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Sunday, December 16 , 2018, 11:47 pm | Fair 52º

Real Estate

Alec Bruice: The 2016 Housing Market Is the ‘New Normal’

On Feb. 10, 2016, Leslie Appleton-Young, vice-president and chief economist of the California Association of Realtors (C.A.R.), presented her 2016 Economic Forecast to the Santa Barbara Association of Realtors, in which she described the current housing market as the “new normal.”

Appleton-Young identified 2013 as the peak of this market cycle in terms of the intensity of the market, number of sales with multiple offers and price appreciation.  

Price appreciation has slowed from 20-30 percent in 2013 and 2014 to mid-single digit increases last year. In 2015, California price appreciation was 6.5 percent.  

“Our recovery was complete in January 2014, and now we’re in the new normal. I don’t think we are still in recovery,” said Appleton-Young.

According to Appleton-Young, one of the positive things about rising prices during the recovery is that homeowners who were “under water” in 2009 can now breathe.  

In January 2009, 70 percent of the sales in California were distressed sales; today it is only 6 percent of the sales.

In 2009, 60 percent of homes sold in California were REO (bank-owned); today it is 3.3 percent.  

Currently, the housing market is strong in terms of the fundamentals underlying demand — job growth, income growth and lending standards that have become more reasonable.  

However, housing inventory remains low. Appleton-Young noted that in California we need 165,000 new units per year to meet demand, and we have not seen this level since 2006.

Another reason inventory remains low is that baby boomers are not selling. They have low mortgage rates if they refinanced in the last couple years, and they have low property taxes if they purchased their homes 20 to 30 years ago.  

Additionally, many baby boomers have more equity in their homes than the $250,000 or $500,000 capital gains exclusions allow; therefore, they are choosing to stay in their homes rather than pay capital gains taxes.

Appleton-Young noted that in the mid-1970s California experienced 8-9 percent turnover in housing; today 4.2 percent of the housing inventory is turning over.

According to a 2014 C.A.R. survey, 75 percent of California baby boomers are homeowners, 92 percent have equity in their homes and 59 percent are not planning to move.  

However, 55 percent of boomers are worried about their children’s ability to purchase a home in California, and 43 percent want to help their children buy a home.

The C.A.R. survey also found that of the millennial generation (ages 18-34), 20 percent own homes, 36 percent live with their parents and 40 percent rent.  

Surprisingly, 45 percent of the millennials surveyed did not know whether they could qualify for a mortgage.

In discussing the baby boomers’ desire to help their children recognize the American dream of homeownership, Appleton-Young noted that for people without inherited wealth, homeownership over the long run is the best way to build wealth.

Alec Bruice is a licensed real estate broker with Santa Barbara Brokers and the 2016 president of the Santa Barbara Association of Realtors. Contact him at [email protected] or 805.637.5774. The opinions expressed are his own.

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