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Affordability: Looming Issue for Local Housing Market
Arcadia Weekly Apr 26, 2017
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As wages remain stagnate, the AAR sees affordability as a problem causing a decline in sales; a boost from the rise in interest rates will not last. – Photo by Terry Miller / Beacon Media News
Increase in interest rates and tapering prices make great incentives for buyers, for now.
The Arcadia Association of Realtors (AAR) says the housing market for spring had a strong start to the year. “California’s spring housing market posted a strong start to the year as existing home sales and median price registered healthy gains in March on both a monthly and annual basis, as did every major region in the state,” the AAR said recently.
This is good news for the housing market after the slump in home prices in 2016, composed of many listings with price cuts. Along with the slump in sales the last few months, the AAR expected a decline for March.
“March’s pending sales decline is the greatest so far this year, portending sales activity in the usually busy spring home buying season will be dampened, primarily due to demand outstripping the supply of active listings, which was 12 percent lower than in March a year ago,” according to the AAR.
According to Zillow, a real estate website, Arcadia has a “cold” temperature reading. This “temperature reading” makes this market favorable to buyers rather than the sellers due to the drop in prices for Arcadian listings, which occur in one-tenth of listings in Arcadia.
However, due to a hike in interest rates and the steady increase in housing prices, something different came in March.
“March’s solid sales performance was likely influenced by the specter of higher interest rates, which may have pushed buyers off the sidelines and close escrow before rates moved higher,” said AAR President, Sylvia Ramos. “The strong housing demand, coupled with a shortage of available homes for sale, is pushing prices higher as would-be buyers try to purchase before affordability gets worse.”
Last March signaled the third time since the end of the 2008 financial crisis the Federal Reserve raised interest rates. These rates increase the cost of borrowing which is a factor that can influence when buyers buy.
The AAR also noted the updated median home price in the state. “Following back-to-back monthly price declines, the median price of an existing, single-family detached California home climbed back above $500,000 in March. The median price was up 8 percent from $478,570 in February to reach $517,020 in March, and was 6.8 percent higher than the $484,120 recorded in March 2016.”
California housing prices are increasing statewide, 7.1 percent from last year, according to Zillow; but is expected to taper off by less than two percent this year.
“The spring home buying season is off to a good start, as the economic and market fundamentals remain solid for the most part,” said AAR Chief Executive Office, Andrew Cooper. “However, higher interest rates, a dearth of housing inventory, and slow wage growth will continue to have an adverse effect on housing affordability that is putting upward pressure on home prices, and is sure to hamper the market throughout the year.”
The change in prices in Arcadia is expected to fall by 0.6 percent at the end of the year, according to Zillow.
Affordability of homes is a growing problem throughout Southern California. The median income in Arcadia is $80,147 since December 2016; the median price for a home in Arcadia is $1,495,000.
There is a disparity between the income of households and the prices in homes. Starting in the 2010s, the explosion of mansions raised property prices around the area, making it a healthy market for investors and foreign buyers, but harder for local home buyers to pay.
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