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The worst of the recession is over but recovery will continue to be sluggish, Sara Sutachan, C.A.R. economist told Sacramento REALTORS® on February 5.
Speaking to a full house at the February Main Meeting, Ms. Sutachan outlined overall signs of improvement in the economy and the housing market. Although we are seeing sub-par growth and a sluggish recovery, “2004, 2005, 2006 was like a drunken state. We are sober now.”
She listed several signs of overall economic recovery:
- Fiscal cliff (and recession “relapse”) avoided
- December jobs report exceeded expectations
- Unemployment rate at 7.8%
- Fed will keep rates low until unemployment is down to 6.5%
- “QE” (Quantitative Easing) continues
- Euro-zone still holding it together despite stagnant/negative growth
California unemployment has been coming down for three years. In the US as a whole, 54% of the jobs lost during the recession have been replaced to date. The Bay Area is the California bright spot. Southern California is not doing as well as the Bay Area but is still adding jobs. In Sacramento, 2.2% job growth is expected this year. “Inflation is a no-show for now,” she said.
Several signs of US housing recovery:
- Prices have bottomed!
- Home equity was up 20% last year to $7.71 trillion as rising prices began to reverse negative equity
- New and existing home sales are at four-year highs
- Low inventory across the board
- Housing starts are at four-year high
- Threat of shadow inventory is fading as delinquencies, foreclosures decline
- Foreclosure starts are at 6 year low
The California residential market peaked in 2005. California bottomed in February 2009; Sacramento bottomed in January 2012 at $160,000. Affordability is at a record high in California. Sacramento County has one of the highest affordability readings in the state. It is a fabulous time to buy BUT:
- Mortgage rates are low but credit is tight
- “Defensive” lending is prevalent
- Appraisals are lagging today’s market
- Listings are scarce:
- Underwater homeowners are stuck
- Investors are renting instead of flipping
- Some sellers still don’t get it
As a sign of “defensive lending,” she noted that the average credit score increased 26 points since 2005 for purchase loans.
The share of underwater mortgages has been dropping as prices rise and short sales close. Currently, 29% of California mortgages are underwater.
In reference to inventory, a serious challenge in the Sacramento market, “We have never seen inventory so low or such an issue. Six to seven months would be a normal market.”
One indicator of low inventory is multiple offers at all price points. In 2012, 50.9% of equity sales had multiple offers; 71% of REOs had multiple offers and 66% of short sales had multiple offers.
Low inventory and multiple offers make it all the more imperative for REALTORS® to manage their clients’ expectations, Ms. Sutachan advised.
The C.A.R projections for 2013: recovery will continue in 2013, with both sales and the median price increasing: a 5.1% increase in single family home sales in 2013 and a 10.9% increase in the median price.9% increase in the median price.