You may have noticed that Spring is a windy time of year for the Central Coast. The sun will be out and shining and the beach beckoning, but persistent cool gusts of wind interrupt any dreams of lounging comfortably in the sand.
Local meteorologist John Lindsey explained why the weather shifts as it does in a recent guest column for the Tribune. The explanation includes words like “pre-frontal winds” and “Coriolis force”, but the gist of the thing is pretty simple. As inland temperatures jump, the “surface air” heats up and rises. To balance everything out, air is sucked in from cooler coastal and ocean areas.
The housing market too has a nifty little nose for balance. Over the past 24 months, the Central Coast real estate market has rapidly shifted gears.
Initially, favorable affordability conditions prompted heavy demand for property. But as purchases soared, available real estate supply rapidly declined. Prices adjusted to the imbalance in supply / demand by rising; over the past 24 months, the median home price is up over 22% for single-family residential properties, according to Byrd.
Currently, we are in another adjustment period. Over the past year, the 30-year fixed mortgage rate rose up from record low levels (between 3.25% to 3.50%) by about 1.0% to the mid-4.50% levels. The ongoing Federal Reserve “tapering” (reduction) of quantitative easing – its stimulus bond-buying program – is erasing the downward pressure that had been keeping rates so low.
Through the first few months of 2014, higher rates, higher prices, and limited supply are depressing home buying, both locally and across the nation.
Morgan Stanley has revised its estimated pace of home buying in 2014:
Through the first quarter of 2014, mortgage lending dropped to a 14-year low in dollar volume. Pending home sales dipped 7.9% in March from the previous year.
Even given these changes, we see the housing market as moving towards a healthy place. Consider:
1) The economic recovery hasn’t been particularly flashy, but in general job growth has steadily progressed. More jobs and a stronger economy will help put more people in a position to purchase a home.
2) Many people have already purchased / refinanced. The window of low rates and affordable prices accelerated mortgage activity beyond what is typical. The housing market is cyclical, and many qualified folks have taken care of their home purchases / refinances for now.
3) The second wave. Price appreciation has helped bring owners out from underwater. Soon enough, the growth will put move-up buyers in a position to sell. As supply loosens, the market can accommodate more purchases.
4) Another reason supply has dipped: fewer foreclosures and short sales. Distressed sales contribute just 8% of total listings through Q1 of 2014, up from 35% during Q1 of 2012.
The temperament of the housing market currently matches the Spring season and the cold coastal winds. This is a time of transition for real estate. Rates will continue to inch upward as the Fed decreases its stimulus-based mortgage-backed security purchases. Lenders are adapting to the post-refinance boom landscape. Owners are coming out from underwater and realizing their options.
As the market continues to churn forward into the summer and into fall, expect for the crosswinds to slow and the market to find a healthy balance.
Track weekly mortgage rate movement on our website www.CentralCoastLending.com in the Mortgage Rate section. Follow the latest market news on our Market Update blog, and subscribe to our biweekly newsletter by emailing firstname.lastname@example.org the text “subscribe.”