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CAR: Double-digit price gains will give way to smaller increases as more homes listed in 2014

California home prices will increase at a more modest pace in 2014, as primary homebuyers rather than investors become more prevalent in the market.

The state’s median home price – meaning half the homes sell for more, the other half for less – will increase 6% in 2014, compared to the projected 28% rise this year, according to the California Association of Realtors. California has enjoyed double-digit gains for the past several months, as foreclosed homes and investors flock into the market.

Annual home sales will improve 3.2% to 444,000 units, a slight gain from projected sales in 2013. Home sales are expected to be down a modest 2.1% this year compared to 2012.

A home for sale in East Sacramento.
A home for sale in East Sacramento.

“The housing market has improved over the past year, and we expect the trend to continue into 2014,” says CAR president Don Faught. “As the economy enters the fourth year of a modest recovery, we expect to see a strong demand for homeownership, as buyers who may have been competing with investors and facing an extreme shortage of available housing return from the sidelines.”

Many communities are reporting faster-than-average home sales in recent months, especially in the Bay Area where almost half of the homes listed are sold within two weeks, according to a recent Redfin report.

“We’ve seen a marked improvement in housing market conditions in a year with the distressed market shrinking from one in three sales a year ago to less than one in five in recent months, thanks primarily to sharp gains in home prices,” says CAR vice president and chief economist Leslie Appleton-Young. “As the market continues to improve, more previously underwater homeowners will look toward selling, making housing inventory less scarce in 2014. As a result of these factors, we’ll see home prices moderately from the double-digit increases we saw for much of this year to mid-single digits in most of the state.”

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Real Estate

CAR: Home prices increase 29.8% in July, sales end six-month slide

Higher interest rates failed to halt homeowners in July, as sales increased at the best pace in more than a year and double-digit price gains continued for the 13th-consecutive month.

Closed escrow sales climbed to an annual rate of 443,520 homes in July, a 7% increase from July 2012, according to the California Association of Realtors. The year-to-year sales increase was the first since December, and ended six consecutive months of declines.

Thirty-year, fixed-interest mortgage rates inched up to 4.37% in July, compared to 4.07% in June and 3.55% in July 2012.

“The spike in interest rates in June prompted homebuyers to delay escrow closings in hopes that rates would fall back,” says California Association of Realtors President Don Faught. “As buyers recognized rates had stabilized, they moved forward to close escrow, which lifted July’s sales from both the previous month and year.”

July’s median-home price – meaning half the homes sold for more, the other half for less – reached $433,760, a 29.8% increase from a year ago. Home prices have increased 17 straight months.

newport beach 1Marin County is the priciest market at $1 million – the only county above the million-dollar threshold – followed by San Mateo County at $919,000. Glenn and Siskiyou counties had the lowest median price at $140,000 in July.

“A constrained supply of homes over the past year has fueled robust home price increases, particularly in the coastal regions,” says Leslie Appleton-Young, vice president and chief economist for CAR.

“Looking ahead, we should continue to see strong price growth but at a less accelerated pace than what we’ve experienced over the past year,” she says. “Inventory areas are starting to build in some areas as price gains free up previously underwater homes and encourage homeowners reluctant to list because of the scarcity of homes to purchase.”

Some closely watched figures remained steady last month – the available supply of homes for sale was 2.9 months and the average days on the market was 29 days, according to CAR.

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Foreign, mom-and-pop investors help fuel investment market

More than one of every three home investors plans to sell their properties within a year, according to a recent report from the California Association of Realtors.

Fast-rising home prices – double-digit year-over-year gains for 13 consecutive months – historically low interest rates and a recently struggling stock market have encouraged more investors to look at real estate during the past four years.

Three of every four investors are considered mom-and-pop buyers, owning less than 10 investment properties – with about half of those owning two to five homes.

About one of every four investors was a foreign buyer, with many from China, India and Mexico.

A house for rent in southwest Sacramento.
A house for rent in southwest Sacramento.

The median-home price for an investment property was $272,500, allowing two-thirds of investors to pay cash. And 80% of those investors spent at least $10,000 in repairs for those properties. Homes under $250,000 required a larger percentage of repairs than those above $500,000, 4.2% vs. 3.4% of the purchase price.

Finally, two-thirds of investors manage their own properties.

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Real Estate

CAR: Equity sales soar, bank-owned deals tumble in May

Bidding wars and double-digit price gains are greatly increasing the number of equity sales – and reducing bank-owned transactions.

Almost four of every five home sales (78.2%) were equity transactions in May, meaning the homeowner leaves with some money in her pocket. The current rate compares to 75.6% in April and only 55.8% in May 2012, according to the California Association of Realtors.

It’s a dramatic about-face for the housing market, where more than half of all home deals were distressed sales just a few years ago.

In fact, short sales dropped to 14.0% of transactions in May, compared to 21% a year ago – and the lowest level since July 2009. And bank-owned sales, also known as REOs, fell to 7.3% in May vs. 22.8% a year ago.

Five counties – Contra Costa, Mendocino, San Diego, San Mateo and Santa Clara – reported single-digit percentages of distressed sales.

The Bay Area is the most expensive market in California.
The Bay Area is the most expensive market in California.

But just as coastal counties are thriving, several inland areas continue to struggle. More than half of Madera County’s deals were distressed sales (52%) in May, followed by nearby Stanislaus County at 40%. And distressed sales were at least one of every three deals last month in six other counties, according to CAR.