The 2nd quarter was a bit better than I expected. Sales numbers remained decent and steady each month, maintaining the status quo. What will Q3 bring us?
2011 Quarter 2 Summary
Sales Numbers up a little: healthy, but not overwhelming
Inventory up a little: normal for the season
Loan Rates down .25%: 30-year fixed rates were mostly in the 4.5 – 4.75 % range
Govt. Role: FHA reducing conforming loan limits
Foreclosure Activity: new filings & inventories down, resolutions/sales up
2011 Quarter 2 Details
Sales Numbers: Besides a slow start in January, all months this year have had very similar sales volumes. We saw a big dropoff in sales in May of 2010 due to the ending of the tax break, which wasn’t a factor this year, but total sales from 2010 Q2 were about the same as 2011 Q2. Here are the numbers since January 2010:
View the current Market Velocity chart displaying the above stats
Inventory Up a Little: If you click on the above link, you’ll get an excellent visual representation of the inventory vs sales numbers (aka supply vs demand). Inventory went up 7% from the end of Q1 to the end of Q2. It is normal to see a rise in inventory during this part of the year. The real question is if inventory will go down in Q3 as it should. Currently, inventory is a little high at 10475 detached homes active. Our most recent high was 10417 and 10420 in August and September of last year respectively. Prior to that, October of 2008 was the last time we’ve seen more active homes listed.
Rates down a little: Most 30-year fixed rates in Q1 fell in the 4.5 – 4.75% range. Except for a slight uptick in late April/early may, rates have been on a slow decline all quarter and ended about .25% lower than they started on April 1.
View a few historical charts on Home Loan Rates here:
30-year fixed rates from 1971-2006
30-year fixed rates from 2002-2010
Actual Cost: There are a lot of non-financial reasons to buy a home, but those are personal reasons I can’t comment on in a piece such as this. One thing I’d like to comment on in the financial side is the difference between Price and Actual Cost to own. I see a number of people overly focused on price, whereas the wise analyst takes both price and rates into account to calculate Total Cost. When making a sound long-term decision to buy a home, actual cost appears to be more important than price in today’s market (this is not true if you’re near the very top of a peak). Actual Cost factors in home loan rates and is, ultimately, the monthly, yearly, total amount of money you pay to own a home. Most experts believe that rates will come up and not down. If rates go up, then the actual cost to own will go up, even if prices stay the same. If rates go up 10% (currently that means going from 4.5% to 5%), that will negate a 10% drop in costs. If rates go up 20% (from 4.5% to 5.5%) and home prices stay the same, that is a 20% increase in cost. This is the number 1 financial reason to buy a home in our local market today, in my opinion. I continue to remind all my buyers to diligently follow rates, just as much as home values & rents, when thinking about the financials of purchasing a home.
FHA Lowers conforming loan limits: FHA conforming loan limits will drop from $697,500 to $546,250 on October 1, 2011 in San Diego County. Loan amounts over $546k will now be jumbo loans, which are typically .5-1% higher. This will significantly raise the actual cost of ownership in this price range, which will put downward pressure on prices. Jumbo loans also require higher down payments (20%) than FHA loans do (3.5%). This will have a negative impact on housing prices in the mid-market, which should eventually lower luxury prices a bit, too. I’m not sure this will have much of an impact on the under $500k market, which remains fairly competitive.
Foreclosure Activity in CA: Our inventories and filings are down again compared to Q1 as well as last year’s Q2 numbers. One noticeable change is a much higher number of cancellations (i.e. successful short-sale, loan mod) this quarter – it would appear the banks continue to work hard at resolving homeowner defaults without foreclosing. Along with this stat is a longer timeframe from NOD to foreclosure, which further supports my belief that banks are trying not to foreclose at all costs. Here are the Q2 2011 stats in comparison to Q1 2011:
1. Notice of Defaults were down (19%)
2. Foreclosure inventories down (7%)
3. Foreclosure outcomes up 4% (i.e. short-sale, foreclosure, loan mod)
With future inventory apparently on the decline, I am more optimistic about future home values than I was prior to doing my research for this update. With less distressed homes coming down the pipe, that indicates a lower-inventory market, which always gives upward pressure on prices. Just to give you an idea of where our current inventory is, over 40% of the properties for sale in San Diego are short-sales. Thus, if our short-sale inventory starts to go down, in line with the drop in NOD filings, we should see a noticeable drop in total inventory of property for sale since short-sales are dominating the market of active listings. All in all, the foreclosure news this quarter is positive.
Here’s my top reference for quality foreclosure data: Foreclosure Radar
Summary & Expectations: Q2 was a relatively healthy market. We had consistent sales and fairly normal inventory increases for the season. Rates went down a bit to remain at a very low mark. As a result, home values were mostly flat this quarter. Although the rise in inventory is pretty consistent with seasonal norms, it is slightly higher than last year and the 2nd half of last year saw a modest decrease in home prices (2-6%).
Usually, the market begins to slow down in the 3rd quarter and I think we will see that this year, too. My guess is for sales volume to go down 5-10%, with inventory levelling off and a slight price decrease that will be realized more at the end of Q3. However, a rate change cold sway the markets… What will rates do? If rates drop further, actual cost will be at levels not seen since 2000-2001, even though prices are at 2002-2003 levels. If rates go up, we will likely see a drop in prices.
Thank you for reading – here are a couple resources you might find useful:
Search All listed San Diego County Homes for sale – updated daily. Click “Map Search” at top of page for an interactive map.
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I welcome any feedback or thoughts you have for me. I also appreciate your referrals – if you know of anyone thinking of buying or selling real estate in San Diego, I would be happy to work with them.
CEO/Owner of Team 73 Degrees
Keller Williams Realty