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Yuba City real estate market forecast...

March 15, 2015

We also provide an assortment of charts showing local and regional sales and price information.

Sales activity is moderate and housing inventories remain low. Although building activity has increased, it is still not keeping pace with increases in the population. The economy continues to grow but housing affordability remains low. Expect to see modest increases in home prices in the near term.

In the longer term, the housing bubble currently forming in the Bay Area will force many home buyers out of that market. Expect home prices in the Sacramento Valley, including Yuba City, to rise dramatically as well paid Bay Area home buyers come over the mountains in search of more affordable housing.
In speaking of a bubble forming in the Bay Area, it should be noted that there is no expectation that the bubble will burst anytime soon. Bay Area inventories remain quite low. Additionally, bubbles take years to form and we have not even begun to see the spike in home prices that characterizes the boom phase of a bubble. Yuba City's median home price was $101,350 in April of 1997 and peaked seven and a half years later at $352,950 in November of 2005. The current market bottomed at $128,000 in February of 2012 and was at $218,000 in February of 2015. Inventories here remain low and sales are moderate - the current market also does not show any of the symptoms of a market on the verge of collapse.

Positive Market Factors
Negative Market Factors
1. California is prone to housing bubbles because its restrictive growth management laws and high building fees cause artificial housing shortages. These housing shortages, combined with an improving economy eventually lead to rapidly appreciating home prices, speculation and over building. The bubble bursts when sales slow because too many prospective buyers are priced out of the market and the over building has created a glut of inventory.

Randall O'Toole wrote a lengthy paper titled "How Urban Planners Caused the Housing Bubble." While he didn't absolve Wall Street Banks, the Federal Reserve, bond rating companies and the Community Reinvestment Act for problems they created, he pointed out that all of these had a nation wide impact but, in spite of this, most states did not have housing bubbles. Further, all of the states that had housing bubbles (except Michigan and Ohio where there was a collapse in the manufacturing sector) had government created artificial shortages of housing. Most notable on the list were California, Nevada, Arizona and Florida. O'Toole predicted that all of the states that had housing bubbles would experience future housing bubbles as long as they continue to obstruct the free market with restrictive growth management policies and/or high fees.

2. Forces are building for another housing bubble;
  1. The San Jose Mercury News ran a story on July 13, 2014 titled "Bay Area home builders struggle to keep up with demand."  It indicated Bay Area developers were paying $3 Million to $5 Million per acre for development land.
  2. It ran another story on November 2, 2014 titled "Modest Bay Area homes hit mind-boggling prices." That story detailed one unspectacular 992 square foot Palo Alto home that sold for $3 Million.
  3. The Case-Shillar index for all three California cities tracked by THE WALL STREET JOURNAL (San Diego, Los Angeles & San Francisco) on it's "U.S. Housing Market Tracker" show a bubble forming.
  4. The Sacramento Bee ran a story on November 30, 2014 titled "Investors scoop up apartments as rents rise, vacancies fall in Sacramento area." That story reported that rental vacancies in the Sacramento had hit a record low of 3.8%.
  5. The number of homes listed for sale in all of Sacramento County dropped from 3,329 active listings November 1, 2014 to 2,237 active listings on February 1, 2015.
3. Scarce inventory: There are only about 310 homes listed for sale in Yuba and Sutter counties today. Importantly, this number has been declining since September 1, 2014 when there were 469 homes listed for sale. There were 1,048 homes listed for sale on September 1, 2006.

4. Sales activity is moderate. We have averaged about 165 sales per month for the last year. This compares to about 150 sales per month in 2013 and only 80 sales per months during 2007. There are currently about 1.4 months inventory on hand.

5. Thirty year fixed interest rates have been at or below 5.0% since January of 2009. These are the lowest interest since at least 1971. Today's rate for a 30 year fixed rate loan is about 3.71%.

6. Historically, California's population has increased by 250,00 to 300,000 people per year because people are being born faster than they are dying. This does not include inward or outward migration. Assuming no net inward or outward migration,, it means that California should be building about 125,000 new housing units a year. While there was significant over building before the housing bubble burst (nearly 210,000 new units in 2005), we have not kept pace in the last eight years. According to figures from the State of California, we have averaged about 67,000 units per year from 2007 through 2014.

7. The rate of household formation has had a significant impact on the market in the past decade. The Mortgage Bankers Association reported on 4/7/2010 that "1.2 million households were lost from 2005 to 2008, despite the population increase of 3.4 million..." as financially strapped families moved in with friends and relatives. Recent reports indicate that the rate of household formation has returned to normal levels.

8. Corelogic reported in it's 2014, third quarter report, that 90% of all mortgaged residential properties are above water. This number was less than 60% at the depths of the housing recession. The pool of homeowners who can sell their existing home and purchase a move-up home continues to increase.

1. California housing affordability remains soft. The California Association of Realtors released data showing a slight improvement in affordability during the last quarter of 2014 but that was still lower than the figure from a year earlier. The most recent index indicates that 31% of homebuyers could afford a median priced home. It's the seventh quarter in a row that the index has been under 40%.

2. The unemployment rate is dropping but that is due in part to people who have stopped looking for work. A different measure is the Civilian Labor Force Participation Rate. This has been dropping steadily since the beginning of 2009 and explains in part why the economy isn't improving more robustly given the declining unemployment rate.

3. Higher prices have taken most investors out of the market.

4. Federal rules regarding Qualified Mortgages (QM) went into effect in January of 2014. Whereas interest rates affect how much home a buyer qualifies for, the new and tighter QM rules have caused some buyers not to qualify at all.

5. Budget problems are likely to persist at the city and county level as increasing revenue is being offset by higher medical insurance premiums and retirement benefits. This will limit salary increases and the return of previously laid off workers.

You can see the latest real estate market charts to get a bird's eye view of the Yuba City market.


What Clients Are Saying

quotes"I have nothing but great things to say about Lloyd and his wife, Tracy. They sold my home in four days and helped us get the home that we wanted. He followed up on all details above and beyond anything I expected. He has my highest recommendation.
- John


Lloyd Leighton Realtors

Address: 1212 Highland Avenue
Yuba City, CA 95991-6115

Phone: (530) 671-6152
Fax: (530) 671-3904

Cal BRE Lic. #00951505