California Housing Activity Could Impact National Market

As I noted in last week’s post, the purchase rate and property values in key urban metros has risen rapidly throughout Q2 of this year, resulting in what could be potentially be a risky rate of economic acceleration. This constriction in sales volume and the subsequent jump in property values have been especially pronounced throughout the West Coast, with California itself once again turning into a prime area of focus for growth investors. The combined metros of San Francisco, Los Angeles, and San Diego have stood out in particular for their flurry of new purchase activity, much of which has been motivated by their healthy local economies and turnaround in job creation.

Taking all this into consideration, new reports suggest that this sharp uptick in property values and purchase rates throughout California is so pronounced that its impact is being felt throughout the American real estate market as a whole. According to a recent story from International Business Times, new analysis from Trulia suggests that California’s frenetic market activity may shape housing policy that impacts the nation as a whole. Comprehensively speaking, the price gain among major urban areas in California is nearly double that of the mean gain among the top 100 metros in the country.

What Might This Mean for Homeowners?

As a primary concern, there’s a chance that California’s unusual market activity could put pressure on policymakers to reform mortgage rates. Keeping in mind that frenetic activity in the West Coast market is largely what precipitated the housing bubble, regulators will be especially sensitive to prevent a repeat of the 2008 crash. Since the nationwide suppression of mortgage rates is one of the primary reasons (if not the primary reason) why new purchases have continued to rise, there could be pressure to elevate mortgage rates some if only to cool heat in regional markets where activity is uneasily energetic.

The major concern with markets along the West Coast centers on of housing affordability, and whether or not prices could climb so sharply that potential buyers will have to back down from making purchases. This could yield a cessation in buying rates that destabilizes the market and results in flux throughout the local housing economy which might ricochet into markets outside of the West Coast. Diminished mortgage rates seem to be coaxing purchase rates in markets throughout the Midwest and Mid-Atlantic, but low mortgage rates in California could become less of a purchase incentive and more of an enabler for unstable market conditions.

Ultimately, we’re at too early a point to determine whether or not California’s influence on the housing market will be so strong that it impacts national policy. Regulators on Capitol Hill are naturally wary of factors that might presage conditions that led to the crash in 2008, so an elevation in the mortgage rate might be plausible in the near future. Were this to occur, it could go a ways towards balancing California’s market, but might otherwise diminish growth in areas that could benefit from purchase encouragement.

Photo: Stuck in Customs

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.