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California Home Prices Up: Supplies Low, Demand High

gold rush

Steep Home Price Appreciation is the New Gold Rush

Orange County, CA – California’s median home price broke the $400,000 mark last month for the first time since the economy tanked in 2008. The California Association of Realtors (CAR) pointed at lots of housing demand and low inventories of available houses as the reason for the home price increase.

“The spring home-buying season [got] off to a good start,” said CAR President Don Faught. “Southern California regions such as Los Angeles, Orange County, and San Diego led the way in both month-to-month and year-over-year sales increases, while sales in the Bay Area region as a whole posted a healthy monthly gain but dipped slightly from last year.”

The median price of an existing single-family home climbed from $378,960 in March to $402,760 in April — up 28.9 percent from the April 2012 median price of $312,500. That means the median home price has risen in double-digit percentages for each of the last ten months

“The upsurge in the median price continues to be driven by an increase in sales in the upper- price range, where low inventory is less of an issue,” said C.A.R. Vice President and Chief Economist Leslie Appleton-Young.  “Over the past year, home sales in the $500,000-and-higher market segment posted a year-over-year gain of 35 percent on average, which contributed to an increase in the statewide median price of nearly 30 percent from the previous year.”

Homes are also selling more quickly — less than 28 days on average in April, compared to just over 48 days in April of 2012. Naturally, with prices on the rise and homes selling more quickly, it’s becoming more and more important for erstwhile home buyers to have their financial affairs in order well before they make the first move toward applying for a mortgage.

At the same time that home prices in California are ramping up, the Federal Reserve is making noise about cutting back on it’s purchase of mortgage-backed securities, which is in turn driving mortgage rates up. Mortgage rates have been artificially low since Q3 2012 because the Fed has been purchasing mortgage bonds every month, which through a complex and somewhat boring relationship has the net effect of suppressing mortgage rates. Many lenders, including Freddie Mac, are nudging their rates upward in anticipation of the end of the Fed’s purchases.

What does all this mean to you?  It means that if there was ever a time to get a fixed-rate mortgage for a new home, this is it. Waiting longer will mean higher home prices and higher rates on those prices. Therefore, you’ll spend much more money on the same property that you could get right now for less.

Scott Storace

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