People are pushing home prices down, inventories up and buyers
away
California finds itself at the start of another housing
recession and though it started in larger cities, Hollister seems
to be the next city entering a real-estate slump.
People are pushing home prices down, inventories up and buyers away
California finds itself at the start of another housing recession and though it started in larger cities, Hollister seems to be the next city entering a real-estate slump.
While some real estate agents are putting on brave faces, median house prices have fallen while at the same time inventories continue to build and the number of days houses are sitting on the market continues to swell.
Sacramento started the down-market last summer and the Central Valley followed suit. Since then, other areas, including Monterey, Santa Cruz and Santa Clara counties have all swung the same way. All these cities are finding themselves with an over-abundance of houses without buyers.
In San Benito County the number of houses on the market during July of this year was nearly double what it was the same time last year; 420 homes in July 2006, versus 232 in July 2005.
Typically the market shifts start in Silicon Valley and slowly move outward, but with the latest shift, it started in Sacramento, said Richard Calhoun, a real estate broker with Creekside Realty in San Jose.
“I believe the collapse outward has been due to things like people’s perceptions of the gas shortage. It’s psychological. People are less likely to purchase homes when they face uncertainty,” Calhoun said.
Hollister real-estate agent Nants Foley, of Intero Real Estate Services, is less convinced that the market is shifting. She said that looking at last month’s numbers she would be compelled to say that indeed the market is softening, but she warned that you can’t predict trends based on one-month windows. She also pointed out that Hollister is a special circumstance because of the building moratorium.
“Mortgages are down a little, still compared to Gilroy and Morgan Hill, we’re comparable. I wouldn’t stake my reputation on a one-month trend,” Foley said.
But other factors are conspiring against the housing market, not the least of which is that fewer people than ever can afford houses in the region. Silicon Valley’s median household income declined for the fourth year in a row, and is now close to what it was a decade ago, according to Joint Venture Silicon Valley’s 2006 Index, a highly regarded research report on quality of life issues in the region.
The rate of personal bankruptcy filings has risen 50 percent since 2001. Average apartment rental rates continue to outpace median household income; the percentage of newly approved housing units defined as “affordable” continues to fall.
While some might say that this market was a bubble waiting to burst, Foley thinks people will see less of a bubble because there is a limited housing supply in California and supply can’t keep up with demand and has created urgency in the market.
“It was like computer sales before 2000. People wanted to make sure their computers would not get hit by the millennium bug so they bought new computers, but then didn’t buy again,” said Foley.
Perhaps because they couldn’t afford to upgrade to new computers.
It has been estimated that people moving out of the area due to a lack of jobs has also significantly affected the housing market. Real estate agent Rick Pennington, of Pennington Real Estate, in Hollister, estimates that 2,500 jobs have been lost due to the sewer moratorium imposed by the state in 2002 – a figure put out by CLEAR, a local lobbying group pushing for the completion of the sewer project.
Pennington, who sits on the San Benito County Association of Realtors, believes that things are slowing down significantly. The association has even discussed the issue at the board level at the past few meetings.
“There are several things affecting buyers right now. Interest rates are creeping up and there is false hope that they will drop again. Buyers are hoping that the rates will stabilize if they wait one to two years. This community is a bedroom community and one-half of the people who buy here are from out of town. Gas prices are also definitely affecting things. The moratorium has artificially put pressure on resale [prices],” Pennington said.
People have to be careful not to read too much into the situation, said San Benito County Association of Realtors President Roy Navarro. Navarro believes that the current state of real estate in California is entering into a “correction” phase. As prices rise, the tendency is to reach a point where buyers balk at the prices, but it always eventually corrects, Navarro said.
“Everything is cyclical. People are always trying to predict the downfall of the market … a lot of the results we are seeing right now are directly related to the sewer moratorium. The supply of amenities too, places like Outback steakhouse and Applebee’s that would like to locate here, but cannot. It also affects smaller retailers, because they need the same growth rate to produce buyers to patronize their businesses,” Navarro said.
He believes that once the moratorium is lifted demand will catch up somewhat with supply and things will balance themselves out.
Perhaps.
But the question remains how the majority of people will be able to afford homes in California. California is next to last when it comes to homeownership in America, according to the California Building Industry Association. Nationally, 70 percent of families own a home, but in California it is only 58 percent, a fact that is particularly pressing in Salinas and Monterey County, which was just ranked in a national report as having the nation’s third least-affordable housing market.
“California is the least affordable state in the country. Yes, the housing market is softening, but affordability is not going down; people still can’t afford to live here,” said John Frith, vice-president of public affairs for the California Building Industry Association. “Lawmakers need to make more affordable housing opportunities in terms of first-time buyers.”
What Navarro doesn’t really see as a contributing factor to why people aren’t buying houses is gas prices. He said that while it is true that centers of employment are a determining factor to Hollister’s livability, it is also the fact that the town is reasonably-sized and a safe place to raise a family.
“Gas prices might have some significance, but they’re not detrimental. Psychologically it might, but in terms of real dollars, it doesn’t affect the sales of homes,” Navarro said.
Median home prices have fallen over the past year, but not too drastically, Navarro said. In July of 2005 the median home price was $584,000. During July 2006 the median price was $570,000.
Part of the reason for the slowdown, at least as Navarro sees it, is interest rates. First-time buyers may be warded off by the rising rates, and they’re a big chunk of the market. Homeowners with equity are buying up and eligible for mortgages that new buyers aren’t.
Frith agrees.
“If you look at situation now, people who own their own homes are doing very well, they can use that equity to buy new homes, but first-time buyers are not so lucky. Starting homes in California average $400,000. This makes it nearly impossible for a new buyer to get their foot in the door. It’s anecdotal; college graduates can’t afford to live here so they move away. That has a tremendous impact on California.”
The population in California increases by something like 500,000 people annually, so there is tremendous pressure for housing. When homebuilders are unable to meet the demands for housing this creates inflated prices and everyone suffers, Frith said.
