That's the takeaway from today's California Association of Realtors Housing Market Forecast for 2013. CAR Chief Economist Leslie Appleton-Young presented the data, and the date is...basically unprecedented. Appleton-Young said that she's never seen a market quite like it.
However, she doesn't think that the market is distorted. You could be excused for thinking that it is. For starters, according the the CAR, prices in California fell almost 60 percent from their bubble highs before the financial crisis. But at the moment, several factors are intersecting. There's not enough supply to meet housing demand in the state. Combined with historically low interest rates, this is pushing up prices. And investors snapping up properties they consider to be historically underpriced are sweeping into the market, using all-cash offers to gobble up homes.
The California Association of Realtors released data on August pending and distressed home sales today — data that shows that the housing market in the Southland and elsewhere in the state is improving to the degree that a lack of housing inventory is becoming a problem.
This could ultimately be a good problem to have, if its spurs builders, such as L.A.-based KB Home, to start constructing new houses. KB beat earnings expectations last week and now seems to be pretty bullish on a housing recovery.
It's also good for sellers, as a shortage of supply is pushing prices up. It's worth noting that market is now clearing the overhang of distressed properties, a process that we've been waiting for particularly in hard-hit California. As you can see from the charts above, distressed sales — short sales and foreclosed properties, or "REOs" ("real estate owned") — have been falling year-over-year and month-over-month is Los Angeles, Riverside, and San Bernardino counties.
L.A. home prices are down from last April, but they've been trending up modestly for the first part of 2012.
The April Case-Shiller Index came out yesterday and contained good news for most of the 20 cities that the index covers and some indications of a decent trend for L.A. in the first quarter of 2012. Home prices were still down in L.A. compared with this time last year — down 3.6 percent in fact — but over the past few months, prices have been edging up.
Not as much as in Phoenix, which rose by 8.6 percent from April 2011. But the decline wasn't as severe as in Atlanta, which dropped by 17 percent.
In L.A., February-March saw a tiny 0.1-percent increase after a January-February month-on-month decline. But the March-April uptick was better: 1.5 percent. This could mean that prices are gaining a footing and could start to build on their gains. Sales, after all, have been improving in L.A. But prices haven't yet caught up. This could change as foreclosures and short sales (when the lender agrees to accept a sale for less than is owed on the mortgage) move through the system.
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A construction worker cuts a piece of wood on the top of a home under construction at a new housing development in Petaluma, California. New homes sales have picked up, but in California, economists argue we still lack supply.
The Commerce Department released data on sales for new homes in the U.S. today. And the news is good — for the most part. We saw national sales at their highest level in two years, along with a nice bump the sales from April, up 7.6 percent.
What's driving this is tight supply and low mortgage rates, plain and simple. As Bloomberg reports, the number of houses on the market is at "record lows." However, fewer houses for sale are languishing in foreclosure and short sales (that's when the lender agrees to take a sale price for the house that's less than the total amount owed on the mortgage), and that's helping prices to get some much-needed support.
My feeling is that the news on prices is better than the news on sales — even news on sales of new homes, which implies some life in the beleaguered building trades and construction industries. We need to see a return to reliably, if modestly, ascending prices to achieve two things: get people who are currently underwater on their mortgages — but not by much — and current on payments back to even; and to re-establish the ability of borrowers to build equity in their homes so that first-time buyers can become first-time sellers and then second-time buyers.
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WASHINGTON, DC - FEBRUARY 29: Federal Reserve Bank Board Chairman Ben Bernanke testifies before the House Financial Services Committee on Capitol Hill February 29, 2012 in Washington, DC. Bernanke was testifying about the Fed's Semiannual Monetary Policy Report. (Photo by Chip Somodevilla/Getty Images)
Federal Reserve Chairman Ben Bernanke testified this morning in front of the House Financial Services Committee. Reuters has a nice, brisk summary of his main responses to questioning from members of Congress. There were two very interesting exchanges, resulting in some cryptic replies from Big Ben. Here's the first, on interest rates, which the Fed wants to keep as low as possible through 2014:
It is arguable that interest rates are too high, that they are being constrained by the fact that interest rates can't go below zero. We have an economy where demand falls far short of the capacity of the economy to produce. We have an economy where the amount of investment in durable goods spending is far less than the capacity of the economy to produce. That suggests that interest rates in some sense should be lower rather than higher. We can't make interest rates lower, of course. (They) only can go down to zero. And again I would argue that a healthy economy with good returns is the best way to get returns to savers.