Guidance for The Movement in the Real Estate Market

Market Snapshot - Home price increases expected to slow.

This article prepared by the California Association of Realtors states that:

There have been concerns caused by the rapid increase in home prices creating another “Bubble” in the California real estate market. This article argues that an increase in only prices does not equate to a “Bubble.” During the last boom, the problems were created by more than price appreciation.

Sub-prime loans that were packaged as mortgage backed securities and an increase in construction activity that was not supported by demographic need also contributed to the last boom. This current price increase is driven by lack of available homes for sale in the market place. The depletion of inventory is a result of three main factors including the absorption of REO, short sales, and foreclosed homes by investors who intend to hold properties rather than flipping them. Second, there has been a large influx of foreign buyers purchasing properties in California. Lastly, one in every five homeowners still owes more on their homes then they are worth thus not allowing them to purchase up into new properties.

Going forward, many economists believe that the market growth will begin to slow as a result of the following reasons:

Prices continue to rise at double digit rates year over year

Housing will be undervalued relative to rents within the next few months.

Mortgage rates have begun to increase which may force out some potential homebuyers.

Continued Shortage of Inventory on the market

Investors too, will also see their yields disappear. If investors are forced out of the market due to diminishing returns, traditional buyers may have more of an opportunity to purchase new homes at which time they would be more willing to sell their current home. Cities across the state have begun to see increases in construction of new homes, and as the balance between supply and demand inches closer to equilibrium, it is estimated that prices should flatten at a rate of approximately four percent.

View original article by California Association of Realtors

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