California's Housing Market is Seeing Marginal Improvement
Friday, November 4, 2011
At yesterday's SILVAR Economic Seminar and General Membership Meeting, California Association of REALTORS® Deputy Chief Economist Robert Kleinhenz said the economy has improved, and for a while, there appeared to be a surge in the housing market, but wild cards in the domestic and international arenas (Japan’s earthquake and tsunami, oil price spikes, uprisings in the Middle East, stock market volatility, lawmakers wrestling with the debt limit ceiling and attempting to downgrade the U.S. debt, the debt crisis in the euro zone) dampened consumer confidence and, as a consequence, recovery has stalled.
“The economy has shown marginal improvement with nuggets of good news, but it has taken us a lot longer to grow out of this recession because of the financial crises that have paralyzed several aspects of the economy,” said Kleinhenz.
The engine of growth must come from consumers, but right now, consumer spending is at an all-time low, said Kleinhenz. He explained that businesses won’t spend if consumers don’t. Businesses are waiting for the consumer sector to gain steam, but this won’t happen right away in light of this year’s disastrous global and domestic events, especially the stubbornly high unemployment rate and slow job growth.
Kleinhenz presented members with performance targets which can help them gauge how good or bad the economy is doing. With these indicators in mind, he said REALTORS® can lay out expectations to clients so clients "have the appropriate expectations from the beginning and end up being satisfied in the end."
For the economy to be better, the country needs to see GDP (Gross Domestic Product) at 3 percent or higher. C.A.R. only expects GDP to be at 1.7 percent by year-end and forecasts GDP will only be at 2 percent in 2012.
The unemployment rate has got to come down to 6 percent at best, so consumer confidence can rise. It’s at 9 percent nationwide and 12 percent in California. C.A.R. projects the national unemployment rate will be 9 percent by year-end. Kleinhenz said job growth needs to be at 3 percent or a gain of 400,000 jobs per month. The country lost 8.4 million jobs during the recession, and though it has gained back 1.1 million jobs, the country needs to add 300 to 400,000 jobs per month to be on target.
Despite these indicators, the market has improved. In fact, California has had a decent level of sales and is seeing stability in its median price. To be sustainable, statewide sales should be at 500-550,000 units per year. Kleinhenz indicated September sales were at 487,940 units. Absent more wild cards that could upset the economy, C.A.R. expects 491,000 unit sales by year-end and 496,000 unit sales in 2012, just a 1 percent increase from this year.
California’s median price was $287,440 in September, down 8.3 percent from September 2010, but way above from when it bottomed in February 2009 at $245,230. C.A.R. expects the median price to hit $291,000 by the end of 2011 and to increase 1.7 percent to $296,000 in 2012.
This market is slowly on the mend, according to Kleinhenz, and California’s recovery, though slow, is quicker than other parts of the country. He is optimistic.
“In California, we have our economic fundamentals that are carrying us through in the years to come,” he said.
Despite the alarmist stories about looming shadow inventory, Kleinhenz believes the market will be able to absorb future distressed sales. He tracked the distressed sales inventory timeline and concluded the market will see about the same number of REOs as it has today.
The best news of all is Kleinhenz said the labor market has been “the star of the California economy,” and it shows up in Silicon Valley and Santa Clara County.
“Fundamentally, affordability hasn't been as good as this in Santa Clara County and the state. Homes are at the right price with the right mortgage rates. The problem is consumers are so concerned about prices bottoming out they are losing sight of the opportunities,” said Kleinhenz.
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.
For further information, please contact Rose Meily at SILVAR Public Affairs, e-mail , or phone (408) 200-0109.
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