownership should resume its historic role as a secure store of value, appreciation, and shelter. You should be taking the long view now. Home values have ALWAYS exceeded the rate of inflation by 1-2%.

The Federal Reserve Bank reported last week the housing boom was NOT an artificial bubble, but instead a product of America’s increasing wealth, changing demographics, and newer loan products that have helped more renters become homeowners. They conclude the underlying demand for housing was, and remains, real. I agree. Homeownership nationally is at an all-time high, reaching a record 69%, regardless of race, age, gender, or region, even as foreclosures trend up. Affordability is now the big problem.
     
Check out the new Century 21 Jeffries Lydon office on the corner of El Monte and Hiway 32. It’s a magnificent, hi-tech, $2.2 mil 2-story building housing some 50 Realtors. It’s gorgeous, impressive, and represents a serious commitment to the future of Chico real estate.  

Ken owns Ken DuVall & Associates, Realtors at 3rd Ave. & Mangrove in Chico.  Ken was the 2001 President of the Chico Assn. of Realtors and the 1995 Chico Realtor of the Year.  See Chico MLS listings at www.KenDuVall.com and call Ken at 345-3700 for all your real estate needs. Free consulting.