California Housing Activity Could Impact National Market

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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

About Author

Harrison Stowe is a writer for NVR Inc., a prime developer of Baltimore new homes. Addressing a range of topics including investing, mortgages, and real estate, Stowe combines finance knowledge with additional experience working with Ryan Homes in the current real estate market.

8 Comments

  1. For the short term in my Charleston, SC market, the interest rates are a huge factor in making the past few months record sales months compared to the last 3 years of sales history. Our market hasn’t heated up to the point of California, but it’s by far the strongest market in our state. For the long term, allowing interest rates to naturally rise without as much easing may be a good way to keep the market from creating another bubble.

  2. Adam Roberts on

    Interesting economics at play. I just moved to TX from SoCal last month, not primarily due to home prices but it was a close 2nd. I was shopping for a primary home there and just didn’t feel like paying >$700k to not live in the Desert! Maybe will have the money to do it later in life.

  3. As California goes, so goes the nation?

    We’ll see. If there, I would worry about the hyper rise in values. Didn’t work for the NASDAQ, didn’t work in the past for housing. Shouldn’t take a rocket scientist to see where a continuation of those values would lead.

    Will it effect North Carolina? Time will tell. Didn’t hurt us too badly last time around.

    Thanks for your post.

  4. Jeff Brown

    One wonders about the thought process of both major lenders and federal regulators. CA is a major, SEPARATE market. If the rest of the country’s markets aren’t nutso, their interest rates should reflect that reality. If CA’s market continues to climb, their interest rates, it could be argued, should be higher than East Cupcake, Iowa. How hard is this anyway?

  5. I’m in Fresno California, (lessor known, but a million people in the county) located between LA and S.F. I’ve heard that we have the fewest days on market, and one of the highest appreciation rates in the country.

    Things are starting to look like 2005-2007 again. Zillow has our appreciation at 35% over 1 year. When I sell an multi family units, I get calls from all over the state.

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