Housing Market May Not Fully Recover Until 2017

California’s housing market will continue to recover in 2013, as home sales are forecast to increase for the third consecutive year and the median price to rise for the second straight year, according to the California Association of Realtors (CAR) “2013 California Housing Market Forecast,” released last week. 

“The market has improved moderately over the past year, and we expect that to continue into 2013,” said CAR President LeFrancis Arnold. “Sales would be even higher if inventory were less constrained in REO-dominated markets, and there are areas with an extreme shortage of available homes. Sales will be stronger in higher-priced areas, where there are more equity properties and a somewhat greater availability of homes for sale.”

“Housing affordability has never been stronger – with record-low interest rates and favorable home prices, combining to create a once-in-a-generation opportunity to buy a home in California,” said Arnold.

“The housing market momentum which began earlier this year will continue into 2013,” said CAR Vice President and Chief Economist Leslie Appleton-Young.  “Pent-up demand from first-time buyers will compete with investors and all-cash offers on lower-priced properties, while multiple offers and aggressive bidding will continue to be the norm in mid- to upper-price range homes.”

“The actions of underwater homeowners will play an important role in housing inventory next year, with rising home prices inducing some to stay put and others to list and move forward,” she said.

While the overall housing market continues to improve, there are a number of “speed bumps” and “wildcards” that threaten to send the home selling industry back into a tail spin. For one thing, there are too few homes for sale, Appleton-Young said. And lending standards remain tight. Appleton-Young does not see a housing market recovery until 2017.

One wild card that she sees that could be devastating for the economy, sending us back into double-dip recession is the “fiscal cliff.” She feels the country is hopeful that Congress and whoever is president will be able to figure this out and reach a reasonable agreement on tax cuts, tax increases and so on, but, right now, she sees us heading towards a cliff.

She said the Euro Zone is still a huge wildcard. One of the things that became clear to the entire world four or five years ago is that the global financial markets are held together by one thing, and that’s confidence.” said Appleton-Young. 

“Certainly anything with respect to national resources like oil prices, anything that sends the economy off-kilter is going to affect costs, it’s going to affect incomes and it’s going to affect the housing market.”

Another semi-wildcard could be in California where 30 percent of the homeowners that are current on their mortgages and are also under water on their mortgages. And that’s going to be interesting to see how that plays out. As prices increase and as we’ve had a little bit of an uptick in loan modifications being granted, those people become less uncertain, and they’re going to stay in their homes and they’re working things out.

She emphasized that the market still needs to be corrected. She believes it will take three to five years to correct this market.

“The shift in the market is due to a greater share of short sales, which are constricting sales; they take longer to close and are much more tedious,” she said. 

Appleton-Young reported that the short sale share has doubled in the past 3 ½ years. However, the amount of time it takes to close a short sale has gone down too.

According to surveys, the days on the MLS for a short sale last year was 141 days. This year, it is 90 days. So that’s a 51-day reduction. But still, compared to the REO this year, it was only 30 days on the MLS. So short sales take about three times longer than an REO, but it’s down significantly from last year and slowly improving as the lenders are making changes in their procedures for handling sellers and Realtors.

Beverly Taki is a California-licensed real estate broker who has represented clients in Malibu for 23 years. She is a Malibu resident and president/broker of Seabreeze Estates Realty. Beverly has earned a certificate in dispute resolution from Pepperdine University, School of Law specializing in mediation. Taki can be reached at beverly@beverlytaki.com or 310-456-4843. Her website is beverlytaki.com.