North Bay supply of new housing not keeping up with demand, economist says
Sales of existing single-family homes in California had a strong bounce back in February, with sales of 422,910 units (up 1.1 percent year to date year to date and up 5.4 percent year to year).
But sales declined in the lower priced segments of the market among homes up to $199,000 (down 23 percent), $200,000 to $299,000 (down 8.5 percent) and for homes from $300,000 to $399,000 (down 7 percent). Sales of higher priced homes increased in a range from up 3.5 percent for homes selling for between $400,000 to $499,000, up to 31.1 percent for homes over $2 million, according to Oscar Wei, senior economist with the California Association of Realtors. He presented his findings at the April 4 meeting of the Sonoma County Alliance.
Wei noted that a major negative on the supply side is the fact that new housing is not keeping pace with demand. In California, some 180,000 new housing units are needed each year. In 2017, only 112,886 units were built statewide and in 2018 it is estimated that only 121,320 units will be built. The 60,000-unit housing deficit is split almost 50/50 between single family and multifamily units.
The more underbuilding continues, the higher the price growth. That’s the conclusion of analysis by the state Employment Development Department, the state Realtors group and the Construction Industry Research Board. It focused on new housing permits, new jobs and existing median prices.
The real estate association found that state median prices continued to show strong growth in February 2018 to a high of $522,440 (down 1 percent month to month and up 8.8 percent year to year).
Wei said buyers now have more “skin” in the game. In 2017, 42.9 percent of buyers had 20 percent or more for a down payment, almost on par with the 43.2 percent in 2006, but down from 54.4 percent in 2012. The median down payment (as a percent of the price) was 17.6 percent last year, with only 6 percent of buyers offering zero down. Some 21.5 percent were cash buyers. And only 3.9 percent of buyers had second mortgages — up from 1.8 percent in 2012, but below the 43.4 percent in 2006. However, the number of buyers with adjustable-rate mortgages (ARM) increased from 3.5 percent in 2012 to 5.1 percent in 2017.
With monthly payments more affordable, Wei said there is less likelihood of default with the average 30-year mortgage rate at 4 percent in 2017 compared with 6.4 percent in 2006. Similarly, the median home price for existing single-family homes has also gone down from $556,430 in 2006 to $525,000 in 2017.
Median household income for homebuyers is up to $120,000 from $100,000 13 years ago, and monthly mortgage payments (on 1st mortgage) were down to $1,924 last year compared to $2,500 in 2006. Taken together, these indicators have moved the housing affordability index (HAI) from 12 percent in 2006 to 28 percent in 2017 after a sharp increase in 2012 (when housing affordability in across the U.S. peaked in Q1 2012 at 56 percent). The index shows the percentage of households that can afford to buy a median-priced home.
In Northern California, as of the fourth quarter of 2017, the percentage of those able to purchase a median-priced home was as follows in the following counties: Solano 44 percent; Mendocino 28 percent; Napa 25 percent; Sonoma 23 percent, and Marin 18 percent.