You can tout the comeback in tourism and technology. You can rail against excessive pensions and government regulation. You can love or hate Gov. Jerry Brown, the big banks and health care reform.
But nothing you can say or do can change one simple fact about the region’s economy — it’s been five years since housing prices peaked, and there is still not a clear signal that we’ve hit bottom.
Year-end reports from DataQuick and First American Title on Jan. 17 underscored the depth of the housing problem for the Tri-Counties and Southern California.
Depending on the neighborhood, total sales — a key measure of the health of the market — are either up slightly, flat or down. In an industry that’s really driven by volume, that’s not a good sign.
Even worse, prices are down and remain depressed. Southern California’s median home price was $270,000, according to DataQuick, and sales volume was more than 20 percent below the average for December for the past 25 years.
In Ventura County, one of the areas included in the DataQuick report, sales volume for December was up 1 percent to a measly 771 transactions. But prices fell another 8.5 percent with the median transaction at $325,000. In the First American Title report for South Santa Barbara County, prices also were scraping bottom amid about a 10 percent increase in volume. The median price was reported at $567,500, down $18.4 percent from $695,000 reported a year ago and prices are down about 40 percent from the 2006 peak. “The reason that there’s a few more sales is that the prices are quite low and going down, and mortgage rates are excellent,” residential real estate maven Keith Berry, who compiled the First American report told me. “We’re back to 2002 or 2003 prices.”
The DataQuick report, as cited in the Los Angeles Times, concluded that more than half of the homes sold were short sales or foreclosures, with out-of-market investors and all-cash deals dominating. That means many of the sales are going to people who will rent properties to others and not to permanent residents — not a great sign for suburban neighborhoods in need of revitalization.
On the broader stage, CalPers, the state’s giant pension fund, gave a further non-endorsement to the housing market when it announced it was dumping a huge portfolio of properties into the hands of two private investors. CalPers’ staggering losses on real estate are contributing to its multibillion-dollar shortfall, and if it doesn’t get fixed by gains elsewhere in its portfolio, that shortfall will be paid for by taxpayers and retirees.
Meanwhile, the Federal Reserve has taken the unusual step of writing to top Congressional leaders to urge them to take action to shore up sagging home prices. Their data says home prices nationally have fallen by one-third and the Fed reports suggests converting bank-owned properties to rentals and expanding government-guaranteed loans to credit-worthy borrowers.
The future for housing isn’t all bleak. Having lived through a steep decline in housing in Colorado in the 1980s and having observed California’s deep dive in the early 1990s, I can tell you these are very long cycles. It may be that in a year or two, falling prices will create the sorts of bargains that make housing affordable and attractive again to buyers. And in a couple of years home financing may again be more abundant.
As somebody who likes to take the contrarian view, the fact that CalPers is dumping big portfolios also can be seen as a hopeful signs. After all, this is the smartest-people-in-the-room gang that bought in at the top and saw its investment drop by 90 percent as the housing bubble burst. In other words, if CalPers is selling, I’m much more likely to be a buyer.
Economists at Wells Fargo think that homeowners with disposable income will be inclined to spend money to make improvements, spurring some employment in the remodeling industry. And as home prices slip toward or below $200,000 price point, housing in Santa Maria, Oxnard, Port Hueneme and other places that have typically attracted entry-level buyers, should start to move.
The bottom line is that nothing creates jobs like housing. And until housing starts to look more attractive from the bottom up, a full-blown recovery for the Tri-Counties will have to wait.