The Breakdown

Explaining Southern California's economy

California real estate forecast: Bigger inventories and higher prices

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66289 full

It's not breaking news that the California housing market is heating up, but now the California Association of Realtors is confirming it on the record, predicting that the trend will continue upward into 2014.  

In its latest forecast, CAR predicts primary home buyers will make a comeback after a period of tough competition with investors for what has been a limited supply of homes on the market.

"We've come up against an exceptionally low-inventory situation in California for at least the last year and half, and it has started to take a bite out of sales" says Leslie Appleton-Young, the association's chief economist.  She says the market is still "robust" but predicts a 2.1 percent drop in the number of homes sold this year over last year due to limited supply. But two trends are changing that, says Appleton-Young.

One is a rapid rise in home values.  It's lifting many underwater homeowners — those who owed more in mortgage payments than their homes were worth — providing them with the opportunity to sell. Appleton-Young says that's beginning to boost the number of real estate listings. 

The second is a shift in investor behavior. For the past three or four years, investors have bought homes and rented them out. Now, Appleton-Young says they're starting to "flip" the houses — buying, fixing and putting them back on the market — more frequently. 

The forecast projects home sales to reach 430,300 units in California this year and rise 3.2 percent next year to reach 444,000 units. The median price of a California home will also increase, according to the forecast: 28 percent this year over last year to  $408,600, and then another 6 percent in 2014 to $432,800.  

So is all of this heated activity sending California into a housing bubble of the kind that preceded the 2008 financial crisis? Appleton-Young's first answer is "never say never," but she believes the dynamics of today's housing market are very different from the bubbly times. For one, it's a lot harder to get a home loan.  

"The underwriting that goes into loan origination today does not look anything like the underwriting that we had in 2003-6, where you essentially had a pulse and got a loan," Appleton-Young said.

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