A total of 331,520 homes sales have closed thus far in 2012. Home sales were up in the first three quarters of 2012, mainly due to speculator/cash activity. Sales are, however, expected to fall in the fourth quarter. first tuesday forecasts 2012 will end with a total home sales volume equal to 2011 totals. The current sales volume will slide, bottoming out in 2013.
The bumpy plateau recovery pattern continues. It will be broken only after nearly 24 months of sufficient and sustained job growth, ending around 2016. Progress is being made on that front, but January 2013 will give us a better vantage point.
Jobs move real estate
Other key factors controlling California’s housing market:
Absentee homebuyers: to hold or to fold?
Absentee homebuyers (speculators, buy-to-let investors and renovation contractors) accounted for 27% of Southern California (SoCal) September sales. This is up slightly from August 2012, and near the February 2012 high of 30%. Absentee homebuyers made up 24% of Bay Area homebuyers in September 2012, slightly higher than August 2012 and up from 22% one year earlier.
Cash purchases (mostly speculators) represented 32% of SoCal sales, down slightly from August and up from 29% one year earlier. 28% of Bay Area sales were cash purchases in September 2012, up marginally from August and up from 27.5% in September 2011.
In SoCal, the number of homes sold more than once in a six-month period increased slightly to 5.5% in September 2012. One year earlier, quick-flips made up 3.3% of all SoCal home sales. Bay Area flips rose slightly to 3.9% in September 2012, up from 2.7% in September 2011. Speculators will remain motivated to buy only so long as home prices continue to rise. Time will tell whether these highly optimistic expectations are to be justified. The likelihood is dimming.
If short-term speculators realize they cannot make as quick a profit as anticipated, they will leave the market. The inventory they leave behind will be consumed primarily by the demand of owner-occupant homebuyers. Demand for single family residences (SFRs) by owner-occupant homebuyers is lower than current sales volume.
Jumbo loans: room at the top
Jumbo loans (loans over the old conforming limit of $417,000) accounted for 21% of September 2012 sales in SoCal. This is up one percentage point from the prior month and up from 18% one year earlier. Jumbos made up 37% of Bay Area sales, down two percentage points from last month and up from 32% a year earlier.
Jumbo use has risen statewide since 2009. Use continues to rise as high-end property is becoming right-priced by sellers. Despite this increase, jumbo use and related sales remain far below their peaks in the 2006-2007 boom.
FHA Loans: phase out has begun
Federal Housing Administration (FHA)-insured loans made up 25% of SoCal mortgage recordings, down slightly from last month, and down from 32% one year earlier. FHA use in SoCal is at its lowest level since late 2008. FHA-insured loans made up 16% of Bay Area mortgages, up slightly from August 2012 and down from 22% in September 2011.
first tuesday anticipates the percentage of FHA-insured loans will steadily drop through this recovery and hit a bottom around 2018. The FHA has been increasing its insurance premiums. More expensive FHA loans make conventional loans with private mortgage insurance (PMI) more appealing. Nonetheless, FHA-insured financing remains popular among determined first-time homebuyers with low savings and low credit.
FHA, PMI, or neither?
ARMs: holding lenders at bay
Adjustable rate mortgages (ARMs) made up 6% of all SoCal mortgages, level with August and down from 7% a year ago. ARM use in the Bay Area was at 12% in September, up slightly from the prior month and down from 13% one year earlier. ARM use will remain relatively low until prices rise. Then ARMs will increase as agents push homebuyers to over reach on amenity value.
Re: California September Homes Sales from DataQuick