Favorable home prices and record-low interest rates combined with high demand and a severe shortage of available housing are creating a highly competitive housing market in California. According to the California Association of REALTORS®' (C.A.R.) 2012 Annual Housing Market Survey, nearly six in 10 home sales are receiving multiple offers and a C.A.R. official says the state is headed toward a sustainable recovery.
The C.A.R. housing market survey indicates 57 percent of home sales received multiple offers in 2012, the highest in at least the past 12 years, with each home receiving an average of 4.2 offers, up from 3.5 offers in 2011. Lower priced homes – typically real estate-owned (REO) or short sales – attracted more multiple offers than equity sales. Seven of 10 REO sales and short sales received multiple offers, while only half of equity sales received more than one offer.
The competitive housing environment led to more properties being sold at or above the list price, with 41 percent of homes selling without a markdown from the asking price, the highest since 2005 and up from a long-run average of 32 percent. Additionally, homes sold faster in 2012, with equity sales selling in 32 days compared with 67 days in 2011. REOs took 30 days to sell compared with 50 days in 2011, and short sales took 90 days compared with 141 days in 2011, reflecting the still-difficult process.
At a recent meeting of the Silicon Valley Association of REALTORS®, C.A.R. Executive Vice President Joel Singer noted the percentage of multiple offers is higher today than during the housing peak in 2005, but the number of traditional buyers is down because of the shortage of inventory of distressed properties and competition from investors.
The C.A.R. survey found 40 percent of all first-time buyers bought either an REO or short sale in 2012, down from 44.3 in 2011. However, the share of first-time buyers rose from 34.2 percent in 2011 to 35.8 percent in 2012, due to improved housing affordability resulting from low interest rates and affordable home prices.
Singer told Silicon Valley REALTORS® he believes this time the housing recovery will be more sustainable. "Housing, which lagged the economy, will be the leading edge of the economy in the next several years, but there will be some challenges," said Singer.
Singer said one challenge is the "fiscal cliff" – the combination of automatic tax increases and across-the-board spending cuts that are scheduled to take effect in January if Congress doesn't quickly reach a budget deal. Other wild cards are the Euro Zone crisis and state and local government finance. Singer said as governments at all levels try to deal with their budget shortfalls, policymakers' eyes could turn to real estate to make up for the shortfall through private transfer taxes at the local level, and cuts to the mortgage interest deduction at the national level. The role of government in mortgage financing is also in question.
"Housing would not exist without the Federal Housing Administration, Fannie Mae and Freddie Mac," announced Singer.
Singer told REALTORS® to expect foreclosures to dramatically decline, and short sales, which are getting better and easier to do, to remain part of the housing landscape for some time. Also expect inventory to stay low for a few more years because potential trade-up buyers have been impacted by the economy.
There are many potential buyers sitting in the sidelines. "When they do decide to jump back into the market, they will have the ability to do it nicely," said Singer.
The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.
The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.
Variations of this article have appeared in local area newspapers.
For further information, please contact Rose Meily at SILVAR Public Affairs, email , or phone (408) 200-0109.