Monday, July 28, 2014
PLACERVILLE, CALIFORNIA
99 CENTS

May sales and low inventory point to market recovery

By
From page C3 | June 15, 2012 |

There is conclusive sales data showing the county’s housing market is rebounding. After seven years of declining prices and anemic sales, it’s a welcomed change. The median selling price of a county home last month was $285,000. That’s up $30,000 from April’s median of $255,000 and $35,000, or 14 percent, above the median selling price in May 2011.

The 260 homes closing escrow last month was 18 percent higher than April and 30 percent higher than May 2011. Monthly closed sales haven’t been this high since August 2005. So what’s up?

Homebuyers, taking advantage of mortgage interest rates in the 3s, are snapping up homes as quickly as they get listed. Half of all closed sales last month sold within the first 30 days of the listing period at 99.77 percent of the listed price. Bank REOs accounted for one in every four sales while short sales accounted for one in every five.

Investors are all in. With lenders paying miserly interest rates on their CDs and a jittery stock market, investors are buying up homes at an unprecedented pace. According to DataQuick, 30 percent of all county sales were made to investors and most were all cash sales. Here’s why. Investors are making between 8 and 10 percent on their money when buying rentals. Here are the numbers from an actual sale.

The purchase price for a 3-bedroom, 2-bath, 1,300-square-foot home was $120,000. The buyers closing costs were $3,000 and the home needed new carpet and paint costing $5,000. The home was rented for $1,400 a month or $16,800 yearly. The owner pays yearly expenses of $1,500 for property taxes, $600 for insurance and $2,400 for HOA dues. After deducting the yearly expenses of $4,500 from the yearly income, the investors return is 09.6 percent on their investment.

Another group of homebuyers competing with investors and first-time buyers are the folks who lost a home three years ago or longer. Provided they have re-established credit and are otherwise qualified, they can now buy another home.

Finding the right home is becoming increasing difficult as selection continues to decline. The 680 currently available county homes for sale is less than a three-month supply at our monthly sales pace. The number and percentage of financially distressed homes are also declining. Foreclosures are now at their lowest level since 2007.  Currently, there are 81 short sale listings in the MLS and 69 bank REOs. Combined that is only 22 percent of all listed homes.

Competition for a limited number of county homes is now an increasing factor for buyers to consider when making an offer. According to the California Association of Realtors, 45 percent of all listed homes receive multiple offers. This percentage is even higher on homes priced below $300,000.

The number of new listings should be at a seasonal high. More folks put their home on the market in late spring and early summer. The 275 new listing last month was an anticipated increase over April but much less than previous years that averaged 425 new listings during the month of May between 2005 and 2009.

Despite the uninspiring economic reports, home buyers have decided this is as good as it is going to get. Prices are still $200,000 less than the county’s median priced home back in 2006 when the interest rates for a 30-year fixed rate mortgage was at 6.75 percent. So just how good does it look?

Consider buying a typical county home in May 2006 at the median price then of $500,000. Assuming a 20 percent downpayment, 6.75 percent mortgage interest rate, property taxes and insurance and the total house payment would be $3,266. Now consider the same $500,000 house is now priced at $300,000 with a 3.75 percent mortgage and the monthly payment is $1,495, a savings of $1,771 monthly. Over the life of the loan made in 2006 the payback would be $934,000. On the loan that was made last month the payback is $400,000.

Traditionally, rising home prices, multiple offers and a limited selection of homes is the all clear signal to home builders that the housing recession is over and it’s time to kick start new home construction. That’s not going to happen very soon this time. Jim Copeland, a local real estate broker, presented me with research showing the current home prices must increase 66 percent before builders can profitably start building homes again. Jim’s research tallies up the cost builders would normally pay for land, building permits, impact fees, cost of materials, labor and administrative cost to build a 2,500 sq. ft. home. All together that would likely be $550,000.

According to Jim, “Most folks are not going to pay $220 a square foot for a new home when they can buy a nice resale home in established neighborhoods for $130 a square foot.”

Underwater homeowners are another factor that will keep available inventory low for the next few years. Nearly half of all homes with mortgages are underwater, owing more on their mortgage than the value of their home. Many would like to sell but can’t until their property values exceed the amount of the debt against the home.

The market’s dynamics presents a window of opportunity for homeowners with equity who need to sell. This summer and fall should be good for both buyers and sellers.

Ken Calhoon is a real estate broker in El Dorado County. He can be reached through his Website at kencalhoon.com.

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