Housing Holding Up (SCC & SMC)
August 27, 2021 — The housing market continued to power along into July, eking out modest gains in what seemed like an extended spring homebuying season this year. The open question is whether the solid activity can be maintained as we move forward, as the challenges facing homebuyers continue to mount.
Sales of existing homes leapt strongly into late last year, running at a pace as strong as an annualized 6.73 million units sold last October. Since then, more headwinds have formed, chief among them very limited supply of homes available to buy. This spring, the lack of houses to buy damped the pace of sales to a more moderate (though still strong) level during the normally most active portion of the year for home buying. Surging demand but no supply expressed itself in classic fashion, with homes coming onto the market selling in very short order and at prices that are increasing at unheard-of rates.
That situation hasn’t much improved, and price increases are running at levels that are far outstripping income gains with little end in sight. Affordability is starting to pinch, at least for homebuyers on the margins, where high and still rising prices are both rapidly increasing the funds needed for a down payment and lifting the monthly carry cost of owning a home.
In July, sales of existing homes managed a 2% increase over June, with sales rising to a 5.99 million annual pace. The National Association of Realtors also noted that the supply of homes managed to improve a little bit, too, rising to 2.6 months of supply at the present rate of sale, up from 2.5 months in June. Compared to last year, the median price of a home sold was “only” 17.8% higher, a relative improvement over May and June’s 23%+ comparative increases. That said, the median price of a home sold last month was $359,900, down just a little from June’s all-time record. When they do come on to market, homes are still flying off the shelves, with the median time from listing to sale holding at 17 days for a third month, suggesting there is still plenty of demand to be sated.
Sales of new homes also downshifted during the spring selling season. After posting an annualized 993,000 sales rate in January, sales throttled back to just 701,000 annual in June, but managed a 1% increase in July, breaking a three-month string of declines. New homes aren’t suffering from supply issues per se, inventory levels for new stock increased to 6.2 months of supply at the present rate of sale, with an actual 367,000 units ready to be sold, the highest monthly figure since November 2008. For new homes, it’s more about cost (median price of $390,500 last month) and location, since large housing developments often happen far from city centers, often necessitating long commutes. That wasn’t a problem last year when the pandemic led to a lot of work-from-anywhere opportunities (and still is) but with many businesses planning to eventually return to offices it has again become a consideration for many.
For their part in all this, mortgage rates have been very well behaved, even if they are generally higher than they were to start 2021. Eventually, higher mortgage rates will also add to the cost troubles for buyers; this might actually be a good thing, as it would help temper demand, allowing inventories of homes for sale to increase, which in turn would help to damp outsized price increases. At some point, either still-higher prices or higher mortgage rates will damp demand, but which will push the market to the tipping point first (or when) is still not clear.
Housing continues to have solid demographic tailwinds behind it but also the benefit of a strong (if uneven) economy, one goosed by all manner of monetary policy and fiscal supports and stimulus. In the second quarter of 2021, Gross Domestic Product expanded at a 6.6% annual rate, up from the first quarter and an upward revision from the preliminary estimate released by the Bureau of Economic Analysis. As most already know, price pressures were elevated during the period, with the overall Personal Consumption Expenditure price index up by 6.5% overall and 6.1% at the core, about a 40-year high and well above the Fed’s desired levels. In a speech at an economic symposium in Jackson Hole (WY) on Friday, Fed Chair Powell said that in his judgement that the “substantial further progress” test has been met for inflation, and that the Fed believes that “the outlook is for continued progress toward maximum employment.” This suggests that we’ll see a plan for tapering of asset purchases soon, probably at the FOMC meeting next month.
For further details and a city-by-city breakdown statistics, go to https://avi.rereport.com/market_reports.
For a focused review of current and historical market trends go to https://avi.rereport.com/market_reports and click “change’’ see below
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| San Francisco Chronicle 7-26-20211 | By Heather Knight |
| WSJ 7-21-20211 | The Shortage of Starter Homes Extends Beyond Major Cities By Julia Carpenter |
California homeowners interested in building accessory dwelling units on their property just caught a break, potentially shaving off thousands of dollars in fees and permits.
In a move proponents say will help ease the Bay Area’s housing crisis, Gov. Jerry Brown on Tuesday signed Senate Bill 1069, making the so-called “granny units” easier and less expensive to build throughout the state.
For more read California eases restrictions on ‘granny units’
and www.hcd.ca.gov/policy-research/AccessoryDwellingUnits.shtml
Helpful resource for home owners
Many new home owners or owners who consider remodeling or rebuilding their homes should take advantage of their county Tax Assessor web site. These web site and their respective city building departments web site typically have vest information regarding the process for applying for permits, the impact on their taxes and many other resources that home owners should be aware are available for them.
For the San Mateo County Tax Assessor office visit https://www.smcare.org/default.asp
For Santa Clara County Tax Assessor visit https://www.sccassessor.org/index.php
The Silicon Valley 150 Index Corner
The Silicon Valley’s Real estate market is a derivative of the local economy–it prospers and withers depending on how well the local innovation-based sector performs. The San Jose Mercury News tracks the performances of the largest 150 publicly traded companies headquartered in Silicon Valley through an index called the SV150, which may be found at www.mercurynews.com. Stocks are valued based on several criteria, but one of the more important criteria is a company’s future earnings. Therefore, I see the SV150 as a leading indicator for Silicon Valley’s real estate market.
Investors Corner
S&P CORELOGIC CASE-SHILLER INDEX SHOWS ANNUAL HOME PRICE GAIN TOPPED 18.6% IN JUNE
NEW YORK, AUGUST 31, 2021: S&P Dow Jones Indices (S&P DJI) today released the latest results for the S&P CoreLogic Case-Shiller Indices, the leading measure of U.S. home prices. Data released today for June 2021 show that home prices continue to increase across the U.S. More than 27 years of history are available for the data series and can be accessed in full by going to CLICK HEAR
