Market Study


This is a projected analysis of economic growth through 2017 compiled through key global resources, including Goldman Sachs, Wall Street Journal, Forbes, and Bloomberg. Notwithstanding, this is our opinion.

These are our projections and estimations for the coming year in our market.

Ongoing local market growth underpinned by a longer-than-normal expansionary cycle.

When considered as a national whole, analysts’ assumptions and economic projections result in a ‘slow’ pace of market growth that’s not necessarily reflective of southern California: The local economy has a diversified foundation and indications point to continued strength.

We are speculating annual property value appreciation is expected to continue around 3% in the luxury markets, and roughly 7% in tertiary markets. Other markets that we serve are secondary home markets which are experiencing lower pricing due to increased pressure from additional inventory. The benefit of this will be expressed through increased transactional volume as a result of simply lower prices.

As a result, we can expect beneficial changes to the US Tax Policy, deregulation (Dodd-Frank among others), fiscal expansion and stability in oil prices. We believe these economic benefits will translate into the increased valuation.

Hold fast and be attentive to real estate opportunities. While policy uncertainty drives volatility, it may be mediated by deregulation and more favorable tax policies, and forces holding back market activity will eventually subside, making this a favorable time. While we see the glass as half-full, we are aware of the myriad of influencing factors, global and domestic, with international markets contributing to the increased volatility. The collective impact of these risks, however, is not sizable enough to undermine our projections.

In conclusion, we want to make it clear that increased volatility due to our present political situation will continually skew market activity. Overall, all indicators suggest a very positive year for the real estate market. Most importantly, we cannot emphasize enough that removal of regulatory constraints such as Dodd-Frank may even accelerate these positive market conditions.

Below is a graph courtesy of Goldman Sachs.
(click image for print file.)

As we have consistently communicated, housing is not an island and all markets carry an impact. What is compelling is that low-risk investments (S&P 500) are mimicking our projected price increases for luxury housing (3% projected increase). Similarly, higher-risk investments (Emerging Markets Equity) are mimicking secondary and tertiary markets that we serve (7% projected increase). Simply stated, a house on the water has a high intrinsic value, where a house 200 miles away from the water has less intrinsic value in higher risk parameters.

Market projections stated herein are in no way guarantees of future market results. Past performance of any market is not indicative of future market results. All buyers and sellers are encouraged to do their own due diligence prior purchasing or selling real estate or making any investments.

Market Study 001

As indicated by The Wall Street Journal this week, California ranks 49th in the country for housing inventory per capita. This should not come as a shock to many of you as you make the decision to place your home on the market or make an offer on property.

The study agglomerates all California markets into one figure — it is important to understand inventory constraints in our specific markets in relation to local population. For the purposes of this analysis, we will use households instead of population to more accurately reflect inventory per household.

There are 4,871 active listings throughout the nine cities of the greater Desert communities — 346,000 residents and 161,147 households, making for 33.8 households per active listing.

However; in both markets, the average days on market indicate that both buyers and sellers are staying put at the moment. This could be attributed to a variety of political and economic factors, ranging from administrative uncertainty to seasonal stagnancy.

Regardless of the cause, we are all experiencing a seasonably slow market, likely to be followed by a spring time rally where the “hold-off” buyers and sellers from the winter market joining spring buyers/seller.

A recent article in The Wall Street Journal intimated that the recent drop-off in inventory is attributable to rising mortgage rates. While there is some truth to this in the aggregate, coastal residents (current and prospective) should consider how strong of an impact.

Rising rates impact median income earners and sub jumbo markets vastly differently than luxury, destination, and coastal markets. In general, a rate adjustment will impact those on the margin of affordability.

Higher rates translate into a slightly more expensive investment for buyers in luxury, destination and coastal markets, whereas the same adjustments can flat out disqualify sub jumbo and/or median income individuals in other parts of the state and counties we serve.

Another interesting parameter to analyze is how rising conventional and government loan interest rates impact the rates and loans taken on by clients in our market. The vast majority will be portfolio jumbo products that, while impacted by the same economic forces that would precipitate a global adjustment in available rates, will not follow the same behaviors as lenders who depend purely on the secondary mortgage market for recompense.

The combination of these two and likely dozens of other factors indicate a positive outlook for the coastal and destination markets, regardless of aggregate rate changes.

Primary residence sellers who are cautiously waiting for rates to stabilize because they — 1. don’t want to diminish the affordability of their next home, and/or — 2. are uncertain of who will be able to buy their current home, should feel confident that rate fluctuations will not impact their transaction with the same magnitude as other areas.

Similarly, primary and secondary residence buyers should feel motivated by the changing landscape to act now on what is available; as the long-term gains in equity through appreciation will likely far overshadow minor changes in rate.