The median sales price for single-family homes rose by about 14% in San Luis Obispo County over the past year, jumping from $395,000 to $450,000, according to the Keith Byrd price tracker.
The uptick in prices came for a number of reasons. Low home prices and record-low mortgage rates made real estate a more affordable investment, while declining foreclosures activity meant less of a downward drag on prices. As the year progressed, high demand and low supply pushed sales prices higher and higher.
As we enter 2014, the housing market landscape looks a bit different. Mortgage rates are higher now, and prices are no longer as affordable. Less foreclosure activity is positive, but it means less bargain-basement opportunities. Higher rates and higher prices will weigh negatively on demand.
In other words, the real estate market is finally starting to even out.
There are some signs of danger, according Fitch Ratings. As we enter the new year, the Fitch Sustainable Home Price Model shows national prices overvalued by about 15%, according to HousingWire.
Much of this over-valuation comes from California markets – especially the Bay Area. San Francisco prices, for example, rose 25% in 2013. The median price for a Bay Area home reached $548,500 in December of 2013, which is just a step down from the bubble-induced levels back in 2006 and 2007.
SLO County enjoyed a successful year of real estate, but not quite at the accelerated level in the Bay Area. Sales may slow as prices rise and mortgage rates tick up, but the fundamentals of the market are solid. Expect a solid – if somewhat slow – year of growth in 2014.
Here are a few additional pieces of housing market news released during the previous few weeks:
Why credit scores dropped on new mortgages in 2013 (Wall Street Journal: Developments Blog). The good news about reduced demand: lenders will be loosening standards a bit more to try to draw in business. We are already starting to see it. The average credit score for approved mortgages dipped to 727 in December of 2013, which was down from 748 the previous year.
California foreclosure starts dip to eight-year low (DataQuick).
Mortgage forecasts lowered for 2014 (CNBC). Refinance volume is expected to dip 60% in 2014 as rates move higher.
Construction up, but are we building too many houses? (CNBC). Total housing construction jumped 18% in 2013 to meet rising demand for housing, but if prices continue to rise, builders will have a harder time finding buyers.
The Buy/Rent Balance Shifts (Bloomberg Businessweek). “For the first time since 2010, it was cheaper to rent a place to live in than to buy one…”