2013 – A Long Awaited Equity Boom
Sales Volume up: slightly above 2012 numbers by ~4%
Inventory up from Jan 2013: Inventory was still extremely low all year
Loan Rates Up ~1%: The Benchmark 30-year fixed rates ranged from 3.34 – 4.48%
Home Values Up 15-30%: Median sales price up 19% for detached homes & 28.8% for condos
Govt. Role: FHA loan limits going up, raised MI costs & decreased govt. stimulus
Foreclosure/Short-Sale Activity Down: new filings & inventories notably down
I am using a new statistical source that is more encompassing, yet just as easy to read as the Market Velocity chart previously attached to these quarterly market updates. In addition to a simple supply/demand chart, it also gives stats specific to neighborhoods/zip codes. Moving forward, I will post the stats on a more regular basis than I will write interpretive summaries. For those that just like to view the stats, you can visit 73degrees.com/news in between hand-written updates to view these stats. These statistics are posted monthly by the San Diego Association of Realtors. Here is the December Link which closes out the 2013 year:
2013: The Details
Sales volume was strong in 2013 and followed a pretty typical seasonal pattern (see 1st chart on page 2 of SDAR Stats Link). It was up 4% over 2012 sales, which continues a 3-year trend of increasing sales volume. Considering 2012 was a relatively high sales year, that means 2013 was strong as well. The big difference between the two years is that 2012 had a lot more inventory to eat up from year’s of distressed sales build-up. Also of note is that the average days on market in 2013 was about 35% lower in 2013 than 2012. I’m sure any of my 2013 buyers will echo the truth of this statistic! Buyer demand was very strong in 2013.
Inventory in 2013 started out at an extreme low – as low as it’s been since the last boom period in 2003-2004. Bearing in mind that the total inventory of homes in San Diego County has gone up since then and the actual number of homes for sale was the same, it is clear why home values went up so much in 2013. Inventory rose and fell in a typical seasonal pattern (see “active, pending, contingent” chart on page 4 of SDAR Stats Link). View the trend of contingent listings dropping consistently throughout the year. What this indicates is that short-sales became an increasingly small portion of our inventory in 2013. This makes sense because as home values rise, less people are underwater. We’ve also eaten through most of the bad/ARM loans and strategic short-sales in the last 5 years. Our current inventory is much healthier equity/standard sales.
Home loan rates went up and down in 2013, but the trend was notably up, going up almost 1 full point over the course of the year. The benchmark 30 Year Fixed Rate mortgage started 2013 at about 3.34 and ended at 4.480%. For the year it averaged 3.969%.
In general, home loan rates follow the stock market (which went up in 2013) – when stocks are up, rates are up. Why? When stocks are on the rise, investors pull their money from long-term investments (home loans and 10-year treasury notes) and put them in short-term ones (stocks). That being said, the yearly average of ~4% is still near historic lows, thus low home loan rates played a significant role in pushing sales & home values up. It seemed that when rates went up 0.5% in the spring, there was actually a rush to buy as the market was fearful that rates would climb even higher, which they did.
Home loan rate charts:
Long Term Rate Chart: 1971 – Dec 2013 Short Term Rate Chart: Feb 2011 – Feb 2014
The median detached home value for San Diego went up about 19% and condos 29% in 2013. I found it interesting that condos had such a larger increase. In speculating on this, my best guess is that there is more demand for lower priced properties (condos vs homes) then higher priced properties, especially as many lower-mid income buyers are priced out of the detached market. These numbers echo my own observations for the markets I worked in during 2013.
The government is slowly tapering off it’s financial support of the housing market.
The FHA reduced it’s maximum loan limit for San Diego County from $697k in 2013 to $546k as of Jan 1 2014. The FHA also increased their mortgage insurance (MI) costs last year (on top of recent increases in the last 4 years), and as of June 3, 2013, mortgage insurance will remain in effect for the life of the loan (in the past, you could have MI removed once you reached a 78% equity position). This will hinder a few buyers from purchasing if they were looking at a low down payment FHA loan.
The Federal Reserve continued its stimulus program, also known as Quantitative Easing (aka “printing money”), throughout 2013. However, in the fourth quarter they commenced a long awaited tapering of bond buying to the tune of 10 billion dollars less per month, or 12% less than previous. The precursor of this, along with the actual effect of this action, was felt by investors as a whole, and the bond market was adversely affected over the course of the second half of the year. Therefore, after a very aggressive start to 2013, keeping rates at all time lows, we saw a sharp spike last summer bringing rates up closer to current levels. In my opinion, these historically low rates are not sustainable as it has been funded by Quantitative Easing in order to stimulate a depressed economy. As it stands, the new chair of the fed has committed to keeping the federal funds rate low for quite some time, which should keep home loan rates from going up much in 2014. As you read this, please remember that I am not an economist – i just play one in my spare time.
Almost all foreclosure statistics were down significantly in 2013. NOD Filings were actually up 13%, but notice of trustee sale filings were down 42%. Furthermore, foreclosure sales were down significantly with homes being sold at trustee auctions down 67% and homes foreclosed on and back to the bank down 34%. These statistics match what I am seeing on the market as relatively few foreclosures are on market these days compared to a few years ago. Here are some more in-depth statistics on foreclosures in CA and San Diego County:
While it’s not that hard to predict the short-term if you have the correct statistics at hand, mid & long-term economic trends are quite elusive and usually prove me wrong. As a real estate broker, I am entrenched on the front lines of the current local market, but don’t have the knowledge or time to follow macro-economics at a national or international level. As such, I don’t make predictions past the short-term.
Currently, San Diego inventory remains low and demand is strong. I also hear reports of the national real estate market gaining strength as well. Historically, our San Diego market precedes national trends, so I’m telling my Realtor friends on the east coast to be ready for a great 2014. Locally, there are multiple offers on every reasonably priced home and even overpriced homes are getting enough attention to garnish offers. As such, my prediction is that we will continue to see home values rise for the next 3-6 months, albeit more moderately than they did last year. i’m guessing that rates will remain relatively flat, but if I am wrong and they go up, that will likely slow the market down. My best guess is that the 2nd half of 2014 will be relatively flat and we will (hopefully) enter a more even paced market.
Thank you for reading,
Broker / Owner
73 Degrees Realty