2014 Second Half - A Hot Market Begins to Cool

2014 Real Estate Market Trends - Second Half

House price momentum had been steadily building through 2014 as inventory up-ticked through the summer months.   While inventory has been building, prices rose modestly, mostly due to interest rates that have trended lower for most of the year.  (Lower interest rates positively affects buying power of those in the market to buy)  Property has begun to sit a little longer, which is partially reflective of the seasonal shift as we say goodbye to summer.  You can see that inventory is above last year’s levels, which bodes well for buyers looking for a deal.

*Inventory levels continue to rise and are modestly above 2013 levels as sales have leveled off indicating tempered housing purchase demand.

Pricing has continued to rise throughout the year as expected.  In our last market update in January, (2014 – ready for takeoff), we predicted a steady rise in prices, which has in fact taken place throughout the year.  Number of sales in Orange County real estate has begun to level off, but given the heightened inventory, it is easy to see that without some outside influence to increase demand, sellers must get a little more realistic on their pricing objectives or they will find themselves on the market a lot longer than they had anticipated, especially with the holidays looming in the not too distant future.  The last few weeks have seen somewhat lower sale activity, which has resulted in price reductions across the board, especially in the >$500k price range, which is often the first to experience such a contraction. 

* Sales Activity over 2014 shows a bull market in southern California housing that has done very well, but that looks to be getting a bit tired.

As the graph below shows, rates have slowly dropping throughout, which contributed to demand due to cheap financing.  Rates on 30 year mortgages have settled around 4.25% and these low rates keep payments low for increasing purchase prices.  We believe that this is signaling trouble ahead for home prices and sellers, especially if the new trend in rising interest rates continues.  Buyers should gain more leverage in the balance of the year if the technical breakout continues, although they will be borrowing at a higher interest rate, which will increase their monthly mortgage payment.

*Chart of the 10-year treasury yield – signifies interest rate trends as rates rise on the 10 year treasury, home mortgage interest rates also rise.

The chart above shows the ‘technical breakout’ that could lead to a ½% rise in rates over the next several months.  If this occurs, buyers buying power and thus buyer demand will waiver, causing prices to fall as sellers look to exit the market before the holiday lull.

Our advice for sellers – price your home to sell and do the things necessary to set yourself apart from increasing competition (professional staging).  For buyers – be discerning and recognize that increased leverage in the market can result in getting a better deal than would have been possible this past summer.

As always, if you are considering a move, please call me (Christine DiCarlo) at (949)433-4372 - I will put you in the best position, in any type of market.