Madeline Schnapp, Director of Economic Research, PropertyRadar said, in a recent blog post that: “for the sixth-consecutive month, January 2014 California property sales declined year-over-year, suggesting that the May-June 2013 jump in mortgage interest rates isn’t the only factor slowing California real estate sales. I believe two more temporary factors will likely push sales lower through Q2 2014:
‘Lack of for-sale inventory — For-sale inventory has improved since last year but is still not plentiful enough to encourage people to sell. Real estate agents have mentioned that homeowners who want to sell will not put their homes on the market unless there is something for them to buy. The complaint I hear over and over is that it’s slim pickings out there, leaving would-be home sellers on the sidelines waiting for more supply. Builders are responding to pent-up demand by building new homes, but new supply will probably not hit the market until later this year.
‘Consumer Financial Protection Bureau’s (CFPB) Qualified Mortgage (QM) Rule will likely hamper sales in 2014 — I have been told the CFPB’s QM rule that went into effect in January is limiting the pipeline of available buyers. One agent grumbled to me that the average credit score of qualified buyers is well above 750, which effectively shuts out many would-be buyers. While it is too early to tell how much the QM rule will affect sales because the market needs more time to digest the new requirements, early reports point to lower sales in 2014.
‘Fortunately for the California real estate market, mortgage interest rates have edged lower since late last year due to emerging markets turmoil and a flight to the safety of the U.S. dollar and U.S. Treasuries. As demand for the 10-year Treasury note goes up, yields go down, which puts downward pressure on mortgage interest rates. Emerging markets turmoil is likely to be around for a while, giving the Federal Reserve cover to continue reducing its QE3 bond purchases without too much risk of pushing up mortgage interest rates and punishing the housing market.”
Sean O’Toole, founder and CEO of PropertyRadar added: “The recent slowing in market activity demands careful attention. The two prior major slowdowns occurred in late 2005 and 2010. The decline in sales at the end of 2005 was our first clue that the housing bubble was about to burst. The decline at the end of 2010 was due to the ending of the first time homebuyer tax credit, which reduced demand.
Today we sit in a very different situation from either of those events. In 2005 the market was clearly over-valued, with home prices far exceeding what home buyers could afford to pay – at least without the help of a teaser-rate pay option ARM mortgage. Conversely in 2010, the market was clearly under-valued, with home affordability at bargain levels that had not been seen for years – which after a brief respite led to increases in both prices and activity.
Today, I believe values are more reasonable and that we should expect neither the disaster the followed the 2005 activity decline, or the gains that followed the decline in late 2010.
Courtesy of www.PropertyRadar.com