If You Want to Predict The Housing Market, Go West

Back in 2007, it seemed as if the housing market crash would never end, and that foreclosures and decreased home values were to become the new norm. No place was this more apparent than in California, where home prices plummeted by about 42%. Slowly, though, the market began to recover, and California, as well as the rest of the country, began to see an upturn in the housing market.

Today, however, affordable housing in California is harder and harder to find. It is estimated that only about a third of the population in California is now able to afford the costs of buying a new home.

Why is this concerning for the rest of the country? Because California is actually one of the biggest indicators and predictors of what will happen in the housing market across the country. In other words, if housing prices are too high for the majority of Californians to afford, there is a good indication that this is also the case in the other 49 states.

How did we get here?

When the housing marketing began to rebound, inventory was extremely high, while prices were extremely low, which meant good deals were easy to find. In recent years however, economic growth, foreign investment demand, decreased housing inventory and all time low interest and mortgage rates have helped to turn things around. This has not only increased demand for housing, but it has also helped to drive prices back up, while at the same time increasing the value of homes.

In addition, now that home prices are steadily increasing, sellers are waiting a little bit longer to put their homes on the market in order to get the best price possible for their home. While this translates into a inventory shortage for buyers, it also means that more current homeowners are returning to positive equity, and no longer feeling underwater as a result of owning a home that had decreased significantly in value. This up turn also means that foreclosure sales are down, and all signs indicate that this trend will continue.

Another result of these positive and changing trends is that mortgage prices are beginning to increase as well, which means it may make it harder for everyone to afford a home in the same way the could at the beginning of the housing rebound.

While 2013 housing prices ended in an up swing of around 11%-15%, economists aren’t predicting the same rise in 2014. In fact, most anticipate that the housing market will only see growth between 4%-5%, and while no one can truly forecast the future of the housing market, it does seem, that for now anyways, the slowdown is projected to stay for a while.