On a national level, existing home sales dropped approximately 3.2 percent from September to October. Of particular concern, however, is the rate in which home sales dropped in the West. In the West region of the United States, existing home sales fell by seven percent, more than twice as much as the rest of the country. Those familiar with the market are concerned that higher interest rates and rapidly appreciating home values are going to cripple the recovery in the area.
“In the West region there is a significant shortage of inventory, so you have buyers who are looking for the right home unable to find it and unwilling to commit,” said Lawrence Yun, chief economist for the National Association of Realtors. “But because of the inventory shortage, one is still seeing strong price increases in the West.”
It is important to note that California is a prime example of the conditions Yun is referring to. The Sunshine State continues to struggle to maintain adequate inventory levels while prices continue to rise. According to DataQuick, “the median price paid for a California home in October was $357,000, up over 25 percent from a year ago.” Current prices are the culmination of 20 consecutive months of annual price gains; the last eleven of which each exceeded 20 percent increases.
These increases are partially the result of decreased distressed properties. Fewer foreclosures and short sales reduce the number of low-end homes made available to prospective buyers. Only 6.6 percent of the homes sold in California during October were considered distressed, the lowest amount since 2007. A lack of distressed inventory, particularly in San Francisco (down 26%), has forced many buyers to reconsider the acquisition of a single-family home.
This could explain why condominium sales increased three percent in October.
“Many buyers are considering more affordable options, such as condos and town-homes, especially in the San Francisco Bay Area, where there is a greater abundance of these property types,” CAR’s Leslie Appleton-Young said in a release.
Despite rapidly appreciating home values across the nation, prices are still well below their peaks during the housing boom. The biggest problem people are facing in today’s market, however, is credit. Most loans are fixed rate products that require larger down payments and higher credit scores.
“Bottom line, on a monthly payment basis and relative to income needed to qualify for a loan, a house in California is far more ‘expensive’ than from 2004 to 2008, even though house prices are not back to peak levels,” said Mark Hanson, a California-based housing analyst. “Put another way, it costs a lot more today to pay for a house using a mortgage than it did from 2004 to 2008. Thus, if 2004 to 2008 was a “bubble,” then this must be, too.”
While a lot of Western markets experienced significant changes in supply, demand and pricing, the rest of the nation neglected to participate. Prices are up 12 percent and inventories are down across the nation, but these swings are relatively small compared to markets like California.
