10 reasons to buy a California home sooner rather than later
Let me take on a role usually in the wheelhouse of the real estate industry and say it feels like a fairly good time to consider buying a California home.
I do this as a public service. It seems the leadership of many statewide real estate groups is way too busy painting worst-case scenarios in order to fight political battles in Sacramento.
I’m not sure how scaring off potential California house hunters is good business for the real estate craft, in the short run or for the long haul. Is it a shock home sales languish at modest levels and homeownership is stagnant following relentless “unaffordable” and “shortage” messaging? Could you image car dealers blaming lackluster sales — and they’re now suffering a slump, too — on a poorly-priced product?
Look what Jordan Levine, deputy chief economist for the California Association of Realtors, recently told this news organization: “No one can afford houses even at lower rates. It was out of reach before. It’s not going to be more affordable now.”
Really? Nobody? In a state with roughly a half-million homebuyers each year? You know, in other consumer-facing sales businesses — usually called “retailing” — when things are slow you have a sale! And in some ways, that’s quietly what’s ongoing in California real estate.
It’s not easy for this jaded journalist to conclude current buying conditions are favorable amid mounds of economic gyrations, partisan noise and the much-debated “affordability” issue. Yes, I’m aware that California homeownership isn’t a reality for numerous folks, especially for singles and those with dings on their credit history. And, yes, down payments are a critical roadblock.
Thus, I say “buy” knowing it’s not an easy process and there will be more bumps to come. But let me share 10 reasons you might want to buy sooner rather than later.
1. Bosses are hiring … Forget all the industry-centric real estate statistics that are too-frequently debated. Real estate is first and foremost about “Jobs! Jobs! Jobs!” And California continues to be a jobs-creation machine. In the five years through 2019’s first quarter, bosses statewide added 4.2 million jobs — No. 1 among the states. That adds up to California bosses growing their staffs by 32% in the period vs. 29% nationally. Unemployment? At record lows, nearing 4%. Dear house hunters, without a job there is no hunt.
2. Wages are up, too … Pay matters. And while not every newly created job generates homebuying cash flows, many new opportunities are coming with better pay. California’s average weekly wages in 2019’s first quarter ran at a $72,800 annual rate — No. 5 nationally. And over five years, that’s up 21% — easily topping 14% gains nationally and the third-best raises among the states. More jobs with more pay translate to more purchasing power, especially in households that have two breadwinners.
3. Low, low rates are not forever … A record-breaking drop in mortgage rates — back below 4% again — makes for historically cheap money if you’ve got the household creditworthiness to qualify. And while we’ve seen this on-and-off the past few years, don’t assume it’ll always be that way. Since 1971, when Freddie Mac started tracking mortgage costs, a below 4%, 30-year fixed-rate was available just 9% of the time. And for those folks waiting for a potential price pullback to buy, remember this: you’ll need prices to drop 11% to make up for the monthly cost of a 1 percentage-point jump in rates.
4. Lenders are lending … If you can’t get a mortgage, who cares what the terms are! And while this isn’t the easy-money days of a decade ago it also is NOT like the tight-money era after last decade’s market crash. The Urban Institute’s yardstick of mortgage availability shows lenders’ willingness to lend in the first quarter of 2019 at its highest level since 2013. Who’s eager to lend? Seek out non-traditional lenders or traditional banks building up their in-house loan portfolios.
5. Price appreciation is cooling … Yes, California home values are expensive and have risen 39% in five years vs. 33% nationally. But for those considering out-of-state purchases, the eye-catching gains are elsewhere: 11 states topped the Golden State’s five-year appreciation rate, including popular destination for ex-Californians. Nevada prices are up 63% in five years, then Idaho (60%) and Washington state (57%).
6. Multiple offers are also out of style … California bargains may be rare, especially at lower price points, but at least there’s some supply to choose from. Note a slightly above-average inventory of existing homes on the market as of Oct. 3: 34,456 listings in broker networks for Los Angeles, Orange, Riverside, and San Bernardino counties, according to ReportsOnHousing. That’s slightly above the average listing count of 33,882 for this time of year since 2012. Please note: new escrows are up 14% in a year, so certain buyers are noticing the turn in the market.
7. It’s not build-it-and-they-will-come but … Nobody’s building like yesteryear. And, yes, California builders have filed permits to build single-family homes in the past five years at a pace that’s half of the historic production. Still, homebuilding’s up 85% above the post-recession low and has run at the fastest rate in nine years. Plus, builders have had trouble selling lately, especially those fancy low-seven-figure models. So price cuts, freebies, and ready-to-move-in homes (ahem, unsold standing inventory) are available.
8. Yes, we’re having a sale … It’s amazing what “normal” inventory does. It’s no longer a seller’s market, so house hunters have room to haggle. Ponder that five of the 11 big metro areas with the steepest jumps in price reductions this year were in the Golden State, according to Zillow stats. Listings with price cuts jumped 115% in a year in the San Jose area; 67% in San Francisco; 31% in San Diego; 28% in Los Angeles and Orange counties; and 18% in the Inland Empire. So “asking” price is just that: the seller’s wish list!
9. Thus, relative “affordability” … I’m no fan of numerous “affordability” indexes that are a poor portrayal of financing conditions. Still, ponder a California Association of Realtors’ index that attempts to replicate such conditions for first-time buyers. It showed 47% of households statewide theoretically “qualify” to buy a starter home. Ignore the mathematical logic and note that this “affordability” benchmark is down from 73% in 2012 … But who was willing to bet on housing just after the Great Recession when statewide unemployment ran at 10%? Compare the latest “affordability” reading with pre-bubble conditions: In 2000-06, 43% “affordability” was the norm. So history says, on perhaps an odd scale, these are not incredibly “unaffordable” times.
10. And, finally, your landlord … California homeownership is not risk-free, nor cheap. But it can offer certain cash-flow certainties that renting cannot. So far in 2019, the cost of renting in Los Angeles and Orange counties rose at the fastest pace in 14 years — 5.5% — according to the Consumer Price Index. It’s only slightly better in Riverside and San Bernardino counties: up 4.3%. You need shelter. Do you want to make a landlord wealthy, or take your shot at home-owning success?
So if you’re “on the fence,” don’t forget one slightly discussed ownership advantage. Oh sure, most folks know a chunk of that hefty monthly house payment still can be tax-deductible — especially mortgage interest and possibly property taxes.
Yet there’s this other large slice of that check to the lender — what’s called “principal reduction” — that’s actually you paying yourself. That cash can likely be later accessed either with a second mortgage or when you sell your home.
Before I go, I will add caveats to my buy-now thesis.
Various domestic and geopolitical risks are out there. But if such anxieties vanished, you’d be fighting off crowds of eager house hunters.
And no matter what historic patterns you study, or what any snapshot of current market conditions tell you, there’s also an equally quantifiable factor: economic hiccups, market surprises, political stupidity and downright disasters can occur.
But if you want guarantees in life, here’s a few: Death. Taxes. And the rent will rise.
By JONATHAN LANSNER