According to a Trulia research report, $1 million may no longer get buyers into the luxury home market – it’s more like $5 million as the new bar for luxury living. In fact, even $5 million homes are becoming less exclusive, as the number of these homes is five times higher than in 2002. Of all the listings, over 7,000 were listed in the top 100 U.S. metros in 2017 – 0.28% were listed at $5 million or more.
Brentwood had only (7) closed sales in 2017 under $1.5 million, and (73) closed sales over $5 million – that’s 29.2% of all of the homes sold in Brentwood last year. The average closed sale price was $4,277,878 in Brentwood last year.
Comparatively, Pacific Palisades had only (1) closed sale under $1.5 million last year, and (52) over $5 million, which represented 20% of the total market sales. The average closed price for Pacific Palisades was $3,989,789 last year.
On the other hand, Santa Monica had (28) sales under $1.5 million, and (32) sales over $5 million, which represented 12.8% of total market sales in 2017.
Interestingly, of the (758) single-family home sales combined in these areas last year, a total of (24) homes sold over $10 million and the share of $5 million plus homes sold was 20.7% of the total market. The highest closed sales price in Brentwood, Pacific Palisades and Santa Monica last year was $23,000,000. (South Bay had (54) total sales above $5 million in 2017, representing 3.59% of total market sales.)
“Millions saw the apple fall, but Newton was the one who asked why.”
— Bernard Baruch
According to CoreLogic’s recently released Housing Credit Index (HCI,) the loans originated in the fourth quarter of 2016 are among the highest quality mortgages originated since 2001, (in terms of overall credit risk.) The HCI Index compares loans with those originated in previous quarters based on borrower credit scores, debt-to-income and loan-to-value ratios. CoreLogic found that the average credit score for money purchase loans rose 4 points from 733 in the fourth quarter of 2015 to 737 in the fourth quarter of 2016.
Frank Nothaft, chief economist for CoreLogic, stated “While our index indicates somewhat less risk than both a quarter and a year earlier, this partly reflects the large refinance share of fourth-quarter originations. Refinance borrowers typically have a lower loan-to-value, debt-to-equity ratio and debt-to-income ratios than purchase borrowers.” Nothaft also noted that with interest rates expected to rise further this year, “Refinance volume will decline with higher mortgage rates, and lenders generally will respond by applying the flexibility in underwriting guidelines to make loans to hard-to-qualify borrowers. As this occurs, we should observe our index signaling a gradual increase in default risk.”
In other housing news, the number of permits issued to builders on a national basis fell 6.2% from January to February, according to the seasonally adjusted numbers in the latest new residential construction report jointly released by the U.S. Census Bureau and U.S. Department of Housing and Urban Development. The biggest decrease was in permits to construct multi-family buildings with five or more units, where builders received 26.9% fewer permits in February than January and 15.7% fewer than they did in the same month a year earlier. On the positive side, permits for single-family homes rose 3.1% in February over the previous month, and 13.5% over the same month in the previous year, according to the report.
Finally, the share of homes sold for cash fell to the lowest level in nearly a decade in 2016. According to a recent report from CoreLogic, 32.1% of all home sales last year closed with a mortgage. This was a decrease of 2.2% from 2015, (the previous low point for cash sales was in 2007 at 27% of total home sales.) CoreLogic also noted that distressed home sales accounted for only 8.9% of all sales for 2016, the lowest share since 2007.
In December 2016, Southern California home prices reached their highest levels in more than nine years. According to CoreLogic, an improving economy and home shortages raised home prices nearly 6.8% over the past year. Corelogic confirms December’s median home price of $470,000, up 1.1% from previous months.
With increased demand the rise in December’s six-county regional median price hit $465,000, which at the time was at a nine-year high.
With mortgage rates and prices rising steady over household incomes since the November Presidential election, the Southern California region became one of the hottest areas for the housing market.
Economists project prices will continue to rise in 2017, but not as continuously as they have in recent years, making those looking to purchase a home more assertive in their search before prices reach even higher plateaus.
While the outcome of rising mortgage rates is uncertain, home prices continue to become more expensive. This uncertainty would produce additional demand if consumers rush to lock in rates before they climb higher. The rush to purchase before rates increase is not occurring in mass.
CoreLogic reported sales dropped 2.9% last month compared with December 2015. CoreLogic analyst Andrew LePage said, “a large part of that decline was because new federal lending regulations took full effect in fall 2015 and pushed many deals that would have closed in November of that year into the following month.”
“The number of deals recorded in December 2015 was artificially high,” he said in a statement. That factor, along with an additional business day last year, “outweighed whatever boost December 2016 sales got from the presidential election.” In 2016, sales across the region were up 2.1% from 2015 – with the strongest gains seen in counties of Riverside and San Bernardino. Nationwide, the National Association of Realtors said Tuesday, “sales of previously owned homes dropped 2.8% in December compared with November after adjusting for seasonal fluctuations.”
California home sales tempered in 2014, falling roughly 8.2 percent behind the previous year. But with positive housing indicators and a strengthening economy, experts are predicting a 2015 marked by increased home sales and a better balance between sellers and traditional home buyers.
According to the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) “2015 California Housing Market Forecast,” economists expect a 5.8% increase in existing home sales in 2015, which translates into 402,5000 total units. They further expect median prices to continue upward, with a forecasted 5.2% increase bringing the median home price up to $478,700.
Last year’s sluggish home sales resulted in large part from dramatic increases in home price coupled with depleted market inventory — an environment that caused many investors to exit. Without traditional consumers stepping in to take their place, 20 months of double-digit year-over-year home price growth finally normalized to single digits in 2014.
“Stringent underwriting guidelines and double-digit home price increases over the past two years have significantly impacted housing affordability in California, forcing some buyers to delay their home purchase,” said C.A.R. President Kevin Brown in a press release. “However, [in 2015], home price gains will slow, allowing would-be buyers who have been saving for a down payment to be in a better financial position to make a home purchase.”
C.A.R. expects 30-year mortgage interest rates, which repeatedly defied forecasts last year, to remain at historically low levels despite a slight increase to a year average of 4.5 percent. This bodes well for potential buyers, who Brown wants to remind that 20 percent down is not always required to buy a home.
“There are numerous programs available that allow consumers to buy a home with less down payment, including FHA loans, which lets buyers put down as little as 3.5 percent,” he said.
Looking to economic recovery, last year was the strongest since the recession hit in 2008 and closed out with a 5.6 percent unemployment rate nationwide. Currently hovering around a 7.9% unemployment rate, Los Angeles is is forecast to return to pre-recession employment numbers in the coming year.
Yet even with job growth, low interest rates, and slowing gains in home prices, affordability remains a key issue, particularly in the state’s luxury markets. According to C.A.R.’s Traditional Housing Affordability Index, just 27 percent of households will be able to purchase a median priced home in California based on traditional assumptions. This forecast is 3 percent lower than 2014 projections, and is down significantly from 56 percent in the first quarter of 2012. Much of this is attributable to the fact that household income declined while home prices swelled.
With affordability where it is, the homeownership rate for 18- to 34-year-olds continues to fall as the number of Millennials renting or living with parents continues to rise. Household formation for this same demographic is remarkably slow, contributing to Census data that shows an addition of just 476,000 new households in the 12-month period ending in March 2014. By contrast, the two periods prior had an average of 1.3 million added households. Even in today’s “renter nation,” the C.A.R. 2014 Millennial survey shows that over half of this group places homeownership as an eight or above on a scale of one to ten, where ten is “extremely important.” Roughly the same percentage expects to purchase a home within five years.
“With the U.S. economy expected to grow more robustly than it has in the past five years and housing inventory continuing to improve, California housing sales and prices will see a modest upward trend in 2015,” concluded C.A.R. Vice President and Chief Economist Leslie Appleton-Young.