Where are prices right now in terms of the California real estate market cycle?
- Headed up. (55%, 133 Votes)
- At their peak. (25%, 61 Votes)
- Headed down. (18%, 43 Votes)
- At bottom. (1%, 3 Votes)
Total Voters: 240
His question is timely. We are nearing the halfway point of 2014 and it’s a good time to see if the year will live up to its promises. 2014 was supposed to be the year when the real estate recovery really hit its stride, driving the virtuous cycle of a full blown economic recovery.
But, as Samuelson says, “dream on.” He cites some pretty disheartening national numbers:
“Sales of existing homes in March, at an annual rate of 4.59 million units, were down slightly from February and were 7.5 percent lower than in March 2013. Sales of new single-family homes got hit harder, falling 14.5 percent from February and 13.3 from a year earlier. New building permits — a harbinger of future construction — dropped 2.4 percent from February, though they were up 11.2 percent from March 2013.”
Don’t forget wounded buyer purchasing power due to a full percentage point bump to interest rates from about 3.5% in 2012 to about 4.5% throughout all of 2014 thus far.
These bearish trends are also visible in our local California markets. Our most recent weekly statistical update reveals California home sales declined 13% in March from one year prior, yet California prices continue to prove problematically high. The California tri-city average shows a 26% year-over-year increase in low-tier properties with the mid- and high-tiers still posting 20% gains since March of 2013.
These prices simply will not stand — nor should they.
California buyers are already suffering from the double blow of a soft jobs market and higher interest rates. The fact is, many would-be buyers are realizing that prices are inflated given the other economic fundamentals that they are dealing with.
So, our California markets are beginning to readjust after last years’ speculator-driven bidding wars. But does this mean, as Samuelson suggests, that we are standing on the precipice of another real estate bust?
Well, yes and no.
Really, it’s a matter of severity. Prices will continue to slip in 2014, finding a floor in 2015 a good 10% to 15% lower than they are now. However, 2013 was a baby bubble compared to the “big one” back in 2005-2006. Think of a massive earthquake followed by a series of destabilizing aftershocks. Thus, rather than bracing for another cataclysmic bust, it is more appropriate to take a deep breath and watch as California real estate stumbles a bit through 2014. We may trip, but we won’t fall.