Looking back, October was a BIG month!
As we move into the final quarter of the year we are seeing the San Diego market remain strong with historically low inventory levels continuing to drive demand and pricing. The lack of inventory can be seen in the continued downward trend in the number of active listings, new listings, pending listings and sold listings on market. We are also seeing the lowest days on market average (31 days) since October of 2004 as home buyers compete over the limited supply which, for October, is now less than 2.2 months’ supply of inventory. A direct result of this inventory constraint produced another large increase in Median Home Price up to $510,000 for the month of October which is a 12% increase in from last year.
But, as the year come to a close, is this type of market sustainable? And what will we see in 2017?
In a report released in October by the Urban Land Institute’s Real Estate Consensus, many economist believe that the national real estate market will see slower growth in 2017 and 2018. However, many local experts are predicting that San Diego will not be as slow as the rest of the nation. Greg Shannon, chair of the management committee for ULI’s San Diego and Tijuana branch, said San Diego is largely affected by strong job growth, “As long as we’re creating new jobs but not creating much new housing supply, particularly apartments, we’re just going to see increases in pricing of housing,” he said. “San Diego is likely to have increases greater than the U.S. average across the board, particularly in rentals.” Mark Goldman, a finance and real estate lecturer at San Diego State University, believes that the San Diego market is reaching a more stable level, “The rate of price appreciation is sustainable,” adding “I believe scarcity is still working to push prices up.”
Scarcity of Inventory? It may seem obvious that there is not enough inventory on the market, but to be more specific, there is not enough affordable inventory on the market. Both national and locally we are seeing median income households requiring a massive economic burden in order to become a homeowner. The gap between median incomes and median home pricing remains large and potential home owners are pushed into rentals or out of their preferred neighborhoods. Compounding that issue, there are very slim margins available for developers or investor to create more inexpensive product so the affordability paradigm continues to exists. As such, much of the residential and multi-family development is in the higher-end, upscale price points which is not adding units in the segment of the market which needs the supply. Until the market can create more affordable units we will see both home prices increase and high rental demand.
Interest Rate Corner
I mentioned in the last update that there is no guarantee rates stay low post election but I had no idea the increase would be so dramatic and swift. Within 48 hours of the shocking election results the stock markets took off and the bond markets sustained the second largest sell off I have witnessed in the last 20 years. Mortgage rates increased ½% in the first week after the election and although this appears to be an emotional reaction we have a long way to go and challenging obstacles to see rates return to the near record levels. The reality is the markets do not like unknowns and with most pollsters forecasting an 80-99% likelihood of a Clinton win the markets were blindsided. Ultimately stocks decided the economy will grow rapidly and bonds decided inflation will run much higher than it has the last several years. These views are conflicting but we will have to wait and see over the next several months who was right. In my opinion the underlying economic data still supports a low mortgage rate environment and if the Fed sticks with their plan to hike short term rates (remember these do no correlate to 30 year mortgage rates) that will help quell some of the inflation fears with bond investors and should help mortgage rates inch their way down. The weekend of Nov 13th Freddie Mac has the average 30 year rate at 3.95 with .5 discount.
Contact me directly at (619) 206-7225 or Pjohnson@myccmortgage.com – Paul Johnson, Cross Country Mortgage