Guidance for The Movement in the Real Estate Market

Is California’s housing market at a tipping point?

Original article prepared by the California Association of Realtors:

Over the past year, we have seen a substantial recovery within the California real estate market. Some have even said that they are concerned with the speed and velocity of changes. The rapid increase in California home values have some concerned and even speculating that we may be experiencing the reoccurrence of “bubble.” The writer states that they do not see the same components that were previously pushing the market and note that there are different variables affecting the market currently. The article examines some of the reasons on why they see the current market change different than what happened in the past.

This year’s dramatic price increases were largely driven by lack of inventory available as well as how many investors were purchasing homes at lower prices. The condition of low inventory has led to a market that had multiple offers on properties within a few days of being listed. The offers that were accepted had favorable seller purchase conditions, such as short to no contingency periods, offers substantially above listing prices, and even short escrow periods. Many potential buyers saw the market conditions as too competitive which caused them to leave the market and created a large supply of qualified buyers who are still waiting to purchase new homes.

Now that we are also seeing an increase in interest rates, this has also affected the affordability of being able to purchase a median priced home in California. The article gives the statistic that in the second quarter the percentage of potential buyers who can afford to purchase a median-priced home in California has dropped to 36 percent. That is down from 44 percent from the first quarter of 2013 and 51 percent from the second quarter of 2012.

The rise in interest rates has not only affected affordability of a primary residence, but it has affected investors’ profit margins. The article states that investor’s profit margins have decreased by six percent. Current investor profit levels are identified as 16 percent this month, while at the beginning of 2013 the percentage was 22 percent. Investors are also seeing the supply of inventory levels shrink. Many investors were able to find good profit margins on distressed properties, but over the past quarter, distressed properties accounted for only 17 percent of total sales. This is its lowest level since 2007.

The segments of homes available for sale that have been increasing are sales of properties where the current owners have some form of equity gains. The supply of equity sale homes has increased 9 percent from June to July and almost 20 percent from the year before. The decrease number of distressed properties as compared to equity sales should be seen as a good sign because it is changing to a more traditional market of buyers and sellers.

If you were a buyer that was previously in the market and saw its favorable seller condition as the reason that you left the market, then now might be the best time to return to the market. In today’s market, fewer homes are going under contract within a week or two. This is contrary to what we saw previously this year. Also, since the past two months, the median time that a property spent on the market has increased. More sellers are experiencing more traditional terms of longer days on the market, prices at or near their listing prices, and contracts with longer contingency periods. For those homeowners who now have equity gains and can afford to purchase another home, now is a great time to buy while taking advantage of the more traditional contingency terms that have become the norm in the current market. If you are interested in buying or selling please contact me. I would enjoy the opportunity to work with you.

View original article by California Association of Realtors