Desert Hot Springs has a shortage of houses to meet demand. Even though 55 houses were sold in August at an average sale price of $170,038, the average sale price has increased because fewer houses are for sale.

This trend of rising prices and fewer houses reflects a trend all over America. The first half of the year looked strong with home sales and prices rising moderately on top of the gains experienced in 2015. Though prices will continue to rise, sales in the second half have faced more challenges. That’s because too few homes are available to keep up with demand. Total inventory on a year over year basis fell 6 percent in July, the 16th consecutive monthly decline. The level of the supply of houses hit 4.7 months. In contrast, when home prices were falling several years ago, the supply hovered between 10 and 12 months.

The most recent housing crisis was the result of a collapse in demand, which led to depressed home prices and rising foreclosures. The next housing “crisis” will be due to a collapse in supply.

As employment strengthens, more buyers would like to buy but there aren’t enough homes for sale. Home prices are rising at a higher rate than incomes are growing. While income has ticked up a percentage point or two, home prices have been growing by 5 to 6 per year. That in turn is creating an affordability crisis. Somewhat paradoxically, the home ownership rate at 63.5 percent of households is at a 50-year low even though mortgage rates at about 3.5 percent are also at their lowest level in 50 years.

New home sales are rising in the second half of this year as builders boost construction. Between 700,000 and 800,000 single family starts in the year ahead. That’s a marked improvement from just a few years ago when  housing starts were a fraction of the historical norm. Still we need about 1.5 million starts annually because of the country’s expanding population and the expanding population here in Desert Hot Springs.

In the meantime, affordability issues will likely hurt exising home sales. That’s even more likely to be the case if interest rates start edging up. Only when supply reaches closer to six months – the definition of a balanced market – will we see the best of all worlds: rising new home sales, rising existing home sales, rising home prices and a rising home ownership rate.

Call me for a look at the different neighborhoods in Desert Hot Springs, California. Come for the hot mineral waters, stay for the stars.

                                                                             Adapted from Lawrence Yun, “A Continuing Shortfall of Homes” in Realtor, Sept/Oct 2016

 

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The Indian, at Cabot’s Museum in Desert Hot Springs.

 

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