CAUTION --- INVENTORY AHEAD!
Are you an investor who routinely includes a generous appreciation allowance in your investment projections? Are you a "flipper" whose business plan only required a very short holding period for resale? Well, take a closer look, recent research data is the very real equivalent of a "yellow flashing caution light."
The latest research from the Office of Federal Housing Enterprise Oversight (OFHEO), noted economists, and the Realtor's associations shows a dramatic cooling of the national, regional, and local housing markets. "Indeed, "said OFHEO Director James Lockhart, "the deceleration (of housing appreciation- ed.) appears in almost every region of the country."
Let's directly report this for the Inland Empire area of Southern California. Recent sales figures continued to show a median price increase over 2005 with Riverside County showing a 7.5% appreciation and San Bernardino rolling in with an 11.6% increase. But, the real drama unfolds in the roller coaster-like plunge in sales activity --- the number of units sold in July 2006 suffered a 42% decline from the prior year! This is the sharpest year-to-year decline since the early 1990's.
In addition, the Multi-Regional Multiple Listing Service reports 32,782 homes were listed for sale in the Inland Counties in July 2006 compared to 11,932 only a year earlier. The current level of inventory of homes on the market is a full eight months supply, compared to a 2 ½ months supply just last year. For perspective, however, in the real estate downturn of the 1990's in Southern California there was an 18 month supply.
Accordingly, new investors into this market should move very cautiously, and fully exercise negotiating skills to test the price levels available. Current rental owners in the area are on strong footing with an overall average apartment vacancy rate of 5%, among the nation's lowest. Rents have marched upward a strong 7.4% over the last year with an overall average rent in the Inland Empire hitting $1087.00. The very real, and very strong, real estate sectors in the area are currently the non-residential areas of the market, with Office, Industrial, and Retail all posting robust gains in activity.
In summary, the Inland Empire still continues to be poised for growth, although it is not immune to the national real estate slowdown and rising interest rates. Noted regional economist John Husing, indicates that "Prices will rise as the region's most affordable market continues to play catch up (with the coastal markets-ed.) However, the overall rates of increase will be slower as many speculators and some families that used creative financing find they need to sell."
Astute long-term investors will recognize a market shift and position accordingly, recognizing that a "caution sign" is not a "red light stop".
