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Economist echoes affordability worries

posted May 13, 2016, 6:22 PM by Joyce Evans   [ updated May 13, 2016, 6:23 PM ]
As a follow-up to PSAR’s recent Market Pulse Surveys of both PSAR REALTOR® members and brokers, California Association of REALTORS® (C.A.R.) economist Leslie Appleton-Young echoed similar concerns over housing affordability at the PSAR’s “2016 Economic and Housing Market Update” program.
PSAR members attending a “Rally & Ride” pitch session were recently surveyed to identify which real estate issues they were “most concerned” about. And, their top concern was “Decline in Housing Affordability,” with one out of every four PSAR members ranking it as highest.
Meanwhile, at a PSAR hosted Brokers Breakfast held exclusively for managing brokers and real estate office owners, respondents to a survey also selected “Decline in Housing Affordability” as their biggest concern, representing 18 percent of votes cast.
Similarly, Appleton-Young, C.A.R. vice president and chief economist, at her presentation to a packed room of PSAR members on May 6, said inventory is well below long-run averages and fewer housing units are being turned over since the Great Recession. Also, repeat buyers face affordability challenges because capital gains hits are onerous. She said, “People are saying, `Why sell when there is nowhere to go I can afford?’”
In addition, she said that affordability-constrained millennials are looking outside of California for housing.
In contrast, on a statewide level, California REALTORS® responding to C.A.R.’s March Market Pulse Survey said that low housing inventory continues to be REALTORS®’ biggest concerns, cited by four in 10 (40 percent), while 18 percent indicated declining housing affordability, and 13 percent stated overinflated home prices.
Appleton-Young also told PSAR members that the share of first-time buyers is low and boomers are not moving. A recent survey, she said, found that 59 percent of baby boomers in California want to stay in their current home for as long as they live. She added that 71 percent of Californians ages 55 and older haven't moved since 1999. Back in 1985, she said that all homeowners typically held onto their property for about five years; however, by 2015, the figure had doubled to 10 years.
Appleton-Young recalled with PSAR members when the average inventory lasted a year or even longer, even during past downturns. However, in today’s market, she said, “Low housing inventory will be with us for the foreseeable future. A four-month supply is going to be the new normal."
On a brighter note, Appleton-Young said that the risk of a recession for the U.S. economy is low because there’s strength in current economic fundamentals, including positive job and income growth, low mortgage rates, and rebounding household formation.
Another bit of good news is mortgage interest rates, said Appleton-Young. “Rates were even lower in 2015 than they were in 2014,” she said. “I expect we will have a low-rate environment for the foreseeable future, though it's tough for people to get down payments.”
In addressing the housing undersupply in California, Appleton-Young said California is one of the most under-built states in the nation. Seven of the top 11 most under-built metropolitan areas are in California.
Appleton-Young conceded that families need an income of $96,000 a year to afford a $476,300 median-priced house in the state. It's even more expensive in San Diego County, where the median price of a single-family home was $565,000 in April, she noted in her presentation.
Appleton-Young also said she is expecting the Federal Reserve will take a more dovish tone, leaving interest rates unchanged. However, any increase later this year and in 2017 will be a “data-determined” decision. “If interest rates increase too fast, then economic growth will come to a halt. But, if rates increase too slowly, then homeowners will be left with zero leverage when the next downturn hits,” she said.