January home sales were pretty slow in comparison to the last three years and February sales appear to be about half of what they were last year. You can’t blame the weather. Most of January and February has been sunny and unusually warm. How about faulting interest rates? Mortgage rates are slightly higher. A year ago the 30-year fixed-rate mortgage was averaging 3.5 percent and today the rates are around 4.5 percent. But seriously, does anyone really believe that a 4.5 percent interest rate is holding back sales? Not likely. Perhaps we just don’t have enough selection? We actually have more homes listed today than were listed a year ago and new listings last month were double what they were in January 2013.
Since the first of the year the county’s median selling price has dropped about 10 percent from last year’s high. The median selling price is the price point where half the number of homes sold for more and half for less. Here is a bit of nostalgia. The county’s median selling price in February 2006 was $502,500. Remember, by definition, half the numbers of homes were selling for more. Then we had a slight market correction. By February 2011 the market had corrected itself to where the medina selling price was $230,000, with half the number of homes selling for less. That was pretty much the bottom of the market and since February 2011 the median selling price has been gaining ground until it reached $363,000 in December of last year. It’s been retreating since.
Declining sales isn’t limited to just El Dorado County. It’s a regional and statewide phenomenon. According to a housing report from DataQuick, home sales are down over our six-county region. Sacramento County experienced a six-year low for January home sales. Placer County’s sales are off 14 percent from last year, Amador dropped by 23 percent, Nevada County off 17 percent and Yolo declined by 20 percent. Across the state, sales are down 19 percent from December and off 12 percent from January 2013. So what’s happening?
You can’t call a game after the first quarter of play. A few months of declining prices are no reason to be overly concerned. Housing recoveries after a recession, unlike their downfall, are not consistent. When property values begin to go south, they are in steady decline. They seldom spike up for a few months, level out for a period and then drop back down. They drop like a rock. Recoveries, however, are bumpy. Sales and property values will spike up, down and remain flat for several months.
Some neighborhoods are doing better than others. Cameron Park’s median selling price last month was lower than a year ago while the median selling price in El Dorado Hills was $75,000 higher. Home prices in Camino/Cedar Grove were lower this year than last while prices in Pollock Pines/Sly Park are higher.
Our current level of sales activity is likely to be the new normal. The 200 to 300 reported monthly sales taking place during 2012 and much of 2013 were as unsustainable as the $500,000 median selling prices back in 2005 and 2006. The buyers who accounted for the frenzied sales activity and drove prices up 30 percent last year are no longer players. Pent up demand has been satisfied, investors are no longer competing against each other and a large percentage of the pool of qualified buyers have already purchased a home.
The market is cooling as it attempts to find a balance between supply and demand. That’s likely a good thing. Balance keeps sellers’ expectations in check and buyers generally make better decisions when not pressured. Last year at this time, there was about a tw0-month’s supply of homes for sale. A year ago, monthly sales were 200 with 400 listings, clearly a one-sided market favoring sellers. This year sales are averaging 175 with about 650 listings. That’s just shy of a four-month’s supply.
It is more costly to own a home this year. The California Association of Realtors measures the percentage of households that can afford to purchase the median-priced, single-family home. In 2012 that percentage stood at 63 percent for our county. Today it’s only 46 percent. Homebuyers need to earn a minimum annual income of $75,000 for the purchase of a $360,000 median-priced home.
Another factor that may have long-term effects on the percentage of Americans owning homes is the declining percentage of our labor force. The state’s Employment Development Department has tracked a steady decline in the percentage of Californians, between the age of 16 to 64, who are either working or looking for work. That percentage now at about 62 percent is the lowest since 1978. Those folks may be working off the grid or they may be supported by government entitlements but they are not buying homes. It could get worse. A newly released Congressional Budget Office analysis reported that federal subsidizes health care is expected to shrink the workforce by 2.5 million full-time jobs by 2024.
There is no sense of urgency from many qualified renters to become homeowners. Rents haven’t moved up as much as the costs of housing and wages have been stagnant. Although overall consumer confidence is up, 32 percent of survey respondents say jobs are still tough to find. Until Bay Area buyers start showing up, we can expect a much slower paced market this year than last.
Ken Calhoon is a local real estate broker. He can be reached for questions and comments at [email protected].