This week in real estate July 16, 2013

Market Projections is an article representing the opinions of Dominic Tartaglia, broker associate of Tartaglia Realty. Information and opinions represented within this article should be considered predictions and that actual events and/or results may differ materially. It is highly advisable to meet with your real estate professional to fully discuss the implications of your next real estate transaction. 

This week in real estate’s prediction for San Luis Obispo is indicating further appreciation of home values and an increasing absorption rate paired with a 23% decline in mortgage applications and an increase in ‘for sale’ homes. The average price for a single family residence is following a positive trend with a 27.7% year to year increase in average sold prices, the average sold price in June was $696,000. The absorption rate for san luis obispo dipped 13% to a rate of 68.3% of listed homes being closed for the month. June also posted the highest number of ‘for sale’ homes on the market since November of 2012, representing a 28.4% decrease YTY but up 12.5% from May.

So let’s put it all together. Values are going up on average, there is no questioning that fact. The median home price for San Luis Obispo is up 23% from last April and currently rests at $599,000. If we were to take a look at that number and compare that with the absorption rate and  the 28.4 % decrease in listed homes from last year we would see that there is apparently an argument that scarcity is driving the median home value up. With a 68.3% absorption rate we are looking at a strong market where inventory is moving and suggests that buyers are willing and able to buy at market values. The conditions that may relieve some of the upward pressure on median home prices comes in the form of decreased mortgage applications and increased interest rates as well as the slight increase in listed homes this month.

We are seeing less buyers applying for home loans as a result of their buying power, suggesting a decrease in demand. Basic economic principles dictate that a decrease in demand is a leading indicator that prices may level out or even drop. My prediction is that we will begin to see a leveling off and stabilization of median home prices as more home owners list their homes for sale and less first time mortgage applications are drawn. To sustain the market I would expect that as home owners sell their existing homes they will be relocating thus creating a stabilized market environment as interest rates continue to push upward.

In summation, we are witnessing a rebounding market that may have taken off quickly in the first half of 2013 but is beginning to stabilize as oppose to grow. The one thing that I cannot predict is if/when we will see a peak in the median home price in the near future. I should also mention that there are less optimistic predictions out there that are claiming a real estate bubble is underway. I disagree with the reasons that I have heard stated for a bubble are looming shadow inventory and increasing interest rates. California experienced a 60% decrease in foreclosure filings from last year according to RealtyTrac and while we are still seeing foreclosed homes on the market, the share of traditional equity sales are much greater than they have been in years past. Additionally,  interest rates at less than 5% are still historically low, albeit not as low as 6 months ago. Nonetheless, low interest rates are increasing affordability for many qualified buyers, qualified.

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