SILVAR REALTORS® received an upbeat message about the housing market from California Association of REALTORS® Vice President and Chief Economist Leslie Appleton-Young at Wednesday’s Los Gatos/Saratoga District tour meeting. Appleton-Young told REALTORS® the housing market is “the bright spot of the economy” and the fundamentals are sound.

“Yours is the strongest regional economy by far,” she told SILVAR REALTORS®.

Consumer confidence, though uneven, is getting better. Unemployment is heading down. The state, which lost 1.3 million jobs during the recession, has added 485,000 jobs since January 2010.

There is a shortage of inventory for various reasons. Homeowners with equity are still unwilling to sell at today’s prices. Others may want to sell but do not have enough equity in their homes for a down payment and closing costs for their next home. Then there are those who are stuck and cannot sell their home because they are underwater on their mortgage.

Appleton-Young said 29 percent of California borrowers are underwater and 4.4 percent are within 5 percent of being in negative equity. These performing loans may not be sustainable for the long-term. Despite this, Appleton-Young said it is an urban legend that lenders will flood the market with foreclosures after the election. 

Mortgage rates are still at 50-year lows and the Federal Reserve has promised they will remain this way until 2015. Fifty percent of people living in the state can afford to buy a home, however many buyers can’t buy because investors are outbidding them; they are “living in the gray” due to a recent short sale, foreclosure or bankruptcy; or their credit scores are low and can’t meet lending requirements because banks continue to practice “defensive lending.”

Due to an improving economy and shortage of inventory, California home prices are snapping back slowly, said Appleton-Young. The California median home price increased 15.5 percent from August 2011 to $343,820. The statewide median home price is forecast to increase a moderate 5.7 percent to $335,000 in 2013. For this year, C.A.R. projects the California median home price will climb 10.9 percent to $317,000.

Strong demand is reflected in August 2012 home sales, which shot up 6.5 percent from August 2011. Appleton-Young said it has been a strong year without tax credits, government programs or stimulus. Of total sales of existing single-family homes in August, 62 percent of sales were traditional equity sales, 14.4 percent REOs and 23 percent short sales.

Appleton-Young projects home sales in 2012 will increase 5.1 percent from the 497,900 existing, single-family homes sold in 2011. The C.A.R. forecast sees sales in 2013 gaining 1.3 percent from this year’s sales.
“The market is working itself through,” said Appleton-Young.