Real Estate Update Fall 2013/Winter 2014
What’s Happening with the Market?
2013 has been a wild ride for the Bay Area housing market. After years of trepidation, buyers overcame their reticence and stepped forward. They came in droves, prompted by rising interest rates, a fear of rising home prices and confidence that home prices had finally hit bottom.
Unfortunately, the inventory of homes for sale was next to nil. At one point early in the year, the standing inventory of homes for sale in Oakland was enough to last about 3 weeks. In a normal market, it would take 4 to 6 months to sell the current inventory.
By March, multiple offers were common in most desirable neighborhoods in the Bay Area. Buyers resorted to tactics rarely used since 2006. They made contingency-free offers; some pre-inspecting before making an offer; others relying only on the seller’s pre-sale inspections. Buyers who needed mortgages lost out to all cash buyers of which there were many.
This frenzied activity caused the median home price in the Bay Area to rise 31.7% in August compared to August 2013, according to DataQuick, a real estate information company. However, in September the appreciation rate declined. The median price of Bay Area homes sold in September 2013 was 24% higher than the previous year.
During August and September 2013, the number of homes sold declined suggesting that the Bay Area housing market might be slowing down. As one East Bay Realtor put it: “The wave has passed”. If so, what happened? And, where is the market headed?
Buyer fatigue caused some buyers to drop out of the market after making numerous offers with no success. Interest rates increased over 1% since the beginning of the year. Some buyers are using fixed adjustable rate mortgages to keep their housing costs down. These loans are fixed at a rate that’s lower than fully fixed-rate mortgages for a period of time (5, 7 or 10 years) before reverting to an adjustable rate mortgage.
Another factor impacting the slowdown is that more sellers are entering the market in response to the good news that home prices are up significantly from a year ago. This has helped the inventory situation in some sub-markets, giving buyers more choice and resulting in fewer bidding wars. Although disappointing to sellers who can’t get the price they want despite the big jump in median price, a slowdown from the hectic pace of winter and spring is far better than a bust.
Some economists think we are headed toward a balanced market, one that doesn’t favor either buyer or seller. This should benefit the long term health of the housing market. Leslie Appleton Young, Chief Economist for the California Association of Realtors (CAR), expects single family resale sales volume to increase 3.2% in 2014 and the median home price to increase 6%-a more normal appreciation rate.
However, California has not built enough houses for years, particularly in the Bay Area where 2 top job creators-Silicon Valley and San Francisco-are located. This supply-demand imbalance may continue to push prices higher at a faster than normal pace.
Interest rates are expected to rise to 5.3% by the end on 2014, according to CAR. Higher rates and home prices decrease affordability. First time buyers are being priced out of the market. Currently, the share of first-time buyer sales is the lowest since 2006. We need a strong first-time buyer market to fuel the trade-up market.
Foreclosures are no longer the risk to the market that they were for several years. According to CAR, approximately 85% of California home sales in August 2013 were equity sales rather than distressed sales.
Other factors still weigh on the housing market. Lenders will enact new mortgage reforms January 1, 2014 that will make the approval process harder. The Conference Board Consumer Confidence Index dropped sharply in October to 71.2, down from 80.2 in September. There is uncertainty about the deficit, tax reform, fiscal policy and this list goes on.
We’re in the fourth year of a housing recovery and it feels a lot better than it did the first year. But, who said it would be easier?
Dian Hymer is a top-producing real estate broker associate with Coldwell Banker in the Oakland/Piedmont office. Dian has over 30 years’ experience as a Realtor®; a nationally syndicated columnist for over 20 years. Dian’s column currently appears in Bay Area News Group newspapers around the Bay Area. Dian@dianhymer.com; (510) 339-4777