We keep track of Pasadena’s real estate market, which often differs from what the media reports for the nation and the state of California. Here is a look at February’s national and Pasadena markets. See here for a look at California’s market.
U.S. Real Estate
Homes for sale continued to be in tight supply almost everywhere in the nation, especially for affordable properties in good condition. And qualifying for a mortgage remained generally difficult under tight qualification standards used by financial institutions. Housing experts are paying close attention to economic and demographics for clues about the three generations who account for almost all home purchases – Baby Boomers, Generation X, and the Millennials.
The major problem for Millennials is the lack of a down payment. Further, these people are faced with a job market with too few good paying jobs.
Dowell Myers, professor of Urban Planning and Demography at the University of Southern California’s Price School of Public Policy says, “I’m on record as saying we have a rendezvous with destiny between the Baby Boomers and the Millennials. Eventually, the Boomers are going to be sellers and they will be selling to the Millennials. The fact that the Millennial generation is stuck in the starting blocks I view as very worrisome. It critical to get them started now so they can build a track record of homeownership and accumulate equity so they’ll actually be able to move into those Baby Boomer homes when the time comes.”
In any event, the national outlook for the next six months looks good with some caution –
- Extremely low inventory, especially for affordable homes that are move-in ready
- Tough credit standards making it difficult for those important Millennials to qualify for a mortgage
- Appraisal issues relating to values, especially in states where prices are rising rapidly (including California)
- Slowing demand from international buyers brought on by the effects of the strong US dollar.
- Negative effects of impending increase in mortgage rates.
Pasadena Real Estate
We saw in Pasadena a seasonal slowdown in the number of properties coming to market last November, December and January. We thought it was a seasonal downturn, but the pace was slower than the same period in 2014, so we were cautious about this year. The February numbers are encouraging in the number of homes on the market – up from January (6.5%) and up from last February (20.7%) Further, the number of pending sales is up a lot – 39.4% from last month, and up 17% from a year ago. Pending sales are those in escrow but not yet closed. An upward trend usually means that the number of sales will increase over the next 30 to 60 days.
The number of homes sold in February was lower than any month since last February, but February is typically the slowest month for closings. This February was a tiny bit better than last February – 81 sales this year; 80 last year.
A very big number – the average price per square foot of a sold Pasadena property is $530, higher than any month for which we have numbers – we looked back to 2001!
Monthly Inventory last August was under two months’ supply, but since then the supply has increased slowly and in February is up to 3.5 months, higher than we’ve seen in quite some time. That means more homes for buyers to choose from and if the trend continues it probably is a good thing – we need homes for sale to satisfy demand. Remember that multiple offers means that one in five or six buyers is successful while the remaining buyers wait for the next home to come to market. If inventory increased, more buyers will be satisfied, and the market will gain strength. Let’s pray for six months’ supply of homes!
There is a bit of good news in regard to those Millennials too —Fannie Mae and Freddie Mac have begun to ease lending restrictions and came to an agreement with the FHFA (FHA) aimed at loosening the lending standards that have pushed many would-be home buyers off the market. Those who have a less than perfect credit are finding it a bit easier to qualify for a loan, and mortgages should become more affordable for the masses.
Furthermore, the change in policy has reduced the FHA minimum down payment from 5% to 3%. We tie this to an improving job market. Now to find the down payment money for our wave of first time home buyers and we see a rosy future ahead. Stay tuned for our March report soon.