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Thursday, Jan 26, 2023
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Finally, a Real Home Market Recovery Begins

Where does the housing market stand? The short answer is that it is almost standing up on its own two feet.

During the past several years, I have been advising readers and clients that the transition from a recession-based housing market to a recovery-based one falls to the following factors: number of total transactions; percent of distressed sales; trend of price increases; amount of standing or developable inventory.

My bottom line is that when measured together, these factors tell us what we need to know about the market. While national trends are not particularly helpful, CoreLogic and Freddie Mac are reporting the biggest increases in home prices since 2005 and 2004, respectively. Officials from CoreLogic say it was the biggest jump since 2005, while Freddie Mac, using different methodology, reports that the 4.8 percent quarter-on-quarter rise was the biggest since 2004.

These are powerful signs.

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But they are not local signs. Real estate is, after all, mostly local. It means nothing to know what Miami or Phoenix is doing. What matters is what is happening in our own backyard.

The number of total transactions in the San Diego region has climbed from 2,200 sales per month in 2008, to 2,450 sales per month last year at this time, to 2,750 sales per month according to the most recent numbers. While these numbers are significantly better, they will undoubtedly increase in the coming months.

The percentage of distressed sales (measured as trustee sales) is down this year from last year, 6 percent versus 10 percent. In 2008, the peak of distress, the percent was 17 percent.

This matters because it is an indicator that there is a transition of market activity from the “have to” seller to the “want to” seller. This trend is also likely to continue, although, there is still the factor of homeowners who are “underwater,” with a lot of so-called “negative equity,” which will fester the housing market for some time to come.

Back to the Bubble Price?

Trend of price increases: We have never experienced a period in the modern era in which the peak price of the last bubble wasn’t exceeded by the peak price of the next. Housing prices have always evolved up, despite experiencing ups and downs along the way. Even though this last bubble peak raised the bar, and one could argue how anyone could afford those prices in the future, somehow they do. I fully expect prices to eventually reach another peak high — although I wouldn’t know how long that is going to take.

Amount of standing or developable inventory: I am also observing that standing inventory time is down, although, there is no statistically valid measure of this. Prospective sellers are now beginning to lose their fear of listing too early — starting with those who have a couple of decades’ worth of equity in their homes.

So, the bottom line is that over the past few months the San Diego residential market has reached the “inflection point” where the market has crossed from distressed to improving. If you are a realtor you already know this, as I am hearing numerous stories of multiple offers on listings, price increases and good homes coming back to the market, and shorter listing-to-sale durations.

The new home sale market will be very slow to recover, as that sector is victimized by, among other things, too few builders, reluctant lenders, extremely limited land inventory, an arduous and unpredictable entitlement process and a general change in what can be delivered (from single family homes to condominiums).

There is a lot to sort out in the new home market, and it won’t be sorted soon. This means that the inventory of available housing will remain mostly resales, as it has been over the past six years, and at the present pace the supply of listings will habitually trail demand. This will equate to price pops in the market.

Don’t get too excited. Real estate markets move at a snail’s pace. This recovery is slow and could still sputter. Consumer confidence could be hit. But don’t count on it. This recovery seems real.

Gary H. London is president of The London Group Realty Advisors, which provides real estate consulting and economic analysis. Visit: londongroup.com.

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