Monday, October 18, 2010

California Housing Markets and Home Affordability

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Leslie Appleton-Young, chief economist for the California Association of REALTORs®, has said that California home prices will rise by 13.5% by 2012, and sales will drop 10% this year 2010 and rise 2% in 2011.  

What about current economy momentum in California?

  • Impact of federal stimulus and homebuyer tax credits is down, and it's up to private sector to provide momentum for economic recovery.  
  • Weak consumer demand, uncertainty about future government policy, economy now in holding pattern waiting for clearer signs of economy recovery

What about current Orange County housing markets?  Orange County housing market

  • Depends upon price category.  Median price of existing single family homes in Orange County is up 18.1% since the trough in January 2009 and off 33.1% from the April 2007 peak of $747,260.
  • Orange County investors and first time buyers have been active in moderate to low-end distressed market.
  • Values at low end have been very good where markets have seen strongest price gains from market lows.
  • At upper end home selling prices have been adjusting downward. 

California Housing recoveryWhy will it take to 2013 or 2015 for CA housing market to get back to "normal?"

  • Normal for California housing market will not look like it did during 2002-2006. 
  • Financing options that drove sales during that time are not driving the market today. 
  • We are back to fundamentals of housing.
  • Some consumers are now beginning to recover from foreclosure and/or negative equity, no down payment, credit issues, concerned about jobs, so they will be on the sidelines.

Opportunities for buyers now?

  • For buyers with cash, advantages of investing in real estate are clear, and these people are actively buying investment properties in California and states like Arizona and Texas.

Foreclosures in California  foreclosures

  • Any moratorium on foreclosures will delay their process for the foreseeable future.
  • Households that are in foreclosure can't afford to make payments on the homes they are living in.  If lenders can move fast through the inventory of delinquent properties the faster the market will return to some stability.    

home affordability

  •  Home affordability in California?

  • Home-price-to income-ratio nationally is about 3-to-1.
  • California home-price-to income ratio has averaged 6-to-1 for the past 30 years, reaching a high of 10-to-1 during the middle of the last decade, but never falling below 4-to-1, either in this cycle or in the 1990s.
  • Price-income fundamentals apply now, not the high price-income ratio that inspired many to become homeowners and get into risky, poorly underwritten loans. 
  • People must pay a premium for being homeowners in California, and buyers are willing to do that.
  • With price-to-income ratio in California now below average at about 5-to-1 in 2010 and in 2011, this is a rare (once-in-a-generation) situation where California homes are as affordable as they will ever be.

Future for California housing?

  • Not enough new homes are being built in California now to meet demographic demand.
  • After economy growth returns and consumers are confident about their jobs, demand for CA housing will return.
  • Structural issues for consumers and financial institutions need to get resolved.
  • Then long term factors of household, job and income growth will signal a recovery. 

Source: California Association of REALTORs®; Jeff Collins, OCRegister.com, October 16, 2010

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Harrison K. Long - Business Solutions and Advisory, REALTOR® and broker associate, Coldwell Banker Residential Brokerage - Phone: 949-854-7747  -  CA DRE 01410855 -    www.OCPropertyNews.com  -  www.Irvine-homevalues.com  -  www.NewportCoastLive.com   -  www.CoastLivinghomes.com  -  www.OCHomeValueGuide.comwww.LiveAtIrvine.com  -  www.ExploreOCHomes.com  -  www.ExploreRealEstate.net  -  www.LiveAtOrangeCounty.com - 

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