As Goes California’s Housing Market, So Will Go the Nation’s.

Regardless of what the mainstream media sycophants would have you believe, home sales volume and home prices in Southern California are falling… precipitously. As in… both volume and prices are going down.

There are two things I would add to this fact: 1. It’s not just happening here. 2. It should come as absolutely no surprise to anyone.

First let’s look at the latest facts about the Southern California housing market. Dr. Housing Bubble.com, a site that follows the Southern California housing market like no other, is reporting the following…

“Sales volume continues to be exceptionally weak in Southern California.  If there’s been any blind forgetfulness that has fundamentally erased what happened in 2008, then we just got a nice reminder with the sales volume figures from last month. 

The latest data shows that January of 2015 was the slowest January since 2008, which is the record keeping low since 1988. 

In 2008 the market was in full implosion mode and the end result is that 1,000,000+ Californians lost their homes to foreclosure. And the bulk of these people were in traditional mortgages and not your toxic waste junk that made headlines everywhere. 

Sales are down 6 percent year-over-year in SoCal from an already slow January 2014 with Orange County and San Bernardino County both seeing 10 percent annual drops. 

It is also worth noting that the median price in Orange County fell $28,500 in one month.  The current median price of $562,500 is already below the $600,000 median price we saw in June of 2014.  If it weren’t for the 25 percent of investors in the market, the figures would look even dimmer.

The media tends to go with year-over-year numbers.  Haven’t seen much on the short-term drop in prices but I have seen talks about the drop in sales.  But you see from the above figures that a year-over-year drop in median prices is very likely if low sales volume continues.

ALSO… In California, 2.3 million young adults live at home because they can’t afford market rents, let alone buying a home.”

Then, Dr. Housing Bubble.com goes on to say…

“Real estate markets turn at glacial speeds.  What we can say about California housing is that for the last two decades it has followed a consistent pattern with booms and busts.  Sales volume has always declined first before price adjustments. 

What does it tell you that we just had one of the worst January months in terms of sales volume?  Keep in mind the worst January was in 2008 when the market was in full on melt down mode.”

As goes California…

Our housing crisis is a national crisis. That doesn’t mean it’s equally bad across the country, but it does mean that what’s causing the downturn in sales volume and prices is the same thing weighing on the market everywhere.

Home sales volume in 2013 was driven by investors hoping to buy low and rent the homes out, not by actual homeowners. Those investors bid against each other for a limited number of properties, and that caused home prices to appear like they were rising.

By the end of that year, however, those investors slowed or stopped their buying, and absent that investor demand, prices had nowhere to go but down. Not overnight, perhaps, but certainly over time. When demand falls, price follows… it’s just a rule of economic life.

There’s simply no source of buyers anywhere in this country to replace the demand that evaporated when the investors stopped buying. Oh sure, San Francisco’s market is better than what would be found in Phoenix or Florida… after all it’s the land of Facebook millionaires and the like. But, so what and who cares?

Demand is down for all sorts of universal reasons. Most homeowners are still either underwater or effectively underwater, meaning that they can’t sell their homes for a price that will leave them with enough to cover the down payment and moving expenses that they need to buy and move into their next home.  And that’s assuming they can qualify for another loan based on today’s incredibly difficult qualifying criteria.

And there aren’t nearly enough first time buyers to pick up the slack.

There are lots of reasons that first time buyers aren’t showing up, one of which is that it’s so hard for them to qualify for a mortgage today, and other people blame it on high student loan debt, but it’s also because today’s younger potential homebuyers have watched their own parents and relatives lose homes to foreclosure and they’re understandably hesitant to saddle themselves with a 30-year mortgage when they’re having a hard enough time finding a decent job.

So, demand has been down dramatically for years now, and that means prices are sure to follow. The blip up in prices in 2013 wasn’t caused by homeowner demand, but by investors who have long since come to their senses and stopped bidding up prices of homes at the bottom of the market in the hopes of renting them out.

When you look at all of the factors involved, including the numbers of foreclosures, which have been rising all over the place, and it’s not hard to see that we are nowhere near out of the woods as far as the national housing market is concerned. Some places will be hit harder than others, but you can count on prices falling until those demand fundamentals change.

And since we’re not doing anything to change the fundamental problems, we shouldn’t expect them to change by themselves. No matter how much we want that to be the case… the laws of supply and demand are called “laws” for a reason.

Mandelman out.