Some observations on housing news. The Daily News is reporting that housing affordability continued to sink across California in March as only 18% of households could afford the median-priced home, but in Los Angeles County it has not budged off 17% since last June. Two months ago, the median-priced California home cost $495,400, and it took a minimum annual income of $115,910 to buy it. In contrast, affordability for the nation averaged 53% in March, down from 57% a year earlier. The national median price averaged $195,000 in March and the minimum household income requirement was $45,620.
Irrespective of this, the article noted that during the year’s first quarter, sales statewide are 6% ahead of last year’s record pace, and sales in the county are 8.3% ahead of a year ago and also above the record pace of 2003. The inventory, while still low, is about double last year’s level.
Even with the Fed raising rates, the LA Times has noted that rates on 30-year fixed-rate mortgages averaged 5.75% this week, down from 5.78% last week. Rates on 15-year fixed-rate mortgages, a popular option for refinancing, declined to 5.31% from 5.33% last week. Rates on one-year adjustable-rate mortgages edged up to 4.22% from 4.21% last week. Five-year hybrid adjustable-rate mortgages averaged 5.31%, compared with 5.2% last week.
My analysis?
First, I agree with the sentiment in the Daily News article, which which I think starowl would agree as well: “Statistics should either predict something or explain it, and this doesn’t do any of those things.” Although these statistics reflect reality, they don’t reflect reality, because California is unreal (perhaps even imaginary).
Second, I think the rates are misleading, as most new buyers (at least out here) are doing the more creative loans: the 40-year neg-ams with low payments, planning to refinance in a few years. That’s the only way (with salaries what they are) to be able to afford the LA market. This isn’t reflected in the numbers, but it is a large factor out here.
Although an article in Money harbingers a slowing down of the market, based on UK trends, I think it will only be a slowdown, that is, the slope of increase will be come less steep. I do think that those houses posed near the median will continue to sell briskly (at least I hope they do, as our current house, which we hope to have on the market in 2 months, should be below the median price). So far, I don’t see the economic conditions that led to the drop in values that we saw in the early 1990s: high inflation, rampant speculation, and a significant downturn in the employment in Los Angeles. Remember: Back in the 1990s we saw the defense industry basically withdraw from the San Fernando Valley (goodbye Lockheed, Litton, Teradyne, Rockwell, Hughes), as well as the closing of major blue-collar employers such as Strohs and GM/Chevrolet. This hurt the valley for a long, long time. I don’t see that situation today— the base is broader (it is not just porn and the movie industry).
A final closing observation. Today I was getting insurance quotes for our new house. If you recall, a little over a week ago I wrote how fewer folks are obtaining earthquake insurance. I got the EQ insurance quote on our new house today. Going through the state, it would be $2,133 per year. Going through Geovera, with a 15% deductable, it is only $1,444/year. A significant difference.
[By the way, for those that can’t read this icon, it touts Van Nuys as the “Poultry Capital of the Valley”. After all, “There’s money in poultry at North Van Nuys acres”. I’ve seen another ad that refers to Van Nuys as “The Petaluma of Southern California”, noting that the hay crop is excellent.]
