The California housing market had a decent
performance in 2013 so far. For the first nine months
of 2013, sales of existing single-family detached
homes were down 3.2 percent when compared to
the same period of last year. This decline in sales
was attributed partially to the hike in interest rates in
recent months, as the average 30-year fixed rate
increased more than 100 basis points since April
2013 and was the highest since the mid of 2011.
Looking forward, annual sales of detached homes
are expected to decline slightly from 439,420 units in
2012 to 430,270 units in 2013, with 2014 improving
to 444,040 units.
The year 2013 is a year when the housing market
transition from “investor sales” to “primary home
sales”. The share of investor sales is expected to
decline as the number of bargain properties
continues to decrease, while the share of primary
home sales is expected to improve as the economy
continues to grow. As such, the increase in sales
bought as primary homes will be undercut by the
reduction in investor sales, and hence the slight
decrease in overall sales in 2013. Next year will be a
more “normal” year and the economy will
presumably grow at a faster pace, which will provide
support to the housing market.
With inventory levels remaining lean through the rest
of 2013, the California median price is projected to
increase 28.0 percent from $319,310 in 2012 to
$408,600 in 2013. The significant increase in price in
2013 was due in part to the mix of sales. The sales
share for higher end homes will continue to inch up
or remain near the current level for the rest of the
year. Thus, more homes in the upper price segments
will be sold in 2013 when compared to 2012.
Because of the change in the mix of sales from
2012, the statewide median price is expected to
increase significantly on a year-to-year basis.
The increase in the median price at the state level,
however, appears to be slowing down in recent
months. Since the sales share of distressed sales is
already at a low level and is expected to remain at or
near that level for the rest of the year, it is unlikely to
see the sales share of distressed properties
declining much lower next year. The price
appreciation due to a shift in the mix of sales should
thus be much smaller than what we observed in
2013. As a result, the median price for California
existing single family homes is projected to increase
only six percent to $432,800 in 2014.
With the value of discounted properties continue to
appreciate, investors are paring their purchases of
distressed homes as their profit margin narrows. As
investors take a step back, inventory will likely
improve slightly in the upcoming year. Meanwhile,
the increase in home prices will also encourage
more homeowners to put their houses up for sale.
The housing supply will grow and should gradually
climb back from under three months in 2013 to about
four months in 2014.
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