I figure lots of predictions is best. People will forget the ones I get wrong and marvel over the rest.
We continue to monitor the latest developments in the housing market and the economy and will attempt to predict what those developments mean going forward.
Wish us luck.
It's The Economy, Stupid!
James Carville’s slogan for the 1992 Clinton election campaign rings true today. The health of the economy has a direct impact on the state of the real estate market. Home sales usually are directly tied to an economy's health and rise and fall with economic activity.
Right now, the economy is strong with nonfarm payroll numbers rising substantially in November and the unemployment rate sitting at a very low 3.5% nationally.
And recent concerns about the inverted yield curve have apparently evaporated.
For those of you keeping tabs on this arcane bit of monetary theory, the inverted yield curve refers to the circumstance where the yield on the 10-year Treasury note falls below that of the yield on the 2-year note - often a harbinger of an economic downturn.
The inverted yield curve is not 100% accurate as a recession predictor, however, and recent gyrations in the bond market have pushed the 10-year yield back to its rightful place, well above the 2-year note yield.
So, at present, there appears to be no recession on the horizon, which is good for the real estate market in 2020.
If there is any bad news, according to Kermit Baker of the Joint Center for Housing Studies at Harvard, it’s that house prices have been increasing much faster than household incomes, which means that, for many places across the country (including Los Angeles), housing affordability could become an issue for those looking to get into the housing market, particularly if interest rates rise.
Affordability improved moderately in the 3rd quarter, according to the National Association of Realtors (NAR), but it was buoyed by lower rates, not high incomes.
“The housing market has been seeing reacceleration in home prices as more buyers want to take on lower interest rates in the midst of insufficient supply,” Lawrence Yun, chief economist at NAR, said. “Unfortunately, income and wages are not rising as fast and will make it difficult to buy once rates rise.”
The Case Shiller Index
On November 26, S&P Dow Jones Indices released the latest results for the Case Shiller Index, the leading measure of US home prices. The data reflects September’s home prices (Case Shiller is always two months in arrears due to the complexity of their formulae for matching existing home sales with previous sales of the same properties).
The results are very interesting as they seem to show more improvement in home prices in the Sun Belt as opposed to the western United States.
At the beginning of the housing recovery back in 2012-13, it was the western cities - Seattle, Las Vegas and the three major California metropolitan areas (Los Angeles, San Diego and San Francisco) that led the way.
Not anymore. While the western cities have all fallen below 3% annual appreciation (Los Angeles is at 1.7% while San Francisco has actually slipped into the negative at –0.7%), new leaders have emerged.
Now Phoenix leads the country at 6.0% year-over-year appreciation, followed by Charlotte, NC at 4.6% and Tampa, Fl at 4.5%.
In fact, according to Redfin, affordable Southeast cities like Tampa, Charlotte and Charleston, SC are poised to lead the nation in home price growth.
Says Craig Lazzara, a managing director at S&P Dow Jones Indices, “September’s report for the US housing market is reassuring. After a long period of decelerating price increases, it’s notable that in September both the national and the 20-city composite indices rose at a higher rate than in August” although he also noted that it’s too soon to say whether this marks the end of the deceleration or is merely a pause in the longer-term downward trend.
According to data from Case Shiller, the current national median home price composite for the entire country stands at a level that is 58.4% higher than the 2012 bottom of the market and roughly 15% higher than the previous 2006 peak.
By contrast, the 20-city composite (which includes all three major metropolitan areas in California) is almost 63% above the 2012 trough (because prices dropped further in those 20 cities) but only about 6% above the 2006 peak.
The South Bay
Below, we break down the median home sale data for the various beach cities of the South Bay by market segment - single family and townhome/condo. Median prices are calculated for a full year ending November 30 of each year.
City Type 2018 Median 2019 Median % Gain/Loss
|Manhattan Beach||Single Family||$2,465,000||$2,500,000||1.4%|
|Hermosa Beach||Single Family||1,960,000||1,605,000||-18.1%|
|N Redondo Bch||Single Family||1,100,000||1,092,500||-0.7%|
|S Redondo Bch||Single Family||1,472,000||1,360,000||-7.6%|
|El Segundo||Single Family||1,410,000||1,445,000||2.5%|
Interestingly, North Redondo, which was hot last year, suddenly finds itself in the red while an area like El Segundo, previously in the red, is suddenly in the black for both the single family and the townhome/condo segments of the market, even as its median price for all residential sales (single family, townhome and condo) declined by a little more than 4% (due to a greater number of lower-priced townhomes selling in the past 12 months).
Meanwhile, in both Manhattan Beach and Hermosa Beach, home prices overall are slightly lower - but for different reasons.
In Hermosa Beach, for the first time in years, the median year-over-year price for a townhome/condo sale surpassed the single family home median sale price, thanks to an 18% drop in the latter.
The result is the combined median in November for both single family and condo/townhome sales dropped 4.7% in Hermosa.
Meanwhile, in Manhattan Beach, the combined median sale price for both market segments also dropped, by about 1%.
But, unlike Hermosa, the softness in Manhattan Beach was felt in the condo/townhome segment where prices fell almost 12%. By contrast, single family homes hung on to positive territory (barely) with a year-over-year gain of 1.4% for November, which seems to reflect a plateau for that segment that's been in place for the past two years and will probably continue into the first part of 2020.