La Quinta, California

La Quinta, California
Desert Luxury

Desert Luxury Realty

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Wednesday, August 6, 2014

Market Outlook for the Second Half of 2014

The California housing market had a very slow start in sales activity in 2014, as many investors left the market because of the lack of bargain properties. The double-digit increase in home prices and the surge in mortgage rates since mid-2013, meanwhile, curbed sales growth in the market as affordability for primary home buyers declined. Despite being down more than 10 percent for the first half of the year, sales started picking up at the end of the second quarter. While the decline continued on a year-over-year basis in June 2014, sales inched up 1.5 percent on a month-to-month basis from May 2014. The decrease in sales in June was the smallest since September 2013, and the statewide sales number was the highest in the last eight months.

graphMeanwhile, the statewide median price dipped slightly from the previous month after increasing for three consecutive months. The statewide median price was at $457,160 in June 2014, as compared to $466,320 in May 2014 and $428,700 in June 2013. The statewide median price finally slowed down to only a single-digit increase from the same month of last year, after increasing by double digits for 23 straight months. It appears to be stabilizing and will likely hover around $450,000 in the second half of 2014.

Supply conditions in the housing market also showed signs of improvement when compared to the previous year. The unsold inventory index inched up slightly in June to 3.7 months from 3.6 months in May. Inventory at the state level increased 2.3 percent from May 2014 and jumped 21.9 percent from a year ago. Housing supply improved in all price segments, except the below $200k range, which declined 6.1 percent when compared to the same month of last year. Price segments above $200k experienced double-digit increases in supply on a year-over-year basis.
With inventory improving and home sales slowly moving back up, the market is more balanced, and we could see further market normalization in the upcoming months as interest rates remain at the lowest levels we have seen so far this year.  Sales should improve in the second half of the year as many primary home buyers realize that interest rates are likely going to increase towards the end of the year, and home prices are not going to decline in the short term. As such, sales for the rest of the year are expected to be at about the same level as that of last year. For the year as a whole, California existing home sales are projected to decline 4.4 percent when compared to 2013, but a stronger economy should propel the housing market to bounce back in 2015.

As for home prices, the gain in the statewide median price is predicted to be smaller than that observed in 2013. Home price appreciation will continue to slow down through the latter half of the year and the gradual increase in interest rates in the second half of 2014 will cap the upward movement in home prices. The statewide median price is expected to increase 10 percent from 2013, but will have a more moderate growth rate in 2015.

**All information is from the California Association of REALTORS Market Snapshot.