The San Fernando Valley’s housing market continues to become more expensive. Ventura County’s existing single-family home price growth has slowed a bit and levels average $660,000 in the past three months of data. Los Angeles County’s levels are about $635,000, while the Valley’s levels in the same time period are over $730,000. As in many places, the Valley’s home sales growth slowed substantially during the Winter of 2018 to 2019. The declines were double-digit from August 2018 through March of 2019. Typical high season sales rates of 600 homes a month subsided to a bit under 500 homes per month and the Valley experienced a 36-year historical low sales rate of only 266 homes in February of 2019. A recovery began starting April 2019, but it has been weak. Our estimate of 5,166 closed escrows for 2019 is still 200-units off the 2018 rate. Using sales as a metric, this is still a weak housing market, locally and nationally. The recent sales recovery in the Valley’s condominium market is much stronger than that for single-family homes, up 23 percent using the last three months of data. This is to be expected as prices for those housing units, in the $440,000 range, imply a $1,900 monthly mortgage payment at 3.92 percent, while the single-family home prices imply a $3,100 monthly mortgage payment. What are the prospects for future interest rates? They will stay low. The Federal Reserve Board has pursued extraordinary monetary policy since late 2008. They are convinced that the large-institution liquidity benefits and short-rate control benefits the Fed accrues from a large balance sheet outweigh the negatives of reduced financial intermediation, investment, and slower growth. Our Center for Economic Research and Forecasting disagrees strongly, but there is no mistaking the commitment behind this massive and fundamental policy shift that has occurred at the central bank of the United States. The Fed will maintain a large presence in the mortgage-backed securities market for at least the next few years, which implies that the existing downward pressure on mortgage rates will continue. Do the low rates help home buyers? Not much. Prices are high enough that the prospect of buying a modest home, not even a large or fancy residence, in the San Fernando Valley creates a principle problem for the buyer, not a rate problem. The prices are so high that low rates cannot overcome the affordability problem. In smaller beach counties such as Ventura County, price growth is often a result of supply constraints rather than income generation. In the San Fernando Valley, prices are driven by supply constraints, and as well by a combination of wealth and income accumulation, which in turn is driven by economic activity. As shown in the accompanying table, the Valley’s median household income is only 12 percent greater than the United States’ median, while its median home price is 242 percent greater than that of the United States! The vitality of the Valley’s economy is partly responsible for the home prices. The robust economy is not the only factor. Our Center for Economic Research and Forecasting has repeatedly documented that the post-2008 new home building rate in the United States has set a historically low standard for building in an expansionary economy. We have also documented that California’s building rate is about half the U.S. rate. Given the San Fernando Valley’s location in California, we can deduce the Valley’s home building rate is less than that of the United States. Most regions in California do not build enough homes, and the economy loses vitality as a result. A rational economic development policy includes a rational real estate development policy, and most communities, including the San Fernando Valley, do not have either.
