Stock markets up this week, yet still down for the month. – Markets dropped sharply Friday, with the Dow dropping 141 points after several companies reported lower than expected corporate earnings. This snapped a 4 day rise which included a triple digit gain on Thursday after the European Central Bank announced a stimulus program similar to The U. S. Federal Reserve’s bond buying program, which has now ended. It is feared that a slowing economy abroad may slow the economy here, so an European stimulus program was a welcome announcement. At one time on Thursday stocks, which have been down for 3 straight weeks, had made up all loses for the year, before dropping sharply Friday. Although, stocks ended a 3 week skid and had their first week of gains in 2015, they are still down for the year. The Dow Jones Industrial Average closed the week at 17,672.60 which was down from last Friday’s close of 17,511.57 The S&P 500 closed the week at 2,051.82 down from 2,019.42 last Friday. The NASDAQ closed at 4,757.88 also down from 4,634.38 last week.
Treasury Bond yields remain at historic low levels – The 10 year Treasury bond closed the week at 1.81% which was down very slightly from 1.83% last week. The 30 year treasury yield was 2.38% which was down from last week’s close of 2.44% Lower inflation news, and a flight to safety from stocks caused this drop.
Mortgage Rates remain near historic lows – The Freddie Mac Primary Mortgage Survey reported that the 30 year fixed mortgage rate average for the week was 3.63% about the same as last week’s 3.66%. The 15 year fixed was 2.93%, which was down from 2.98% last week. The 5 year ARM was 2.83% The 1 year ARM was 2.37%. Rates dropped with stocks on Friday. They were higher on Wednesday and Thursday. Jumbo rates are a little higher at just under 4% for a 30 year fixed, and about 3.25% on a 15 year fixed.
California home sales down sharply in 2014– The California Association of Realtors released it’s December home sales statistics. Statewide home sales were at an annualized rate of 366,000 units, down 2.9% from November’s annualized rate of 376,890. In 2014 there were 383,000 reported homes and condos sold which was down 7.6% from the 414,900 in 2013. So, even though the economy was better in 2014 than 2013, there were fewer sales. This is a distressing figure. With low numbers of homes on the market, and record numbers of multiple offers, nobody has an answer as to why more people are not putting their homes up for sale. As inventory levels continue to slide, they dropped from a 4.4 month supply in November to a 3.3 month supply in December. Prices are again beginning to rise. The median price of December was $452,570. December, usually not a month where we see a rise in prices, had an increase in the median price of 1.7% from November’s $444,830.
Los Angeles saw even better results with home sales numbers up sharply. There were 19.5% more homes sold than in November! This followed a drop of about 20% fewer sales in November than October, reversing a troubling trend. Sales in the Los Angeles region were down 0.8% for the year, so while still lower than 2013 the drop in sales were better than the state as a whole. The median price was up 7% in December to $464,650 from $434,070 in November. One year ago the L.A. Median price was $439,800, so prices were up 5.6% for 2014, after being down in November for the first monthly year over year decrease in a couple of years. It appears that November’s figures were just an abnormality. Perhaps escrows that were to close in November held over to December.
The number of homes on the market is distressing. Being down to a 3.3 month supply is a record low. A 6 to 7 month supply is considered a normal, healthy market. We were approaching a 6 month supply in August, but that reversed later in the year. This drives prices up, and lowers the number of sales, as their are just not enough homes available to meet buyer demand.
Nobody knows why more people are not putting their home on the market. Some reasons may be: 1. Not enough equity to sell and have a down payment to buy another. As prices rise this will cause an increase in sales. However, prices were higher in 2014 than 2013, yet there were fewer sales.
2. Sellers can no longer qualify, or feel they can not qualify for a home purchase. They feel they can not buy, so they will not sell. Qualifying standards are becoming easier so this should cause an increase. One thing that will limit this increase is the restrictions in the Dodd, Frank Financial Reform law which requires lenders to verify borrower’s incomes using tax returns or W2’s. This makes stated income loans difficult to get. Many self employed people write off so much that they are not able to show enough income to qualify. Many of them feel stuck in their homes and can not move because they got their loans when stated income loans were common, and now could no longer qualify for a home loan. They can’t buy or refinance to a lower rate. They have accepted staying in the home they bought when these loans were available.
4. In higher end markets people who have owned their homes for a long time have such high gains that they are not willing to sell because they would owe so much in taxes. They also feel stuck in their homes, and often decide not to move when they learn how much taxes they would owe. Prior to 1995 people could sell their personal residence and purchase another of equal or greater value and defer the gain, paying no taxes. This allowed homeowners to defer gains until they eventually sold and did not repurchase or died and the value stepped up. Back then the amount excluded from taxes was only $125,000 and only one time, but the repurchase deferment made no tax due when they sold because they bought another. When the law changed to the $250,000 per individual taxpayers and $500,000 per married joint filers the deferment was eliminated. It did not matter whether you bought another or not. People with larger gains must pay federal capital gains tax, the healthcare tax, and state income tax on the gain that exceeds the $250,000 or $500,000. It works out to at least one third of the taxable gain. This law really penalizes someone that has been a home a long time. People should consider selling once they have been in a home for 2 years and have made more than the $250,000 or $500,000 as any further gain will be taxable. Staying too long could cause people to become stuck in their home!
5. Hedge funds and institutional investors have bought up a lot of housing. Many homes were purchased by these investors and rented when prices were lower, especially foreclosures. These homes don’t look like they will be sold anytime soon.
I would expect, and the experts have predicted more sales in 2015 than 2014, but not a large increase. We are about 14% below the average amount of sales since this data began being collected in 1988. Considering the amount of new housing and the growing population that just does not make sense. With such low inventory levels and low interest rates we will see a surge in prices. There simply is not enough homes for sale to meet buyer demand. I’d buy now as waiting will price you out of where you are looking and you will have to move to a less expensive area.
If you’d like more information on the San Fernando Valley or Los Angeles, or to have help looking for your next home, please feel free to reach out! I’m happy to help, no obligation.