Jobs, jobs, jobs! Real Estate values on the rise thanks to job growth!

I have been saying for some time now that the real estate markets (and the overall economy) need more jobs in order to sustain and drive values. Over this slow recovery, we kept hearing that, while it felt like things were getting better, we were really being deceived by government intervention with things like stimulus packages, the buying of mortgages and keeping interest rates low.  As these government interventions begin to fade, it appears that the job market might actually be getting better.  For a long time, people wondered if the job creation was strong enough to drive down not only U3, the most commonly used Unemployment Rate but also U6 which also included people that were under-employed.

As it turns out, both of these numbers have come down quite a bit.  U3 is down to 5.5% from its peak in October of 2009 at 10%.  U6 stands at 11.0% which is down from its peak in December of 2009 at 17.1%.

The overall economy is always important because California is usually on the bleeding edge of these changes both positively and negatively, but as they say...all real estate is local! So, if the overall economy is getting better, that's good news but it doesn't mean you are being affected in the same way.  Well, the picture in Ventura County is similar.  As you can see from the graph, the unemployment rate in Ventura County as of February 2015 was 5.7% which is down from its peak in August of 2010 at 11.2%.

Why am I thinking about this today?  I read a report this morning on the Top Employers in each state and I was slightly surprised when I realized that the nation's largest employer is, in fact, the largest employer in 20 out of our 50 States...Wal-Mart!  That's right!  20 States in the Union are the proud owners of Wal-Mart as their #1 employer.

Alabama, Arizona, Arkansas, Florida, Georgia, Illinois, Kentucky, Louisiana, Mississippi, Missouri, Montana, North Carolina, Ohio, Oklahoma, South Carolina, Tennessee, Texas, Virginia, West Virginia and Wyoming.

Fortunately, 16 states had a University or a University Hospital as their #1 employer and an additional 8 had a network of Health Systems/Hospitals as their #1 employer.

In California, the article said that the UCLA Hospital Network was the #1 employer.  Locally, Ventura County is proud to say that its largest employer is our own military with over 15,000 active duty, Department of Defense employees and contractors working out of the bases in Port Hueneme and Point Mugu.  Other large employers in the County are County of Ventura, Amgen, Ventura County Health Care Agency, Community Memorial Hospital, St Johns Regional Medical Center, The Oaks Shopping Mall, Los Robles Hospital, Baxter BioScience, California Lutheran University and several of the School Districts.

So, as jobs go, so do Home Values...right? Certainly makes logical sense, but is it really true?  Clients selling real estate today in places like Thousand Oaks, Camarillo, Westlake Village, Newbury Park, Moorpark, Simi Valley are all benefiting from a declining unemployment rate and, generally, rising home prices.  Below, you will see a very impressive graph created by the people at Calculated Risk.  It outlines the unemployment rates over time compared to Home Values over that same time period.  It's not as clear as I would like it to be, but looking carefully, it does show that as the unemployment rate rises, values certainly begin to decline.  In addition, as the unemployment rates begins to drop, sometimes right away and sometimes a few years later, home values begin to rise again.  This graph is only through January of 2011, but you would certainly see similar results if the graph continued to show the declining unemployment rate and rising home values.

So, jobs, jobs and more jobs! Keep rooting on our economy and our employers so that we can all make more money so that we can buy more stuff at Wal-Mart!!!

If you or someone you know is thinking about selling or buying a home in the near future, please call me for a confidential appointment and evaluation of your own real estate goals.  John Wise, jwise@2ciDirect.com, 818-391-4131.  

Is ZERO the new normal?

Since December of 2008, the Fed has left the Federal Funds Rate at 0%-0.25%.  The Federal Funds Rate is, basically, the rate at which other banks can borrow money from the Federal Reserve.  The basic concept is that if it costs banks less to borrow money from the Fed, it should allow them to lend more money, at more affordable rates, to the consumer.

So, this rate was dropped in December of 2008 in an attempt to stem the tide of the Great Recession.  It worked to some degree, but the real question now is when will it ever rise again?  Or, will it ever rise again?

Rick Reider, a Managing Director for BlackRock, wrote the article "Jobs Report Could Be a Game-Changer for the Fed" and he reiterated what everyone has been talking about every time the economy looks like it has its legs again. That is...the Fed has to raise rates now! Right? But then he goes on to say that with overall inflation in check and some still very core problems with the economy and who it is NOT helping (mainly the low-income wage earner...and much of the middle-class) then maybe they just keep it at ZERO. Isn't 6 years enough to call it the New Normal?  What will happen once the Fed says, yes, let's raise the rate?  The economy will have to be running more than its current walk, and for a more sustained time so that consumers can bear the burden of higher borrowing costs.

Bottom line...it may be the New Normal, but it is bound to change and when it does...it will cost more to buy a home.  Don't wait!  Call me today for a confidential review of your real estate goals.

Update on the Housing Market in Ventura County and Camarillo

In these first few days of February, the markets are feeling better than in times past. Value are up which is good for most existing homeowners and interest rates have continued to remain at historical lows making it a good time for most trying to enter the market or expand their existing real estate portfolio.  While the stock market has recently had some correction, the market has already stabilized after a few days of correction.  This is important because if your wealth isn't in real estate, its in stocks and bonds through your IRA's and 401k's and 529's, etc.  When that portfolio is doing well, you will almost always feel better about taking more risk in real estate.

And that risk has paid off recently!  Values for single-family homes in Ventura County are up by 8.8% from the same time a year ago and some cities are experiencing even greater growth.

Values for single-family homes in Camarillo, for example, are up by 10.5%. However, activity levels are down.

In January, the number of single-family homes sold in Ventura County is down by 1.5% from the same time last year, but it is the lowest number of homes sold in at least the last 5 years.  In Camarillo, the numbers are worse with the number of sales down 8.5% from a year ago and looking back over a 12 month period, they are down by 15.4%.

So, buyer activity is good, but needs improvement.  Many are still not fully committed to buying. Many of the first-time homebuyers (many of which are Millennials) are not pulling the trigger on a home purchase like they have in the past.  Some are just to freaked out by the last wave of foreclosures, many are just now starting to find jobs and feel good about their prospects of keeping their jobs and many just have no plans to buy because they feel it ties them down in terms of job prospects.  In addition, even though lower interest rates have helped the real estate markets, it has also had an affect that I am not sure has fully shown itself yet.  That is, those that own property now, if they refinanced their home at the bottom and are holding a mortgage with an interest rate below 3% or in the low 3% range, they are going to have to really need to move up in order to walk away from it.  As a result, I believe we will see the average time a property is held get extended beyond what we have come to be familiar with.  I can't tell you how many calls I get of current homeowners who want to buy a bigger house, but keep the smaller house and rent it.  That is causing fewer entry level homes to be available and when their are fewer homes available, values have a tendency to rise.  So, entry level demand is low and the supply of entry level housing, both resale and new developments, is lower than we would expect.

But, that has not stopped Sellers from trying to sell into this market.  In Camarillo, the number of single-family homes for sale is up by over 20% from the same time a year ago and over the last 12 months is up by over 42%.  The numbers for Ventura County are almost exactly the same.  So, when your number of sales is declining and the number of homes for sale is rising, the results, generally are a rising inventory of available homes.

In January, inventory levels of homes for sale in Ventura County was up by 21.8% from a year ago and inventory levels in Camarillo were up by 42.7%.  These increased inventory levels are why most economists are predicting values to rise slowly during 2015, but if they continue to rise to higher levels and we don't see more Buyer demand, values, I'm afraid will have to come down.

One additional positive sign is that we continue to see "Bounce-back-Buyers" coming back to the market.  These are people that experienced foreclosures or short sales during this last cycle.  They have re-established their credit, begun to save and are now taking advantage of the reduced timelines for those who experienced this housing distress over the last 6 or 7 years.

It is still a unique time in that it is a great time to buy with interest rates still very low and bound to go up AND it is a good time to sell as values have now almost recovered from their peaks prior to the crash.  If you know anyone who might be interested in taking advantage of this market, please have them call me right away for a confidential real estate evaluation.

Good news for Real Estate..."appropriate policy accommodation"!!!

The stock markets finished the day up 421.28 points yesterday preceded by a good day before that.  It was the largest 2 day gain we have seen in over 3 years.  So what's everyone so happy about?  The Federal Reserve issued their monthly Federal Open Market Committee meeting Press Release where they basically gave all good news.

1. Economic activity is expanding.
2. Labor market conditions continue their improvements.
3. Solid job gains.
4. Lower unemployment rate.
5. Household spending is rising moderately.
6. Businesses are expanding their fixed investments (i.e. their spending money).
7. Recovery in housing continues.
8. Measures of long-term inflation remain stable.

Sounds good to me.  There was basically no bad news in the Press Release.  But, in addition to that, there were 2 key phrases that the stock market cheered.  The first was "The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace...".  What this means is that the Federal Reserve will continue to keep interest rates low.  The stock markets keep thinking that if the economy continues to improve, the supports that the Fed has put in place to carry the economy through the latest recession...mostly keeping interest rates low and buying lots of mortgage-backed securities...will begin to end.  Every time the Fed says things will continue, Wall Street looks at it as free money.

The second phrase in the Press Release from December 17th was "...the Committee judges that it can be patient in beginning to normalize the stance of monetary policy."  This means, first, that the current policy isn't normal.  For interest rates to be this low and for the Fed to be investing so much money in buying MBS', is unusual.  It was a response to an economy in recession.  Most are defining now that the Recession began in December of 2007 and ended in June or July of 2009.  But, you see, that's really the point.  That is really why Wall Street continues to cheer inaction by the Fed.  The Recession ended 5.5 years ago and the Fed continues to prop up the economy.  There are all sorts of questions as to whether or not the gains in the economy are real are just based on the Fed's loose policy.  But that's not what I'm here to answer for today.

The news from the Fed is great for real estate because it means that those First Time Homebuyers who have been sitting on the fence, either because of the lack of confidence in their own job status or because of their doubts about the real estate markets, it gives them more time with lower interest rates to get in the game.  This is what will really bring some stability back to the markets.  While we have worked through most of the distressed sales (foreclosure activity continues to decline back to normal levels and Short Sale activity continues to decline) the last piece to add to get us back to stable growth is adding this First Time Homebuyer.  The Millennials are the ones who don't seem to be participating yet and that is understandable.  Millennials were the largest buyers of homes during the most recent housing boom/bust cycle and it would tend to be reasonable to say that they then were the most heavily burned.  But even if they did not participate or get burned by the recent market crash, they sure saw the pain first hand.  Lack of jobs, moving back in with Mom and Dad, rental rates skyrocketing and heavy Student loan obligations and a continued tight lending market are all reasons for this group to not prioritize housing.

But the Fed's stance on keeping rates low keeps the window open for this group to jump back into a market that has always served our nation and our local communities well.  In Ventura County, in cities like Camarillo, Thousand Oaks, Newbury Park and even Westlake Village and Santa Rosa Valley, home-ownership is one of the things that creates stability and community.  It is the American Dream.  Even though it costs more today than every before, I still believe in the benefits of the American Dream and, apparently, so do the people who serve of the Federal Reserve. We thank you for your patience.

Ventura County Inventory Levels Continue to Rise

Inventory levels of Single-Family homes in Ventura County continues to rise.  The number of single-family homes available to purchase in Ventura County is up 37% from the same time a year ago based on the last 12 months of closings.  

The number of homes for sale is up by 26% from the same time a year ago and the number of closings is actually down by 18%.  So, this gap has created a growing number of homes on the market.  We have seen increases in all areas of the housing market with the exception of the market over $1,000,000.  The inventory of homes available in this market is flat on a month-to-month basis as well as looking back 12 months.  Certainly you know the phrase that "all real estate is local" but that is certainly true here.  While these numbers reflect the general trends, your tract, your neighborhood, your city might look different than this.  So, if you are located in Santa Rosa Valley or Camarillo or Thousand Oaks or if you are located in The Pinnacle or Village at the Park or Lynnmere or Rancho Santa Rosa, these numbers and this assessment may not apply to you.  Call me if you are interested in a more local review of the situation for your particular piece of real estate. 

The biggest drop that we have seen in terms of overall activity is one of the things that I have been concerned about (and that we continue to hear about in the news) and that is the entry-level buyer.  We keep hearing that first-time homebuyers are not participating in this market and the data would seem to support that claim.  Because these buyers are missing from this market, the result has been a decline in the demand for housing in our middle market, where most of activity happens.  Just look at the chart below and see the drop we in had in the activity level in sales from $400,000 and below.  

This market over the last two years has made up over 32% of the total sales in all of Ventura County, yet in October, it only accounted for just under 18% of our total number of sales.  We need to see this market return, otherwise it stagnates the move-up activity and really begins to shut down the real estate markets.  In order for this to happen, we will have to see a drop in the First-Time Homebuyer Affordability Index (FTHB HAI).  The FTHB HAI is made up of three basic ingredients:  Median Home Price, Median Income and Average Mortgage Rates.  All three of these have dropped dramatically during the period of time when the real estate/mortgage markets crashed around 2006.  The good news is that values and mortgage rates all came down but the problem is that so did the Median Incomes in California.  Below, you can see how all three factors were affected during this period of time.  

Median Price

Average Mortgage Rates

Median Income

While we have seen the California Median Income recently come up off of its lows, we did not hit the bottom until the 1st Quarter of 2012.  In order for things to improve for First-Time Homebuyers in areas like Camarillo and Thousand Oaks and Moorpark and Simi Valley and Oxnard and Ventura, we have to see the Median Incomes rise faster than either Mortgage Rates and/or Median Prices.  This means jobs, jobs, jobs!  We need better jobs and we need more jobs.  We need our college graduates to get to work.  Once this starts to improve, I am confident the market will continue to look a lot more normal.  

Have a great day and don't forget to let me know if there is anything I can do to help you, your family or friends with any of their real estate needs.  

Safety in Real Estate...in spite of our fear!

"Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world." - Franklin D. Roosevelt

It seems like our world these days is so unstable.  Maybe it's just me but it seems like everything is in flux.  The stock market hits record high and then plunges. Interest rates are at their lowest levels in the history of the mortgage market yet every day we keep hearing they are bound to jump. What happens to the housing market when that happens?  Real Estate markets in Ventura County and around the US have plummeted since 2006, hit bottom around 2012, jumped by 20-25% over the next 12 months or so and then have begun to show signs of weakening.  ISIS and Al Queda continue to exert their presence on the World's stage causing a heightened sense of fear.  And now we need to be concerned about our neighbor or co-worker or my child's friend coming down with Ebola.  Peak election season always causes worry because politicians on both side convince us to vote for them or their party because of something we should be afraid of.  Fear inspires us.  It motivates us to take action...sometimes to act and sometimes to cower. Fear sells. Fear gets our attention because it makes us sit up and listen. Even in Real Estate it works.  "Buy now before prices go higher." "Sell now before prices drop even further." "Be aggressive with your offer so that you compete with the multiple buyers." "Take this offer.  It might be the only one you get."  See how that works?  Crazy.  

Yet, with all of this fear and instability happening around us, for most of us, we can always find peace and comfort AT HOME. This is the place where we usually find comfort and rest. It's the place we long for. I saw the quote above from FDR and thought it was so true.  He was speaking about the economics of HOME and that is certainly true.  But, to be honest, most of my clients aren't really thinking about the economics when they walk through the door for the first time.  It's more emotional than that.  They are asking themselves questions like..."Does it feel right?" Does it fit my family?" Can I see myself here long-term?" "How's the neighborhood?" "How are the schools?" "Does it have a pool?" "Does it have an attached garage with direct access?" "Is the backyard big enough for my kids?" "Is the backyard small enough that I don't have to spend all weekend caring for it?" Each one of us has our own needs when it comes to housing and that is what makes my job enjoyable.  Each client has a new set of parameters that create the ideal home and it's my job to get as close to that ideal as possible.  Sure, money plays a part.  As FDR says, "purchased with common sense" is important.  Today I suspect he would replace "paid for in full" with "paid for with financing you can afford".  Money is a factor, but once you have hit that parameter, the rest is all emotion.  

During the most difficult of times in real estate when values began to plummet in 2006, the thing I had to remind people who were losing their home is that HOME truly is where your heart is.  I know it is trite, but it's true.  Like any investment, you take risk and most of the time, if you are able to own a home long enough, it will also payoff financially, but when it doesn't you have to remember that HOME is where you are with your family and those who love you.  

I hope you find peace today in your HOME. If you are not at "Real Estate peace" and would like help finding it, please call me for an immediate, peaceful, confidential consultation.  

Have a great day!

Are US Real Estate Markets really rolling?

Today there was an article by Jason Lange from Reuters that the "U.S. housing recovery rolls on as groundbreaking rises".  Here is the link to the article http://www.reuters.com/article/email/idUSKCN0I619U20141017

The article goes on to explain that people are starting to build again.  Normally, people look to this number to dictate whether or not the Housing Markets are strong.  Personally, I think there are other indicators of the Housing Market strength than this number.  Certainly, by itself, it is meaningless.  You have to take into consideration all of the factors before looking at this one number and making a judgement that anything is "rolling" anywhere.  Obviously, being a Realtor, I am always looking for good news to share about the real estate markets. We have been through so many years of pain that all signs of good news come with hope.  However, given how hard the U.S. Housing market got it, you can't blame me for being a little skeptical about the good news especially when the market seems so fragile.  Let me explain.

There are 3 things I am worried about.

1. Yes, values are on the rise.

But, if you look at the data closely, you will see that in Ventura County, the Median Price of single-family homes increased by 43% from December 2011 to July of 2013.  Amazing!!!  But why did that happen? Was it sustainable? Most of the growth during this time frame came from a massive influx of investor capital not only into Ventura County, but into any real estate market that Wall Street Capital thought could produce a return.  Much of this capital was buy and hold strategy taking a lot of the normal inventory off the market permanently, or at least until the strategy turns to "buy-hold-SELL".  What happens then? What happens when Wall Street decides that its time to sell these assets? Will there be enough non-Wall Street buyers to sustain prices? Most think that each investor will have their own thoughts and needs on when it is the right time to sell these assets so the impact won't be as great as the increases I have outlined above.  Since July of 2013, values are only up 1.3%.  This is actually below the rate of U.S. Inflation in August of 2014 of 1.7% as outlined by the U.S. Bureau of Labor Statistics.

2. Interest rates can't sustain these levels.  The article even mentions this when it says that the Housing Market "suffered a setback last year" (right about July of 2013) "when interest rates spiked".

I don't even think we will need a "spike" for rising rates to have an impact on this market.  When the average homeowner has a rate of 3.75% on their 30-year mortgage, will they make the same move-up purchase they would have if rates are now 5%? Will the First-Time-Homebuyer be able to even enter the market if rates are at 6%? I suspect not unless the U.S. economy or the DJIA is up significantly to offset the higher rate.  We will have to see continued declines in the jobless rate and similar increases in the Labor Force Participation Rate and overall wage growth in order to sustain increasing interest rates.

3. My last concern is the increasing trends we are seeing in the level of available inventory.  Inventory of single-family homes in Ventura County is up 58.9% from the same time a year ago. While these levels are historically in line with a healthy real estate market, the increasing trend is far from healthy.  What will happen to these inventory levels when we begin to see the homes that are breaking ground now hit the market? With groundbreaking up 6.3%, per the article, I am concerned that the additional increases of homes available for sale will continue to put downward pressure on home values going forward.

On the surface, things are better.  I am happy Wall Street money came in and injected the markets with some much needed capital, but let's not be deceived by the reality of the situation.  These markets are much more fragile than it appears.  If you are thinking about selling or buying in this market, give me a call so we can sort through your goals and how they fit into the existing markets and, remember, all real estate is local, so your specific market might look completely different than the general markets outlined above.  Call me anytime for a confidential evaluation.  Have a great day!

John Wise