As we head into summer, the real estate market is expected to heat up. It usually does this time of year because families want to move and settle in before the school year begins.
So, who stands to benefit most from the current market–buyers or sellers? Well, for once, I’d say both. Here’s why I think the market is looking healthy:
Home equity is up
According to CoreLogic DataQuick, the median price of an Orange County home is right around $590K, up 4.2% from the previous year. That’s the 5th highest median home price since they began tracking in 2012, and comes to within 8% of the all-time high of $645K.
Here’s a breakdown of the market by California county:
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|Southern California Total
Source: OC Register
These rising prices are not unique to Orange County (Source: Money magazine). Home prices nationwide are expected to rise 4.9% on average this year, according to the National Association of Realtors (NAR). That’s closer than we’ve been in a while to the long-term average of 3.3%–and a lot more manageable than either the sharp drops of the bust years or the 12% spike we saw in 2013.
What this means is that if you own a home, you can take comfort in its increasing value. And, depending on when you bought and the type of loan you got, you may even want to refinance. For a while, it wasn’t possible for many homeowners to refinance because they didn’t have equity in their home (meaning, the value of the house was lower than what they owed on their mortgage). With rising property values, only 11% of owners have negative equity.
Now that people have more equity in their homes, they’re more open to selling and buying something new. This is a great sign of a healthy market.
Interest rates are still low
Despite predictions that interest rates could tick up by summer, the 30-year fixed rate (most recently at 3.7%) is still relatively low. NAR is forecasting that the 30-year fixed-rate mortgage will average 4.3% in the third quarter of this year, 4.7% in the fourth, and 5.3% over all of 2016 (Source: Money magazine). For perspective, on a $300,000 loan, the difference between 3.7% and 5.3% would be $285/month ($102,600 over the life of the loan).
Low interest rates are good for buyers for obvious reasons, and they’re good for sellers too. Buyers know the rates won’t last forever, so if the rates tick up this summer, there could be a rush to buy. Of course, if rates go up too far, that will mean home prices take a dip. After all, home buyers look at their monthly payment and, with higher interest rates, they can’t afford as big of a sticker price.
Inventory is stabilizing
According to Money magazine, nationwide inventory is expected to loosen up, with 1.9 milliion units on the market this year. For the second year in a row, the number of homes that were “flipped” has dropped, while the foreclosure rate is less than half what it was 2 years ago.
Also, with a healthier market, builders are picking up the pace and there is expected to be an increase in houses and condos for sale this year. That means more to choose from for buyers.
Bidding wars aren’t as common
Because prices are more stable now, there aren’t as many “deals” for investors to pounce on. And with fewer investors in the picture, regular buyers have more opportunity and don’t have to worry as much about being priced out in bidding wars or by all-cash offers.
If you’re looking to buy or sell, or just have questions about the market, contact me . I’d love to help!