Home Values Are Up
Here’s what’s happening in housing, according to the most recent reports from NAR [National Association of Realtors] and CAR [California Association of Realtors]. Nationally, the number of home sales declines, but in California home sales rose 14% in May 2010 over the previous month and were up a bit over 1% compared to last year. Of course, last year was a terrible year. This shows, though, that things are getting a bit better, though not by much.
California’s median home price also rose 23% compared to last year, May 2009. Last year the median price was $263,440 and this year the new median for May 2010 is $324,430, almost 6% higher than the previous month of April 2010. This may seem to be a big jump in one month, so, naturally, we might ask the reason. And, the reason appears to be the federal government’s $8000 tax credit which is set to expire at the end of June 2010. It’s very likely sales volume and possibly the median home price will sink back once the buying frenzy has run its course. New home buying has already snapped back to the doldrums after a busy couple of months.
Will California Home Prices Rise Soon?
Does this mean we’re coming out of it and should see rising prices from now on? It’s possible that prices will continue to inch up in California, but more likely they will either decline or stay flat for quite some time. Here are several reasons. One is that a record number of foreclosures is slated to hit the market this summer and into the fall. This is the famous “shadow inventory” that banks have purportedly been holding off the market to prevent a steep slide in values. That strategy works only so long then it gets old fast because neighborhoods and municipalities have to deal with the consequences of many vacant properties. It’s better to sell them than leave them open to vandals, meth-heads and squatters.
Another reason we most likely will not see a brisk rise in home values in California anytime soon concerns our ongoing budget crisis which does not instill confidence in the state. But, the most important impediment is our stubbornly high unemployment rate. A government in crisis cannot hire new people in the public sector to help the situation. Unemployed people cannot buy homes and, in fact, may be on track to lose the homes they’ve been hanging onto. Long-term unemployed who may have been making it on unemployment benefits are now about to lose that lifeline as Congress has failed to renew extra benefits.
What Does This Mean To Home Sellers/Buyers?
The bottom line is–if you are underwater and hoping that the equity in your home will increase substantially in the next year or so, you will probably still be substantially underwater one year from today. If you have equity, but are waiting to sell until the prices “come back”, you will most likely be waiting for a number of years.
If you are a buyer, things are looking good. The new affordable median prices mean that a healthy 66% of first-time time buyers can afford the median-priced home. This is a good sign.
I, personally, have faith in the long-term health of the Golden State. Yet, it seems clear to me that all Californians have a lot of work to do before we return to the “good times” when we had good schools, fine universities, excellent local and state governments and rising home values–all with low taxes and little effort on our part.