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Marcia Hadeler's Blog

By Marcia Hadeler | Agent in 94558

Is California's housing market at a tipping point?

Is California’s housing market at a tipping
point?
California real estate markets in 2013 have so far
been riding on a fast and furious road to recovery.
Housing prices rose precipitously in some markets,
particularly in the Bay Area, that some experts even
started talking about reoccurrence of a bubble.
Dramatic increase in prices however was largely
driven by lack of available inventory of homes for
sale, as well as significant presence of investors
and cash buyers. Tight market conditions led to a
substantial rise in multiple offers, sales occurring on
the day of listing, and selling prices far above the
asking ones. While market conditions are clearly
favoring sellers, there are indications that some of
the California’s real estate markets may be at a
turning point.
Rising mortgage rates initially presented a sticker
shock for many potential buyers who may have
already been discouraged by fiercely competitive
bidding wars and the number of cash offers. Their
first reaction was to postpone their home purchase.
The slowdown is suggested by a slight decrease in
the buyer traffic reported in the REALTORS®
Confidence Index. Rapidly increasing home prices
also put a dent in affordability. The percentage of
home buyers who could afford to purchase a
median-priced home in California dropped to 36
percent in Q2 2013, down from 44 percent in Q1
2013 and from 51 percent in Q2 2012.
However, as everyone realizes that mortgage rates
will most likely not be coming down to levels
observed last year, and that housing is still
relatively affordable by historical measures, buyers
are slowly readjusting their expectations and
coming back to the market.
Other indicators also suggest that real estate in
California may be at a turning point. Fewer listings are
under contract within a week or two than what we saw
just a couple of months ago. The statewide median
time on the market started inching up in June and
again in July, after continuously declining since
January 2012.
Additionally, investors are playing a smaller role.
Rising prices and interest rates have shrunk
investors’ profit margins and the share of investors
decreased to 16 percent in July from 22 percent at the
beginning of 2013. Investors are also hard-pressed to
find any supply of distressed properties, which has
dwindled to less than a month of inventory. Distressed
sales as a share of total sales have also come down
dramatically to 17 percent, which was the lowest level
since the end of 2007. Fortunately, however, supply of
inventory of equity sales has increase 9 percent from
June to July, and almost 20 percent from the year
before. Increase in inventory is a much needed
development and will aid the market to continue to
grow going forward.
None of these changes to the housing market in
California suggests that the recovery is in jeopardy. On
the contrary, real estate markets are moving into a
state of more measured and sustainable housing
recovery in which traditional buyers and sellers will
play a greater role. The sharp rise in interest rates did
cause a pause in the market but continued recovery is
on the way as everyone adjusts to new norms.

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