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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.


Pictured left to right are past C.A.R. President Jim Hamilton, SILVAR President-elect Suzanne Yost, Los Gatos/Saratoga District Chair Doug Evans, C.A.R. Vice President and Chief Economist Leslie Appleton-Young, SILVAR President Gene Lentz, and Los Gatos/Saratoga District Co-chair Chris Rasmussen.

California Association of REALTORS® Vice President and Chief Economist Leslie Appleton-Young told SILVAR members at last Wednesday’s Los Gatos/Saratoga District tour meeting that while the worst is over, the market continues to struggle with not much relief in sight.

“The tide has turned for housing, but now it’s stuck,” said Appleton-Young.

C.A.R.’s chief economist explained that the economy started to gain a bit of traction and seemed to be moving forward at the beginning of this year, but things happened one after another – Japan’s earthquake and tsunami, oil price spikes, uprisings in the Middle East, stock market volatility, the U.S. debt and the debt crisis in the euro zone. As a result, the housing market that appeared to be recovering is now stalled.

Lenders aren’t lending and consumer and entrepreneurial confidence continue to be low. As long as the jobs problem continues, she doesn’t expect consumer spending to improve by much. Mortgage rates have experienced a historical drop, “but you can’t push on a string. You can’t make people borrow; you can’t make lenders lend,” she said.

The good news is Santa Clara County is doing better than most parts of the state with just a 9.6 unemployment rate. In Santa Clara County, 35 percent of homes that closed escrow in September were distressed, but this is a far cry from places like Solano County, where in September 73 percent of homes that closed escrow in September were distressed sales.

The Bay Area has the best economy in California, in terms of income and job growth. “Companies in this valley are in the cutting edge, leading growth in the economy,” said Appleton-Young.

September single-family home sales were at 487,940 units. Absent more wild cards that could upset the economy, C.A.R. expects 491,000 unit sales by year-end and 496,000 unit sales in 2012, just a 1 percent increase from this year. California’s median price was $287,440 in September, down 8.3 percent from September 2010, but way above from when it bottomed in February 2009 at $245,230. C.A.R. expects the median price to hit $291,000 by the end of 2011 and to increase 1.7 percent to $296,000 in 2012.

Troubles are ahead because all levels of government will have to wrestle with issues of pensions and cost of health and other benefits for public employees. Appleton-Young said ultimately, everyone will have to answer for the deficit.

“It’s hard to do when in some places, the coffers are empty. You can’t spend more than you take in, even if you are the U.S. government. Everyone is going to have to give up something in the end,” she said.

Appleton-Young said in 2012, REALTORS® will need to watch the following federal issues closely – the future of Fannie Mae and Freddie Mac, changes in the tax treatment of real estate, including the definition of the QRM (Qualified Residential Mortgage), which could mean purchasing a home will be even more difficult and costly for consumers.

California Association of REALTORS® Vice President and Chief Economist Leslie Appleton-Young agrees with National Association of REALTORS® Chief Economist and Senior Vice President of Research Dr. Lawrence Yun.

“Absolutely the worst is over, but we will have a slow recovery,” Appleton-Young told SILVAR members at this morning’s Los Gatos/Saratoga District tour meeting.

Here are some positive signs:

  • GDP (Gross Domestic Product), which showed a drop of 2.6 percent in 2009 – the largest drop since 1938 – is rising slowly. GDP was up 1.7 percent in 2010 Q2, and up 2 percent in 2010 Q3. There has been positive growth in the economy for the last five quarters. It shows the federal government’s economic stimulus has worked, Appleton-Young said.
  • The Consumer Confidence Index in October was at 50.2, up from 48.6 in September.
  • Consumer spending was at 1.9 percent in 2010 Q2.

Unfortunately, it’s still not enough to convince businesses that they should expand, she said.

Consumers are downsizing and maintaining the attitude that “less is more.” They are shopping at discount stores like Walmart, so luxury goods are struggling.

“We can’t look to consumers to drive this recovery,” Appleton-Young surmised. “There’s nothing positive on the horizon for consumers right now, and there won’t be until we start to see positive job numbers and this whole labor market starts to turn around.”

Appleton-Young said California is seeing more challenges than the rest of the nation because Sacramento and regional and local governments “are working to make things worse” with their cutbacks and layoffs. Big losers in California are construction, manufacturing, trade and transportation and financial activities. The winners continue to be education, health services, leisure and hospitality.

Appleton-Young said inflation is 18 months to two years away, but she believes a dose of inflation and increase in interest rates would actually be a positive sign that the economy is moving forward.

2011 will be “a lackluster year,” with no significant job growth till late in the year, said Appleton-Young. She doesn’t anticipate that there will be any meaningful reforms next year, as “the government has done all it can to make funds available.”

“As John Maynard Keynes put it, ‘You can’t push on a string,’ you make money available, but if the banks don’t want to spend …,” she commented.

For 2011, the C.A.R. chief economist anticipates a GDP growth of 2.4 percent. For California, a job growth of 1.6 percent; unemployment at 11.4 percent, home sales up by about 2 percent and a slight rise in the median price by about 2 percent.

“We’re still seeing limited inventory of good distressed properties and still very nostalgic upper-end sellers who are not appreciating the market we have today. They are going through a very painful situation,” she said.

According to Appleton-Young, the wild cards for 2011 are:

  • Another recession? Some people think there could be a double dip.
  • Federal economic policies – there is much uncertainty regarding future tax rates
  • Negative equity home owners – there are still many home owners who borrowed excessively against their home equity
  • Shadow inventory – distressed sales will continue to factor in the marketplace for four to five more years because there is still a large pool of home owners underwater.

Pictured left to right: SILVAR Executive Officer Paul Cardus, Board Director John Tripp, 2010 President-elect Gene Lentz, C.A.R. Vice President and Chief Economist Leslie Appleton-Young, Los Gatos/Saratoga District Chair Bill Rehbock and 2011 President-elect Suzanne Yost.

March 2023


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