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Has the California Housing Market Reached a Tipping Point?

California real estate markets in 2013 have been riding on a fast track to recovery.  Housing prices have risen dramatically in some markets, causing some buyers to say…..not so fast.

Dramatic increase in prices have largely been driven by lack of available inventory of homes for sale. As well as significant presence of investors and cash buyers. Tight market conditions led to a rise in multiple offers. Market conditions are favoring sellers, but there are indications that some of the California’s real estate markets may be at a turning point.  

Rising mortgage rates initially presented sticker shock for buyers who may have already been discouraged by rapidly increasing home prices. Their first reaction was to postpone their home purchase.  However, as everyone realizes mortgage rates will likely not return to last year’s levels and housing is still affordable by historical measures, buyers are slowly readjusting their expectations and coming back to the market.

Investors are playing a smaller role, paving the way for a more balanced marketplace. Rising prices and interest rates have shrunk investors’ profit margins and the share of investors decreased to 16 percent in July from 22 percent at the beginning of 2013. Investors are also hard-pressed to find any supply of distressed properties, which has dwindled to less than a month of inventory. Distressed sales as a share of total sales have also come down dramatically to 17 percent, which was the lowest level since the end of 2007. Fortunately, however, supply of inventory of equity sales has increase 9 percent from June to July, and almost 20 percent from the year before.

While fewer listings are under contract within a week or two than what we saw just a couple of months ago. The statewide median time on the market started inching up in June and again in July, after continuously declining since January 2012, an increase in inventory is a much needed development and will aid the market to continue to grow going forward.

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