By Rick Tobin
13 of the Top 20 hottest or booming housing markets in the nation are located within the state of California as of March 2016, per the National Association of Realtors. In spite of the incredibly high rates of taxation, business license fees, gas prices, and the outrageously expensive cost of living in California, a high number of prime California housing market regions are still prospering and thriving. In most cases, the top housing market regions in 2016 are near the coastal regions, but there are a few exceptions as well in other hot regions on this Top 20 list such as Denver, Colorado and Dallas, Texas.
The spring buying housing season is traditionally one of the best times of the year for both buyers and sellers. The 1st and 2nd quarters for 2016 are off to a great start, regardless of ongoing negative economic data trends, wars and other world conflicts, and increasing rates of inflation coupled with the declining purchasing power of the dollar. Hopefully, this solid spring housing season may later continue onward with a great summer selling season as well.
The National Association of Realtors’ website (www.realtor.com) reported that the median list price for March 2016 was $238,000. This median list price was up 3% as compared with the month prior in February. The March 2016 numbers were up 8% over the March 2015 median list price one year earlier.
The trending higher list prices are also inspiring more sellers to place their homes on the market as noted by the slight increase of 3% in the number of listings in March over the February 2016 listing numbers. However, the March 2016 listing numbers were still 2% less than the listing numbers two years earlier in March 2014. The tight home inventory listing numbers, or the declining number of home listing inventory numbers as compared with past years or decades, continues to push home prices skyward, regardless of any negative employment or economic data.
Banks and mortgage loan servicing companies may likely be holding onto their distressed and / or foreclosed “Shadow Inventory” homes, or quietly selling them off in bulk to institutional investors such as hedge funds, investment banks, or to crowdfunding platforms for real estate. If so, then many of these homes may never reach the MLS directly prior to their typically “all cash” sales. Other banks or investors may be renting out their “Shadow Inventory” homes instead of listing them for sale, which is partly why the listed unsold home inventory numbers remain relatively low.
Per Realtor.com, the average listed home is selling at a fast pace if priced right as confirmed by the median time range of just 77 days on the market. During some stagnant or “bust” periods of time over the past several decades, some unsold and listed properties might have lingered on their local MLS for three, six, nine, or 12 + months before any buyer prospect began to show an interest.
Amazingly, today’s median listing times periods are closer to just 11 weeks from start to finish (a posted listing on the MLS up until the close of escrow). The 77 day median list time nationally for March 2016 was 20% faster than the median list time one month earlier in February 2016. The 77 day median list time for March 2016 was also 13% faster than the previous year in March 2015 for shorter listing and escrow time periods.
Many of the hot or fastest-selling housing markets below have properties selling for well above their list prices, and selling much quicker than even the relatively short national median list time of 77 days. When demand for a product, service, or asset like real estate exceeds the available supply, the prices usually jump very high in a relatively short period of time.
The Hot Housing Market List
1. San Francisco, CA
2. Vallejo, CA
3. Denver, CO
4. Santa Cruz, CA
5. Dallas, TX
6. San Jose, CA
7. Santa Rosa, CA
8. Sacramento, CA
9. San Diego, CA
10. Stockton, CA
11. Colorado Springs, CA
12. Oxnard, CA
13. Eureka, CA
14. Modesto, CA
15. Raleigh, NC
16. Boston, MA
17. Los Angeles, CA
18. Boulder, CO
19. San Luis Obispo, CA
20. Lafayette, IN
Inflation, Low Rates, and Home Appreciation
The combination of inflation and low mortgage rates usually leads to much higher compounded rates of home appreciation. For owners of property, high rates of inflation and appreciation are welcomed and appreciated. For buyers or tenants, however, the skyrocketing purchase and rental prices are not liked much at all.
Rapidly increasing rates of inflation are not very helpful for our consumer purchasing power for basic goods and services like food, utilities, dining at restaurants, or gas or transportation prices. However, the best traditional hedge against inflation is, was, and probably always will be something called Real Estate. This is true partly because home values tend to increase at least as much as the reported annual rates of inflation.
Using the old investment formula called The Rule of 72, investors can quickly calculate how soon their investment will double in value by dividing the number 72 by an estimate of annual appreciation gains. In many boom markets over the past few decades, especially in California and other popular housing regions across the U.S., values have appreciated by anywhere between 7% and 10% per year over the period of five to 10 + years.
A home that appreciates at 10% per year (72 divided by 10 = 7.2 years) may double in value every 7.2 years during a more solid economic “boom” era. Another home that appreciates 7% each year can double in price every 10.2 years during a relatively strong economic time period. Or, a home appreciating in value just above the historical inflation numbers at 5% per year is quite likely to double in value every 14.4 years.
Over the past 50 years or so, a significant amount of family generational wealth has been created by buying and holding onto one, two, three, five, 10, or 20+ homes while benefiting from the magical power of compounding inflation and homes appreciation gains. During a 30-year mortgage term, a home can double in value two, three, or four plus times. The quick or slow appreciation percentage rates for homes and other types of real estate are dependent upon a wide variety of factors such as buyers’ demand, the availability of affordable third party loan sources, the local housing inventory supply, quality property location, and local and national unemployment trends.
While the most common mortgage loan is typically for a 30-year term, the average hold time for a mortgage on a home is 10 years prior to the homeowner selling the property, paying it off in full, or refinancing with another new mortgage. This is a major reason why the 30-year fixed rate is tied directly to the movement of 10-year Treasuries, or the 10-Year Treasury Constant Maturity Rate. In recent years, 10-year Treasuries have hovered at or near all-time record lows right alongside 30-year fixed mortgage rates.
The most important factor which usually determines whether or not a housing cycle is positive, negative, or flat is directly related to the cost and the ease of availability for third party capital sources such as banks, credit unions, and private money funding sources. Let’s review the 30-year fixed mortgage trends at the start of each year over the span of a decade between 2006 and 2016 below:
Historical 30-Year Fixed Mortgage Rate Trends (January 2006 – January 2016)
January 2016: 3.87%
January 2015: 3.67%
January 2014: 4.43%
January 2013: 3.41%
January 2012: 3.92%
January 2011: 4.76%
January 2010: 5.03%
January 2009: 5.05%
January 2008: 5.76%
January 2007: 6.22%
January 2006: 6.15%
(*Source above: http://www.freddiemac.com/pmms/pmms30.htm)
Will these Top 20 “hot” housing regions continue to prosper or boom over the next year? Which of these top housing regions will still be on the Top 20 list in 2017? Which new cities or towns will replace them next year? How long will rates remain incredibly low? Only time will tell as we should all continue to keep a close eye on the near term and long term directions of mortgage rates, unemployment numbers, and the available supply of home listings in the local regions which interest us.
Author: Rick Tobin
Look for Rick’s ebook on Amazon Kindle: The Credit Crisis Deals: Finding America’s Best Real Estate Bargains.
Rick Tobin has a diversified background in both the Real Estate and Securities fields for the past 25+ years. He has held seven (7) different Real Estate and Securities brokerage licenses to date.
Rick has an extensive background in the financing of residential and commercial properties around the U.S with debt, equity, and mezzanine money. His funding sources have included banks, life insurance companies, REITs (Real Estate Investment Trusts), Equity Funds, and foreign money sources.
You can visit Rick Tobin at RealLoans.com.
We Buy Any House says
Great article thanks for the advice
Emaar Ali says
Great read and thanks for sharing. Time will tell what the market does in 2017 but Im sure there will be a few surprises one way or another.