Home prices continued to rise in California and across the nation in July 2013. Nationally, prices rose 12% year-over-year. However, prices remained 18% under the peak of the Millennium Boom, according to CoreLogic.
In California, prices rose almost twice as fast, bubbling up at an annual rate of 23%. The only other state to see prices increase at a quicker pace was fellow sand state Nevada, which rose by 27%.
Further, California’s major metropolitan areas also saw a big price jump in July 2013 compared to one year earlier:
- Los Angeles home prices rose by 22%; and
- Riverside/San Bernardino home prices rose by 23%.
Prices will continue to rise through the end of 2013, though at a more subdued pace, as forecasted by CoreLogic. This slowdown will be due to:
- the regular seasonal slowdown in sales; and
- the “marginal impact” of this summer’s rise in mortgage rates on end user demand.
first tuesday insight
Home prices quickly surpassed expectations of most forecasters and economists so far this year. However, this price rise was not due solely to low mortgage rates and a summer seasonal sales volume bump.
The rapid rise in prices has been driven first and foremost by speculators. The meteoric rise of speculator influence is of critical importance when examining these findings and looking at the future beyond them. Therefore, we must look first to speculator movement to forecast home prices in the coming months.
Just what are these large numbers of speculators doing in California’s housing market today? Further, will they always be here in equal numbers to prop up the market?
Absentee homebuyers (most of which are speculators, though some are mom and pop investors) made up 27% of home sales in Southern California in July 2013. This may sound like a lot (the average for SoCal is around 18%), but it’s actually the smallest share of home sales to absentee homebuyers so far this year. Further, the number of cash buyers has also decreased steadily in 2013, to 29% of all home sales in July.
All signals indicate the Great Speculator Tide is now beginning to recede, if only modestly at first. Speculators are slowly beginning their exit from California’s housing market. They know – and we know – that today’s price rises are unsustainable, as they are unsupported by end user demand.
How so? End user demand lacks:
- an adequate supply of jobs to qualify for mortgages;
- the preferred amount of savings for down payments; and
- the boost from low mortgage rates that had been present until June of this year, when rates began rising.
History has shown us that speculators share a primal herd mentality. That is, one speculator will exit the market, followed by a couple others, and soon enough the trickle will become a deluge and speculators will dump their properties back on the MLS at once. It starts with just a few, but soon this lemming-like mass exodus will commence in earnest, likely in Q4 of 2013. Their departure will be in reaction to the slowing sales volume experienced statewide since Q4 2012. Prices will begin to level off soon thereafter, increasing around the rate of consumer inflation.
Re: CoreLogic Reports July Home Prices Rise by 12.4 Percent Year Over Year from CoreLogic