Getting Back on Track

Housing prices continue to climb steadily even as home sales slow



Home buyers have been slowly but consistently pulling back from the market as prices approach past norms.

Photo by ThinkStockPhotos.com

 

As seen in the Coachella Valley Median Price chart (pictured above), housing prices continued to inch up in May for the seventh consecutive month, even as sales continued on a year-over-year decline. Prices in May are now only 6 percent short of the long-term 3.5 percent growth curve (blue line). However, sales are 15 percent less than the highest sales rate of the recovery established exactly two years ago.

This pattern indicates that home buyers have been slowly but consistently pulling back from the market as prices approach past norms. This is the sign of a natural and normal housing market.

City Prices
Year-over-year price gains throughout the valley’s nine cities are also beginning to moderate — but at an uneven pace. A year ago, 12-month city gains varied from 40 percent to 20 percent, as we were in the powerful part of the price surge following the crisis lows of 2011. While gains are still strong, most are now clustered around year-over-year returns of 12 percent, as the table (above) shows.

The recent strong gains for two cities — Desert Hot Springs and the city of Coachella — need some explanation. The decline in distressed sales fueled a lot of last year’s gains in the major cities, which raised median prices as distressed sale prices began to exit the equation. This effect is still influencing these two cities since they are both experiencing the largest decline in distressed sales of the nine cities.

A Declining Riverside County Homeownership
While prices have recovered in the valley (and in fact throughout the entire county of Riverside), the internal structure of the market has not. The percentage of households in Riverside County who own their home has fallen from a high of 68 percent in 2008 to a low of 55 percent in the first quarter of this year (see the Riverside County Homeownership graph, below right). This is one of the biggest regional drops throughout the country. We hope to see this negative trend reverse.

The homeownership graph shows that ownership of existing homes in the valley — and the entire county — has been slowly changing from households to investors. At this time, it’s too early to assess the long-term impact of this transition on the stability of housing communities. There are both positive and negative aspects.

Cash Buyers
Over the last seven years, many investors purchased homes in the Coachella Valley outright, with 100 percent cash and no financing of any kind. Interestingly, this created a form of stability not typically found in most other markets.

Price risk in normal housing communities usually results from two factors: a cyclical recession that produces job layoffs and forced selling by homeowners unable to make mortgage payments, or variable rate mortgage resets with homeowners no longer able to make the higher payment. With so many homes now owned without mortgages, these two risks are very much reduced.

On the other hand, with so many homes owned for rental, there is a risk that new households will begin to “buy to own,” and, with fewer renters, investors will start having trouble locating renters. This could eventually start a wave of selling by investors eager to rid themselves of difficult-to-rent properties. We’ll have to watch these factors carefully.

Vic Cooper and Mike McDonald are partners in Market Watch LLC, a nationally recognized real estate advisory firm that publishes The Desert Housing Report. Visit www.marketwatchllc.com

Sponsored by

See More Market Watch Articles Here

Comments to this website are moderated by staff. While all comments are welcome, we encourage all to be polite and please do not use this system for advertising or business promotions. Any complaint towards a business or service should be directed directly to that business and not posted here. If anyone has a complaint that a comment is defamatory, please contact me at tmay@palmspringslife.com and I will take appropriate action promptly. Thank You

Add your comment:
Edit Module
Palm Springs Life
Edit ModuleShow Tags

Related Articles

Toscana Families Open Their Homes to Military Members for Thanksgiving

More than 50 Marines and Sailors enjoyed Toscana Country Club for Thanksgiving as one of nine clubs participating in the American Friends of our Armed Forces (AFAF) annual program hosted by Coachella Valley families.

Peak Season Preview

The median price per square foot in the Coachella Valley rose by $3 in October to $173, essentially unchanged since last February.

Unsurpassed Views

Perched high in the San Jacinto Mountains approximately 200 feet above the valley floor, this Southridge community home in Palm Springs exudes elegance while offering privacy and a 360-degree view of the surrounding mountains and city lights below.

Desert by Design

Palm Desert architect Guy Dreier’s nature-inspired approach to residential design was an ideal fit when The Vintage Club made its debut in 1980 at the foot of Eisenhower Mountain.

A Bigger, Better Modernism Week

Today, the city of Palm Springs touts Modernism Week as one of its signature events, stretching over 11 days in February and drawing tens of thousands of architecture and design buffs from around the globe.
Edit ModuleShow Tags

Promotions + Contests

Fashionista Friends

Fashionista Friends

Experience the glitz and glamour of Fashion Week El Paseo 2015.
2014/15 Best of the Best

2014/15 Best of the Best

Palm Springs Life’s annual Best of the Best. Readers tell us who their choice is for the “Best of the Best” of the Coachella Valley in over 40 categories.
GuestLife Magical Monterey Bay Experience

GuestLife Magical Monterey Bay Experience

Food + Wine Festival Grand Experience

Food + Wine Festival Grand Experience

Enter for a Chance to Win a Food + Wine Festival Palm Desert 2015 Grand Experience
Cartoon Caption Contest

Cartoon Caption Contest

Each month, we provide a vintage 1950’s cartoon illustrated by Alice Rovinsky. You are invited to submit a caption or vote for your favorite caption.