“California has a shortage of about 1 million homes,” Gene Wunderlich, government affairs director for the Southwest Riverside County Association of Realtors, said in his speech at the Economic Workforce Development Committee lunch held Thursday, Oct. 19. Wunderlich’s address focused on southwest California housing issues, specifically the Lake Elsinore area.
Existing home sales are down 8 percent, but the median price is up 5 percent. The median time on market is down to eight days from 46 days a year ago.
State housing data shows growth, but at a much slower pace – about 1.3 percent from year to year. Lake Elsinore’s sales of single-family residences hit a low in 2007 with only 494 homes sold; a high in 2009 with 1,805 homes sold and is currently projected at 1,254 sales for the year. The median sale price for the state is up 7.2 percent from year to year at $565,330. Lake Elsinore hit a high in 2006 with homes selling for $433,996 median price, a low in 2009 at $174,666, which investors took advantage of and has grown 50 percent since then to $352,547, still 19 percent below its peak. The median sale price is up 8 percent from last year. Median prices in surrounding communities have also increased by 7 percent to 9 percent.
Standard sales make up the bulk of sales activity, 93 percent, while the sales rate has increased and prices have increased.
“I don’t see a ‘bubble’ with 5-6 percent sustainable growth and room to grow,” Wunderlich said.
The average house in Lake Elsinore is 2,069 square feet, has four bedrooms and three baths and was built in 1996. The median selling price as of September 2017 was $359,900; the average selling price was $345,935.
Wunderlich shared his outlook for the future.
There is room for improvement in the unemployment rate, with Riverside County’s 6.5 percent still higher than the state’s 5.1 percent. Mortgage rates are at their lowest since the election.
“Supply remains an issue,” Wunderlich said. Inventory has dropped 40 percent, while sales have increased 5 percent. The unsold inventory index has dropped from 3.4 months in August 2016 to 2.9 months in August 2017. Six months is considered healthy. Projected housing needs for California are 72,000 short of the 180,000 needed annually.
“We are 1 million homes short of what we need right now,” he said. “Part of the problem is that many baby boomers haven’t moved since 1999, creating a lack of turnover in the inventory.
“Another big problem is housing affordability is taking it on the chin,” he said.
In Riverside County, only 39 percent of those making the median household income can afford the median-priced home compared to 64 percent five years ago. In Orange County that number is 21 percent; only 12 percent of San Franciscans earning over $200,000 per year can afford the median-priced home. There is a huge gap in the home ownership rate between California, 53.2, and the rest of the country, 63.5. California is the second lowest amongst all the states, behind only New York.
“Affordability is also an issue for renters,” Wunderlich said. The average asking rent has outpaced the growth in household income. “California could become a rental state in five years, affecting voting on a number of issues like Prop 13, tax increases, etc.,” he said. “The solution is supply, but community resistance – ‘not in my backyard’ – blocks new housing. Commercial development brings in more local tax revenue. There is limited land to build on. And project reviews and the California Environment Quality Act delay or reduce new housing.
“Building in California is expensive,” he said.
Land costs are two to four times higher on California coasts, affecting housing densities. Building costs – labor, material and government fees – are all higher in California than in other states. A 2012 national survey found that the average development fee levied by California local governments, excluding water-related fees, was $22,000 per single-family home as compared to $6,000 in the rest of the country.
The decreased inventory has slowed sales growth, 2.7 percent in August 2018, but fueled price growth, up 7.2 percent in August 2017.
Next, Wunderlich addressed the federal political fiscal climate. The economic stimulus package and tax reform is projected to have an impact of $550 billion over the next 10 years, with the possibilities of increase in standard deduction and the elimination of the property tax deduction.
“Higher budget deficits will lead to rising interest rates,” Wunderlich said. “Dismantling the Dodd-Frank Act will allow banks to loosen up lending standards and give buyers more creative mortgage options, but it heightens the risk of having another financial bubble.”
The reform of government-sponsored enterprise could cause a rise in interest rates if the GSE’s were privatized.
Wunderlich identified trade policy, such as tariffs, higher inflation and high interest; healthcare reform; immigration policy, such as H1B Visa program and “policy by tweet” as wild cards. He also questioned the efficacy of monetary policy and the next federal chairperson. He expects US gross domestic product to grow modestly to 2.3 percent from 2.1 percent in 2017.
“California also has special circumstances,” Wunderlich said, citing the unknown impact of the ‘gas tax’ or Senate Bill 1, the fiscal impact of becoming a “sanctuary state,” increases in Development Impact Fees and Transportation Uniform Mitigation Fees, 15housing ‘fix’ bills including a $4 billion housing bond, Senate Bill 2 transfer fees, “affordable” workforce housing, et al, the election of a new governor and the possible continuation of a ‘super-majority.’
Wunderlich said the 2018 statewide forecast of a 0.4 percent increase in the resale of single-family homes or 421,400 homes, a median price increase of 3.4 percent or $556,000, a drop in the housing affordability index to 26 percent and thirty-year fixed rate mortgages at 4.7 percent.