2014 Q1 – All Quiet on the Western Front
Sales Volume Down: Down 16.7% from Q4 2013 and down 16% from Q1 2013
Inventory Extremely Low: 12% less inventory than the same time last year
Loan Rates Level: The Benchmark 30-year fixed rate stayed around 4.5% all quarter
Home Values Level%: Median & Average sales prices virtually level with Q4 2013
Govt. Role: Decreased govt. stimulus
Foreclosure/Short-Sale Activity Down: new filings & inventories notably down
2014 Q1 – The Details
Closed sales was down notably over the last quarter, as well as Q1 of 2013, indicating that this was not a seasonal variation. If you look at the Stats Link, you’ll see that pending sales in December were very low, and thus, closed sales in January were very low. I think this is a natural pullback from the crazy & prolonged upward market trend experienced over the last 1.5 years. Also, the inventory of homes for sale is so low that there just couldn’t have been be too many sales in Q1. The market is clearly heating up right now – the pending sales have been going up month over month and May’s pending #’s were higher than any month since May 2013. Therefore, closed sales in April (and maybe all of Q2) should be up considerably over Q1.
Inventory is EXTREMELY LOW right now. While I hate using caps, this point needs to be made loud and clear, so please read that again. If there is one thing pushing up home values right now, its the lack of supply. Q1 2014 had an average supply of 8041 homes. Q4 of 2013 had an average supply of 9092. That’s a 12% decrease over last quarter. If we look at Q1 2013, the monthly average is 8971 showing a 10% drop over the same quarter last year. While demand seems to have decreased, inventory has decreased the same, if not more. This is evident in the spike to a new high in median and average sales price seen in March’s stats.
There’s not much to say about rates this quarter. They stayed about as level as they can hovering just a tad below 4.5% most of the quarter. Most economists expect rates to rise in the mid-term. The housing market nationally has not rebounded like our market, so the Fed is expected to continue buying (albeit a diminished amount every month) of bonds to stimulate the economy as well as keep the Fed Fund rate near 0 for the short-term. I recently read an article showing a statistic that most 1st-time buyers think rates are a little high and should be lower. How uneducated and nearsighted these folks are! As inflation starts to kick in and/or the economy strengthens, the govt will have to stop their stimulus altogether, which is artificially keeping rates low. When this happens, be prepared for rates to go back to 5-6% as early as next year. If you don’t believe me, talk to your parents and view the historical rates chart below…
Home loan rate charts:
Long Term Rate Chart: 1971 – Dec 2013 Short Term Rate Chart: April 2011 – April 2014
The median & average detached sale price monthly average for Q1 2014 were virtually the same as Q4 2013. However, March’s numbers took a huge jump over Jan & Feb and are higher than any month since the last market peak in 2005. Is this bump in March an anamoly or will prices keep steady or even go up further? My predictions are below…
The Federal Government started tapering their stimulus bond buying program at the end of last year and continued to do so in Q1 2014. They are planning to taper off this stimulus by $10million/month and most economic reports I’ve read expect Quantitative Easing to be done by end of 2014. Whether they stick to this course or not is yet to be seen, but it is clear that the government wants the stop spending debt & allow the market to determine it’s own course.
If it gives you any indication of where the foreclosure & short-sale market is at, I am considering deleting this item from my market updates in the near future. With prices approaching the peaks seen in 2005, foreclosure & short-sale inventories are down to low levels and are not as much of a market factor as they have been in the last 8 years. Specifically, inventories and new filings have continued a slow decrease. You can view the full stats at my favorite foreclosure site:
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 and do not advise you to make financial decisions based on my predictions.
Currently, San Diego inventory is extremely low, rates remain at relatively low levels, and demand just picked up considerably. If this demand continues to outpace supply, prices are going to go up further, which is what I think is going to happen in the next 3-6 months. It is my guess that rates will remain relatively level or slightly up in the next 3 months, but I do expect rates to increase soon thereafter. It is likely they will be at 5% by the end of the year. My best guess is that we will see a moderate gain in home values over the next 3-6 months – about 5% – before leveling off and staying relatively flat in the 4th quarter. It is my feeling that we are where we should be now regarding home values and that we should start seeing the typical healthy 4%/year growth which is the San Diego average over the last 50 years.
Thank you for reading – I appreciate your time as well as your comments. Here are a couple additional resources if you are thinking about buying, selling or just curious about your home’s value:
And thank you for your referrals – they are the foundation of my business.
Broker / Owner
73 Degrees Realty