Local Housing Market on Fire - Community Alliance

If you’ve been on the hunt for a house recently, you know about this. It’s a hunt.

And it’s troubling. But, you’re not alone.

For several reasons, the real estate housing market in the United States is hot—practically on fire. It is a sellers’ market because sellers have the much coveted housing inventory.

With scores of buyers eagerly overbidding every reasonable asking price, prices are surging. According to the S&P CoreLogic Case-Shiller 20-City Index, the leading measure of U.S. residential real estate prices taken from 20 major U.S. metropolitan areas across the country, we’ve had a 19.1% average price increase in houses since last year.

Craig Lazzara, managing director of the index, believes the economy is expanding rapidly. “Declining Covid cases and a resumption of general economic activity has stoked inflation,” he said, “and the Federal Reserve has begun to increase interest rates in response.”

True. And at the end of last year, mortgage rates began to pick up. And they’re still rising.

Before the pandemic, in 2019, the yearly average 30-year fixed mortgage rate was 3.94%. In comparison, in 2018, the average was 4.54%.

In 2020, the first year of the pandemic, it was 3.11%. And in 2021, the annual average was 2.96%, due to the Fed’s action of lowering the federal funds rate to essentially zero to help counter the emergent pandemic economic slump.

We saw the first huge change in October 2021. That’s when the mortgage rate jumped from 2.90% to 3.07%. And it’s been going up steadily ever since. In April, it surpassed 5% and keeps rising.

Normally, higher mortgage rates help keep the real estate market in check, but that’s not what’s happening now. In this post-pandemic bull market, strong demand is choking out the already tight supply of housing, outweighing the buffering effect of rising mortgage rates.

Brace yourself for even higher mortgage rates.

With record low levels of unemployment, coupled with a now booming job market, inflation is active. At the end of March, the U.S. annual inflation rate hit 8.5%—a 0.6-percentage-point increase in as little as a month from the record 7.9% in February. It hasn’t been that high since December 1981.

Prices are indeed going up. And so are housing prices. Rampant home price appreciation is the result. We have survived the pandemic and people are ready to live again, with better opportunities for a hopeful future and with money in hand.

Houses are being listed and sold faster than you shake a stick at them—even with the rising prices. In California, for example, the median time on the market for available houses in March was just eight days. In Fresno County, it was even shorter—seven days. Imagine that, just a week on the market.

Compare this to how long it took to sell a house before the pandemic: In December 2019, the California average was 28 days and it was 31 days in January 2020. Again, for Fresno County, the on-the-market average was even lower at 18.5 and 25.5 days, respectively. Fresno has been one of California’s hottest housing markets—even before the pandemic.

Frankly, the reason is that Fresno is more affordable than other California counties. Homeowners and investors alike benefit from lower relative costs here than in other places. And because many employees can now work remotely from home (a positive externality of the pandemic), homeowners can benefit from higher out-of-county wages and relatively lower housing costs here.

That doesn’t mean that house prices or rents are low in Fresno County. They aren’t, and they are rising. But they are relatively low when you compare us to, say, Orange County or San Francisco. That explains why people move to Fresno, “the best little” affordable city around, to buy homes or invest in rental properties.

In California, the real estate housing market began to especially heat up in the summer of 2020. That’s when the state average days on the market went from 19 to 11 and from 15 to 6 in Fresno. And it’s been getting hotter ever since.

Normally, the market would self-modulate and adjust, with suppliers meeting buyers’ demand, and everything would be fine. But that’s not happening now because there isn’t the available supply.

We have a serious supply chain problem for residential housing across the country and state, especially in Fresno. Part of the problem is fewer new houses having been built because of labor and material shortages during the pandemic.

Housing construction—especially in Fresno—just hasn’t been able to keep up with the increasing demand for new houses. And prices rose. And then rose some more—they’re still rising.

And buyers are okay with that?

Whenever house prices rise more than 32% within the short span of two years, something’s wrong. Actually, this growth rate has exceeded the surge that preceded the Great Recession in 2008.

Thankfully, though, the shenanigans that caused that meltdown are not in play today. And, the market for bonds backed by subprime or Alt-A mortgages, called mortgage-backed securities, is limited, too. That’s a breath of fresh air. But it doesn’t mean we’re out of hot water.

Consistently paying more than 100% of the asking price, bidders are pushing house prices through the roof (literally). Which is great if you’re selling but not so much if you’re buying.

The prices are ridiculous nowadays. For example, in March in California, a whopping 71.5% of all houses sold were sold above the asking price. There doesn’t seem to be a shortage of buyers anywhere in sight.

Especially here in Fresno, the fifth-largest city in the state. Buyers are so eager to eat up the available housing supply here that, apparently, we are now recognized as the nation’s top big city with the highest rent increases in the past four years despite the fact that “Fresno makes regular appearances on lists of America’s worst places to live.”

It’s great that Fresno is becoming a more popular place and is growing, for sure, but the circumstances and emergent consequences can be concerning. For example, in a recent Fresnoland article in the Fresno Bee, community investigative reporter Cassandra Garibay tells the story of a struggling mother, Randi Gonzales, and her family, who essentially become homeless after the owners of the house they were living in abruptly decided to sell.

Garibay writes that “Gonzales’ family was one of many Fresno families who were displaced during the pandemic, while the rental vacancy rate was very low and property owners took advantage of a soaring housing market.”

Gonzales explains her family’s despair: “We must’ve called every apartment complex in town, and there was nothing available…Even so, every apartment complex told us there was a waiting list six months to a year out, and we didn’t have that kind of time.” Who does?

During a deadly pandemic with young grandchildren, Gonzales has her hands full. The last thing she needs to worry about is housing. But she has no other choice.

Housing insecurity and housing instability—especially for low-income residents in the Valley—is a real-life nightmare—especially in Fresno where every day we see homelessness rampant and a way of life for many. Homelessness is so conspicuous in the city of Fresno that you can’t help but think that it could really happen to anyone—even to you.

If you have to spend 30% of your monthly earnings or more on rent, you’re in trouble. But there are Fresnans who actually have it worse. Many live month to month, just a single paycheck away from the streets. And the current housing crisis is not helping. Instead, it’s made things worse and exacerbated housing insecurity and instability across the board.

The U.S. Department of Housing and Urban Development acknowledged this in its March Housing Market Indicators Monthly Update: “Housing insecurity due to the pandemic remains elevated.”

Further analysis of a March U.S. Census Bureau Household Pulse Survey validates this fact. It shows that 13.7% of Americans are currently behind on rent. That’s 6.12 million American renter households. It also confirms that about 2.9% of homeowner households are not confident in their ability to pay their mortgage on time.

About a million homeowners are concerned that foreclosure is imminent in the next few months. The situation is dire indeed.

Fresno is one of the most affordable places to live in California, but that’s changing. As rental prices soar due to strong demand and housing supply constraints, unfortunately, the median wage in Fresno hasn’t been too hot. Fresno’s average wage is only $58,000—that’s about 30% below the state average. This means that although the housing market is booming with lots of sales in Fresno, houses are not all being bought by locals. They can’t afford them.

According to Bank of America Securities U.S. economists Alexander Lin and Jeseo Park: “Affordability from a home price/down payment perspective is the worst it’s ever been, meaning extreme barriers to entry.”

The truth is that out-of-town buyers and investors are a strong driver of rising housing prices, which ultimately displace the blue-collar service workers and farmworkers who just can’t compete. It’s a scary time for housing-insecure Fresnans.

The City of Fresno has been involved in establishing first-time home buyer programs as well as an Affordable Housing Trust Fund in partnership with the Marjaree Mason Center and Breaking the Chains. Also, the City launched its highly successful Emergency Rental Assistance Program (ERAP).

Fresno Mayor Jerry Dyer has advocated on behalf of the city’s most vulnerable to PG&E in opposition to its rate hikes. In his response last November to the summer’s Here to Stay Report, a “policy-based blueprint for displacement avoidance in Fresno,” Dyer wrote, “At the City of Fresno, we believe everyone has value…Displacing people for any reason is contrary to the core of my One Fresno Vision and will be detrimental to the City’s future…And I see housing equity for all city residents. I believe we will meet this end.”

How nice! It is reassuring to know that we have a leader who empathizes with the most disenfranchised and vulnerable within our city and takes action to stimulate access to affordable housing while at the same time focusing on displacement avoidance. The million dollar question, however, is, will there be enough housing supply for his plan?

In a recent interview with ABC 30 Action News, Steve Flach, president of the Fresno Association of Realtors (FAR), expressed grave concern about the available inventory of homes in the city and pointed out that the median house price in Fresno is now at $380,000—some 36% higher than it was two years ago.

Kim Huckaby, government and public affairs director for the FAR, issued this poignant statement on the current housing crisis in Fresno: “For decades, California has experienced a housing access and affordability crisis, which is now being felt right here in the heart of the Central Valley.

“In recent years, this crisis has reached historic proportions. As a result of the housing affordability crisis, younger Californians are being denied the opportunities for housing security and homeownership that were afforded to previous generations.

“Families across economic strata are being forced to rent rather than experience the wealth-building benefits of homeownership.”

That’s right—becoming a homeowner has now become a whole lot harder for Fresnans.

But, are there other factors beyond supply chain constraints and strong demand affecting the market that we have overlooked? Maybe. Do you remember AB 1482—California’s “Tenant Protection Act”? Perhaps not. It is a law signed by Governor Newsom in 2019 put into effect Jan. 1, 2020. It was overshadowed by the pandemic.

But this California law might be a contributory factor to our Fresno crisis. Why? For the next 10 years, this bill limits rent increases of certain rental properties (apartments and multifamily housing buildings with two or more units for tenants who have lived there for at least one year) to only 5% per year (plus any rise in the Consumer Price Index that doesn’t exceed 10%).

So you can see that California landlords need to be especially strategic about how they raise the rent each year to cover increasing costs and to turn a decent profit in both the short and long terms.

Moreover, if you are an apartment complex or duplex owner, really, wouldn’t you want to take advantage of this bullish seller’s market and free yourself from this new California law and just sell your property? Less hassle, plus you’d make a killing, right? Sure—that could be a savvy financial move now.

However, think about your tenants. What happens to them if they become displaced in transition? With rents increasing everywhere, finding an affordable place in a pinch is hard to do today.

This crazy surge in house prices can’t be sustainable for long. A slowdown in the market has to come eventually—but when? After all, Wells Fargo Home Lending abruptly fired hundreds of its mortgage processors in mid-April. Clearly, it must have a good idea of what’s around the corner in the U.S. residential housing market.

“Bottom line,” reflected FAR Director Huckaby, “we have to build our way out of this housing crisis—we cannot legislate our way out of it.”

In short, if you’re in the market to buy or sell a house now, consult a trusted real estate professional for advice tailored to your situation. Of course, if you have a house to sell, that would be great because we need all the inventory we can get now—especially in Fresno—but then, consider this: Where would you move to?

Mortgage rates are high and so taking out another loan on a different property will be much more expensive than in the past. And rent for apartments and other multifamily housing units is also high and rising.

Really, unless you have another spot ready and waiting, selling your house now could actually cause you more problems at this time. It’s complicated. This whole situation is multifaceted and interconnected.

The housing market is on fire in California. As Californians, we know that to get through this tough time we need to work together with the professionals to get it under control. Together, we can quench this inferno. Together, we can get the market under control.

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