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    What is going on in the California Real Estate Market?

    Interest Rates

    • Fed rate hikes can increase borrowing costs. The FED has been waiting for the job market to improve to increase rates. Lower-than expected job growth led to a delay in a rate increase in June, however once job growth improves, it is likely that rate increases will follow.
    • Mortgage rates are largely influenced by global capital flows. With large inflows of foreign capital, mortgage rates have been low because there is an inverse relationship between bond prices and yield. Economists predict that mortgages will remain around 4% through the end of the year.

    Home Prices

    • A combination of tight supply and high demand in the Bay Area has resulted in upward pressure on housing prices. Mid-home prices in the bay area are particularly elevated compared to other regions of California with the medium home prices around $1.4 million as compared to the state at $518,376. Median home prices are $805,000 in Santa Cruz, $1,118,000 in Santa Clara, and $550,000 in Monetary.
    • Overall, California home prices are 6.3% higher than last year. There are the prices highest we’ve seen since fall of 2007, however they are still 15% below the pre-crisis peak level.
    • Home price to income ration is California is around 7%, however in Santa Cruz it’s closer to 8.4% and up near 9% in San Francisco.
    • Economists predict that home price increases will continue to slow. The double-digit growth we’ve seen in past years is most likely due to catch up. As the economy reaches full employment, things are expected to normalize.

    Inventory

    • There is low inventory. In part, this may be due to persistent hesitation by Baby Boomers to sell. A low tax base, supported by prop 13, the fact that they will face a sellers market when trying to buy, and the threat of high capital gains tax due to large increases in housing prices are all possible reasons for this hesitancy.
    • There has been additional construction, however not enough to keep up with the rising demand. While much of the construction has been multifamily, a good amount has been for the higher end of the housing and rental market, and so the supply of affordable housing remains low in relation to demand.

    Consequences: A sellers’ market and affordability issues

    • It is clearly a seller’s market, with a high demand and low supply. Knowing that interest rates will rise soon, sellers may be more motivated to sell to take advantage of low rates when looking for a place to move.
    • Demand is strong and growing in the affordable housing market however supply is tight, leading to an affordability issue in the Bay Area and other hot markets such as Orange County.
    • As housing prices remain at high levels, people are migrating out of California or to more affordable areas such as the East Bay and areas surrounding Sacramento. Therefore, we can expect to see robust growth in these locations.
    • A recent press release by a Harvard research team reveals that nationally, more people are facing rent affordability issues as well. Due to an overall lower level of homeownership after the crisis, rentals are in high demand, however as noted above much of the construction is geared towards the high-end market. As a result the number of “cost-burdened renters” hit 21.3 mission in 2014 and 11.4 million of these households paid more than half of their incomes for housing. This is a record high.

    sources:

    http://www2.realtoractioncenter.com/site/R?i=tzWxcAA5wBRB8lgrvBkg6Q

    http://www.car.org/marketdata/podcast/

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