Inventory is up. Sales have slowed. That’s good news for homebuyers.
But is this a trend or just the usual summer fade?
As with many industries, real estate has “seasons.” During the summer, would-be homebuyers are on vacation, enjoying the nice weather, spending quality time with the kids while they are out of school. Most years, the real estate market heats up again in late August and stays hot until the start of the holidays.
As of the beginning of this week, there were 124 Livermore homes on the Multiple Listing Service. Compare that with the number of homes on the market at the end of previous months.
On Jan. 1 of this year, Livermore had a mere 20 homes listed, according to TrendGraphix, which tracks real estate data. By the end of the month, that number had more than doubled to 45. This is not too surprising, as many sellers decline to list their homes over the holidays.
At both the end of February and the end of March, there were exactly 57 homes listed on the MLS. From there, the numbers grew as sellers rushed to get on the market during the “high season.” April 30: 79 homes. May 31: 91 homes.
By June, the market was starting to slow down and we hit 112 homes at the end of the month increasing slightly more in the three weeks since.
For the most part, those June and July increases are due less to more sellers putting their homes on the market than to homes taking a little longer to get into contract – an average of 18 days on market, versus 9 or 10 in March, April and May.
Regardless, we are still in a highly accelerated sellers’ market. To put this in perspective, over the past 15 years we have averaged about 200 homes on the market at one time and they go into contract within an average of 30-35 days.
So is the current mild slowdown seasonal or a signal we are starting to shift out of the extreme sellers’ market we have been experiencing since 2012 and into a different type of market?
Several factors provide weight to the “market is shifting theory”:
• Prices are rising and the affordability index is at an extremely low point. The traditional affordability index estimates what percentage of households can afford to purchase a median-priced home.
The affordability index for Alameda County – which is similar to the entire San Francisco Bay Area – is at 22 percent. That means less than a quarter of households can afford to purchase a median-priced home in this county.
That median-priced home would cost $875,000. (Livermore’s median home price is slightly lower at $828,000 as of June 30.)
With a 20 percent downpayment and a conventional fixed-rate 30-year loan, monthly payments, including taxes and insurance, would be an estimated $4,530 and require an annual household income of $181,130 to afford it.
Compare that with the rest of the United States, with an affordability index of 57, median home price of $245,500, estimated monthly payments of $1,270 and required annual earnings of $50,820.
As homes become less affordable, fewer buyers enter the market, reducing competition for those who can afford to purchase a home.
• Rising interest rates will make homes less affordable, even if prices stabilize.
The Federal Reserve has raised rates three times since December and is likely to raise them at least once more before year end in a bid to keep the economy from overheating.
While the Fed’s actions do not have a direct effect on mortgage rates, their influence does tend to trickle down. Average interest rates on conventional 30-year fixed-rate mortgages today are about 4.6 percent, the highest since May 2011. Rates are well below the average historical rates of 7.5-8 percent, but they’re up a full percent from a year ago.
The monthly payments for that median-priced Bay Area home that currently run $4,530 would have been $400 lower a year ago. If interest rates rise another 1 percent they would jump another $500 per month.
• Many folks– including a lot of Baby Boomers who own their own homes– are choosing to move out of the area, often in search of more affordable housing. That means more properties are expected to come on the market in the next few years.
If that sounds like a case for shifting into a buyers’ market, consider this:
• People are not moving as frequently as they used to.
Americans used to move on average every 7 years. Today it’s every 11 years. In California, our property tax laws create extra incentive to stay put, especially for those who have owned their homes a long time. That puts less housing in play.
• The Bay Area, led by the East Bay and the South Bay, continues to have one of the most robust job climates in the nation.
“Defying gravity,” is how one economist -- Jerry Nickelsburg, director of the UCLA Anderson Forecast – described Bay Area job growth at a recent conference co-sponsored by the Anderson Forecast and UC Hastings College of the Law.
More jobs means more workers who need housing.
Livermore is increasingly a place where people look for both good jobs and good housing.
• We still have a housing shortage.
While it may seem as though housing is going up everywhere you look, the rate of construction is far below what is required to make up for the lack of homebuilding during the Great Recession.
California needs 180,000 new homes per year to keep up with demand. We are currently on track to build less than 130,000 homes this year – up significantly from the less than 50,000 homes constructed annually in 2008-2012.
• Most economists predict the Bay Area job market – and thus the housing market – will remain strong over the next few years, although we may see a leveling off from the current feverish pace in 2019 and 2020.
Bottom line: We won’t know for sure whether this mild slowing is seasonal or a sign of things to come, but it looks like we can expect the usual uptick in the fall.
Meanwhile, if you are thinking about buying or selling a home, contact your local Realtor today.
Cher Wollard is a Realtor with Berkshire Hathaway HomeServices Drysdale Properties in Livermore.