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2013 Forecasts for California’s Real Estate Market

 

January 27, 2013  |  Loan-America.com Insights

 

Curious what California’s property market may look like in 2013? Would it be a good time to invest or purchase that first home? Our Loan-America analysts are equally curious about future conditions and surveyed a series of industry reports, national news sources and expert blogs to uncover insights to help clients better understand the key drivers shaping California’s real estate market in 2013 (and beyond).

Though slightly dated, just last month the New York Times reported that “there is evidence of job growth, economic stability, a resurgent housing market and rising spirits in a state that was among the worst hit by the recession.”[1]

This positive outlook is coupled with declining unemployment rates, where California reported a 10.1 percent unemployment rate last month, down from 11.5 percent in October 2011 and the lowest since February 2009. [2] The housing market appears to be on the rebound as well - houses are sitting on the market for a shorter time and selling at higher prices, and new home construction is rising. For example, home sales rose 25 percent in Southern California in October compared with a year earlier.[3] According to Richard K. Green, the director of the Lusk Center for Real Estate at the University of Southern California, the foreclosure storm is beginning to subside, and fewer foreclosed homes are flooding the market, meaning that homes are selling faster at higher prices — which also means fewer homeowners owe more than their house is worth. [4]

Spirits amongst the average Californian appear relatively high (emphasis on the word “relatively”). According to a survey conducted in late November 2012 by U.S.C. Dornsife/Los Angeles TimesPolls, 38 percent of Californians say the state is heading in the right direction, which appears weak under normal circumstances, is double what the figures were 15 months ago! [5]

Lastly, some experts are spotting signs of incipient growth, including a surge in rental costs in the Bay Area, possibly suggesting an influx of people looking for jobs.

California’s Department of Finance released its January 2013 Finance Bulletin which was broadly supportive of the narrative above. Its bulletin includes information on the latest economic indicators for California.

On real estate trends and forecast, they reported that:

  • After slowing in the preceding two months, home sales rebounded in October. Sales of existing, single-family detached homes was up over 10 percent from October 2011.[6]
  • Even though home prices slipped in October, they were still up substantially from a year earlier. The median price of existing, single-family homes sold in October was $341,370, up 23 percent from 12 months earlier.[7]
  • The California Association of Realtors’ unsold inventory index fell to 3.1 months in October, which was the lowest inventory reading since August 2005.[8]

 

California’s fiscal outlook for the near future?

On fiscal and budgetary matters, the independent California’s Legislative Analyst Office (LAO) reported that  California’s budget situation has “improved sharply,” which is a drastic improvement from recollections of the state nearly declaring bankruptcy.[9] “The state’s economic recovery, prior budget cuts, and the additional, temporary taxes provided by Proposition 30 have combined to bring California to a promising moment: the possible end of a decade of acute state budget challenges,” they argue.[10] Furthermore, assuming steady economic growth and restraint in augmenting current program funding levels, the group argued there is a strong possibility of multibillion–dollar operating surpluses within a few years.[11]

 

A Less Optimistic Picture Ahead?

Despite the positive outlook, caution is advised since these forecasts depend on a number of key economic, policy, and budgetary assumptions. Conversely, some experts expressed less optimistic projections about the health of the housing market in California. For example, in their latest report, economists at the UCLA Anderson Forecast called for only a "modest" recovery in housing starts, which are expected to grow 12 percent this year, to 658,000. For sake of comparison, housing starts peaked at 2.1 million in 2005, and bottomed at 554,000 in 2009.[12]

That said, Jerry Nickelsburg, Senior Economist at UCLA Anderson Forecast expects California's growth will "run slightly hotter" than the U.S. overall, thanks to increased international trade and business investment in equipment and software.[13] Though the state may be losing jobs to other states (like Texas), it continues to attract more venture capital, which is sustaining growth and investment.[14]

UCLA Anderson Forecast Senior Economist David Shulman corroborated these statements, arguing that "the economy is being propelled higher by strong increases in corporate spending on equipment and software. The fuel for this spending is coming from extraordinarily low interest rates, a rapidly recovering stock market and investment incentives coming out of Washington, D.C."

 

Summary

In summary, the size of California’s economy and its diversity are challenging factors to overcome immediately. In all fairness, however, the state budget appears to have been stabilized and provides a platform for reinvesting in education and other public systems and services that are essential to all Californians, which provides the basis for sustainable growth.[15] All in all, it appears the state is turning a corner and emerging from the recession...

 



[11] http://www.lao.ca.gov/reports/2012/bud/fiscal-outlook/fiscal-outlook-2012.aspx

Factors supporting these assumptions include:

1)  an assumption that the existing projected $1.9 Billion Budget Problem will be Addressed and reconciled by June 2013, stimulating a better economic climate.

2)  Based on current law and our economic forecast, expenditures are projected to grow less rapidly than revenues. causing surpluses in the operating budget projected over the next few years.

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US Mortgage Rates at All Time Low – Great News for Consumers

September 14, 2012  |  Loan-America.com Insights

In today’s US real estate market, mortgage rates are hovering near record lows, some claiming these to be the lowest in nearly a century, which bode well for prospective new buyers or re-mortgaging consumers.[1] 

The mortgage rates for the week ending Sept.13, 2012 include the following:

-  30-year FRM averaged 3.55 percent this week, unchanged from last week. Last year at this time, the 30-year FRM average was 4.09 percent.[2]

-  15-year FRM this week averaged 2.85 percent, down slightly from last week's average of 2.86 percent. One year ago, the 15-year FRM averaged 3.30 percent. [3]

Mortgage Rates 30 year

Factors contributing to keeping US Treasury bond yields low and, in turn, interest rates at unprecedentedly low levels include turmoil in world economy, investor concern with the European debt and bond markets, and a shaky economic recovery back in the US.

In addition, just yesterday, the Fed announced a new policy – “quantitative easing” – meant to stimulate the economy through a round of bond purchases targeting the mortgage market. This entails the central bank purchasing $85 billion in bonds per month through the rest of the year, and then $40 billion per month indefinitely until the economy requires less support.[4] The policy is intended to continue driving interests rates even lower to help support lending, borrowing and spending.[5] The Fed also supported their policy with strong language claiming they would extend plans to maintain interest rates at ultra-low levels through into mid 2015, and continue supporting the economy “for a considerable time after the economic recovery strengthens.”[6]

What does this mean for consumers and prospective buyers? Well, consumers should look to take advantage of the low rates by getting into the market or re-mortgaging their current deal to lock in at a lower fixed rate as soon as possible.

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