A significant shift is occurring in housing throughout the Coachella Valley.
Over the past year, we’ve seen a measurable decline in investor sales and a significant increase (30 to 50 percent) in higher-end home buyer sales. While the sum nets to lower sales (the investor decline is greater than home buyer increase), it represents the emergence of a much healthier market.
Distress Sales Are Fading
The latest DataQuick information on NODs (notices of default) indicates that foreclosures in the valley should effectively go to “zero” very soon. This means that distress sales, which are currently at 10 percent of all sales, should continue to decline and also approach “zero” sometime this year.
Overall Valley Home Sales Are Declining
In the first quarter, there were 1,990 resales and 244 new home sales, for a combined total of 2,234. These numbers are lower than last year’s. Many people, including those at Market Watch, were expecting both old and new home sales to start growing this year, so these numbers are disappointing.
The “Valley Home Sales” chart graphs the annualized projection for these numbers so they can be compared with previous years. The orange bars are resales; the gray bars are new home sales. The one encouraging point is the increase in the percent of total sales that new sales account for (blue block). It is now 11 percent, up from 6 percent a few years ago.
Fewer Investors — More Home Buyers
The “Year Over Year Sales” chart, below right, compares homes sold in March in different price ranges with the number sold at the same time last year. It clearly shows a sales decline in homes priced under $200,000 (the investor’s realm) and an increase in higher-end home sales. The greatest percentage change is in sales above $600,000.
In our opinion, these sales statistics show the condition of valley housing minus the investor. The investor, who has been buying low-end homes, is leaving the market, while higher-end home buyers are beginning to come back.
Record Net Worth Flows to Valley Housing
We believe some of this is due to the $80 trillion record household net worth that the Federal Reserve created through the three quantitative easing programs of the last four years. This additional wealth is helping Boomers retire sooner and purchase retirement and seasonal second homes. We expect this increasing asset-based demand to continue over the next two years.
Housing Permits Rising
For the first time in many years, valley building permits are beginning to grow. There were 336 permits issued in the first quarter, which projects to around 1,344 for the entire year. As can be seen from the “Building Permits” chart above, the numbers are just beginning to recover. The long-term norm is 2,800 per year, so this year’s projection is still 50 percent below what would be considered normal.
Will FED Tapering of QE3 Lead to Higher Rates?
There is a lot of worry that the end of the Fed’s QE3 program will significantly raise interest rates and consequently hurt the housing market. We don’t think there is evidence to support this theory. QE done to keep rates low during a period of huge deficit spending is no longer needed. We see rates staying around current levels.
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
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