By Jason Katz, Vice President of Mortgage Lending for Guaranteed Rate Mortgage
2013 was a year of contrasts for the San Diego real estate market. During the first half of the year, an unusually low supply of homes, coupled with low rates, spurred bidding wars and pushed home prices up sharply. The second half of the year saw a sudden spike in interest rates and an increase of inventory, so the frenzy cooled off.
What does that mean for 2014? There are contradictory points of view, both with valid points. Depending on your perspective, this might be a good time to buy, sell, or stay out of the real estate market for a while.
From the Bull point of view, low home inventories support rising prices. For 2014, projections estimate a gradual stabilizing of inventory. Rising prices in 2013 have allowed more homeowners to return to positive equity and list their homes. Builders are also starting new construction in the area. In fact, building permits approved in San Diego County were up 43% through July 2013 from 2012.
There are more buyers in the market for new homes. New rules with FHA’s Back to Work or extenuating circumstances guidelines have opened the door for former homeowners to buy again after only one year of having sold their previous home in a foreclosure or short sale. This is down from three years for a short sale or foreclosure and two years for a bankruptcy.
Another reason to be bullish: Zillow’s Market Health Index, calculated on a scale from 0 to 10, is a measure designed to illustrate the current health of a region’s housing market relative to similar markets nationwide. San Diego ranked fourth in the nation with a score of 8.4.
Mortgage delinquencies have dropped and the worst of the distressed-housing problem appears to be in the rear view mirror. The economy is trending up and unemployment is trending down, although at a slow pace.
Not everyone feels the market is on an upswing. Bears believe that the housing recovery is a mirage sustained by the Federal Reserve’s stimulus, which has done little more than inflate home prices, stocks and other assets.
Record low interest rates unleashed demand from borrowers and investors seeking anything with a decent return. Now the big investors are no longer in the market after cherry picking the undervalued real estate. Prices in 2013 outpaced income growth furthering declines in home affordability. If the US economy begins to grow at a faster pace and incomes begin to rise, the affordability index will slide further from rising mortgage rates. The Mortgage Banker Association is also predicting a rise in interest rates. They predict a 30-year fixed will increase from 4.7% in the first quarter of 2014 to 5.3% by the end of 2014.
Whether you are a Bull or a Bear, this year will definitely see changes in the housing market and distribution of loans. FHA has reduced the size of the loan it will insure from $697,250 to $546,250 in San Diego County, and Mortgage Insurance has been extended as a requirement for 30 years or the life of the loan for limited down payment FHA options.
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The views, facts, and opinions expressed in this article are solely those of the original author and other contributors and do not express the opinions of Guaranteed Rate, Inc.