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Resale prices will rise in 2014

Posted: November 13, 2013 2:00 a.m.
Updated: November 13, 2013 2:00 a.m.
 

What will the housing market look like in 2014?

Home sales will rise about 3 percent, while resale prices are expected to post a 6 percent increase—after a 28 percent jump in 2013.

Those were the key conclusions of economists at the California Association of Realtors as revealed at the group’s recent trade show held at the Long Beach Convention Center.

Virtually every economic indicator is expected to show improvement in the New Year, yet there are enough uncertainties out there that flipping a coin may be a sound planning strategy.

“We’ve seen a marked improvement in housing market conditions in a year with the distressed market shrinking from one in three sales a year ago to less than one in five in recent months, thanks primarily to sharp gains in home prices,” said C.A.R. Vice President and Chief Economist Leslie Appleton-Young. “As the market continues to improve, more previously underwater homeowners will look toward selling, making housing inventory less scarce in 2014.”

Consequently, CAR believes the New Year will see home price increases moderate from the double-digit increases reported for much of 2013 to mid-single digits in most of the state.

“The wildcards for 2014 include federal, fiscal, monetary and housing policies – such as the mortgage interest deduction and mortgage finance reform – as well as housing supply and the actions of the Federal Reserve, which will ensure a higher rate environment,” Appleton-Young said.

C.A.R.’s analysis found that due to tougher underwriting rules from lenders and price gains, the size of down payments is on the rise. A down payment of 20 percent is the median for this year, which translates into about $70,000. That can be a good thing, in that it means buyers have “more skin in the game.” About 52.2 percent of buyers this year made a 20 percent down payment, compared to 43.2 percent in 2006.

Yet that doesn’t tell the full story: in 2006 21.1 percent of buyers made a zero percent downpayment, while this year only 7.0 percent purchased with nothing down.

And, in 2006 11.0 percent were all-cash buyers; in 2013 that figure increased to 27.4 percent, which was down from 29.6 percent in 2012.

Perhaps most telling, the percentage of buyers who took out a second loan on their property or agreed to an adjustable rate mortgage fell dramatically from the high-flying, high-risk days of 2006, just before the crash.

About 43.4 percent of buyers in 2006 took out a second mortgage; that figure plunged to 2.2 percent this year.

In 2006, 32.6 percent of buyers used an ARM; that fell to 4.0 percent this year, as buyers sought to lock in historically low interest rates on fixed-rate loans, albeit in extremely tight underwriting conditions.

Eight percent of homebuyers this year are from foreign lands. That’s up from 5.8 percent last year and 7.8 percent in 2008. Of those purchases, 36 percent pay with all cash.

Where are the foreign buyers coming from?

C.A.R.’s analysis pinpoints four main countries: China, with 30 percent of foreign sales, Mexico, at 13 percent, Canada, 9 percent, and India, 6 percent.

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