So, what’s the real estate market like these days?
It’s a question that typically requires more than one answer, depending on location; the type of real estate in question; and whether one is a buyer, seller, investor or renter. But as we continue into the second half of this year, toward national, state and local elections this fall, it appears the real estate market in all its segments throughout San Diego County is alive and well. In other words, there’s growing reason for cautious optimism that the economy, while still sluggish, is showing enough signs of recovery to encourage increasing numbers of buyers who have sat out the past four to five years.
For example, in June, the most recent reporting period, the number of single-family detached homes sold countywide was up 14.5 percent over the prior June. At the same time, residential prices have firmed up with modest increases in recent months, largely due to greater demands on a housing inventory that is in short supply.
Lack of inventory is the major factor driving what increases there have been in home prices. Throughout the county, there were 33 percent fewer listings on the Multiple Listing Service in June than a year ago. In North County, the decline was 35 percent.
The median price of a single-family detached home countywide has risen 3.17 percent since June 2011, according to the North San Diego County Association of Realtors’ monthly HomeDex report on home sale activity in each of the county’s 70-plus ZIP codes. In North County, the median home price has climbed 4.4 percent in the past 12 months.
The uptick in prices and the number of home sales also is due to largely an increased level of pent-up, if not impatient, demand on the part of buyers wanting to buy because of record-low interest rates. In June, rates averaged 3.68 percent for fixed-rate loans, compared to 4.51 percent 12 months earlier. Adjustable mortgage interest rates averaged an unheard of 2.76 percent in June, up from 2.74 percent in May but lower than the 3 percent rates a year ago. Given some continuing economic sluggishness and higher-than-average joblessness levels in an election year, one wonders whether the Fed will lower its discount rate even further to try to spur things in the short term.
The nexus of record-low interest rates and relatively stable prices of resale and new homes means more people are now able to afford a home. Today, roughly 43 percent of San Diego County households can afford the county’s median-priced detached home, which is 6 percentage points above the 37 percent of households that could do so a year ago.
However, increased demand for for-sale housing won’t be at the expense of the rental market — quite the contrary. There continues to be a good number of renters, many of whom are previous homeowners who either lost their homes through foreclosure or opted to sell their home under a short-sale arrangement in which the lender agrees to forgive a portion of the first and/or second mortgages to allow the seller to dispose of his property without foreclosure.
The net effect of a brisk rental market has been a shortage in apartments and other rental housing, which has put upward pressure on rents. Higher rents and lower mortgage interest rates have narrowed the cost gap between renting and owning a home, causing a majority of traditional renters to rethink their housing options. A recent national poll by the Woodrow Wilson International Center for Scholars shows that three out of four renters hope to purchase their own home at some point in time.
Whatever incentive programs there may be to encourage home ownership, they are aimed squarely at owner-occupants. Investors, including “flippers,” who typically pay cash for distressed properties, have been busy in the recent downturn, picking up and speedily disposing of residential properties. However, housing as an investor asset loses its sparkle as the number of distressed properties continues to dwindle and lower-than-normal interest rates empower more owner-occupants to buy what homes there are.
The outlook is more cautious in commercial real estate. Banks continue to be extremely stingy with loans for commercial projects, unconvinced that there’s that much demand for tenant space and concerned about monetary and other economic factors in general. Developers and their equity partners now have to bring greater amounts of cash and other collateral to their deals, and most lenders require Small Business Administration guarantees before they’ll even look at the proposal. What tenants there are in the market for existing buildings and spaces are exacting major rental and tenant improvement concessions from landlords.
Still, there is some promise of renewed activity in commercial real estate if the economy continues to show signs of improving. Meanwhile, caution reigns.
Osteen is chairman of the board of directors of the North San Diego County Association of Realtors.