2012 & 2013 were very strong years for the local market with major price appreciation. Hedge Funds and foreign investors were buying REOs in bulk, and buying multiple unit and single family residential units for cash, driving up pricing. Over the past few months it has definitely slowed down.
The quantity of closed sales started 2013 strong, tracking the strength of 2012, but eased up in May, when the interest rates started going up. If we look at the last few months of newly opened escrows, you can see where the quantity of sales are well behind the last couple years. Part of that is because the low inventory levels. We have more inventory than what we had in the beginning of the year, but it’s still light compared with historic levels.
Historically we average around 5-6 month’s worth of inventory. In December we only had 2.5, but I guarantee you that will be going up this spring. The pricing has appreciated over 20% a year, over 2012 & 2013. But starting last August, the appreciation has stalled, and actually dropped a little.
Now, what are we going to watch for in 2014? How much impact will institutional and foreign investors have going forward? They were the market drivers over the past few years, but now that the pricing has been driven higher, they’re not going to continue to be aggressive buyers.
The Federal Reserve started easing up on their Quantitative Easing. They’ve been forcing the interest rates to artificially low levels. Rates have been going up since last May. Several Dodd Frank regulations applicable to mortgages became effective as of January 10. Just a couple weeks ago. This is already having an effect on buyers qualifying loans. Enough so that consumer groups were already complaining at a congressional hearing last Wednesday. The combination of higher prices, higher interest rates, and tighter loan underwriting guidelines is going to supply headwinds to the market going forward.
I’m not saying the market is going to collapse. Mainly because inventory is still tight, and a lot of owners have accumulated equity over the past couple years, and fewer are underwater on their loans. Qualifying for a refinance or a purchase loan will be more difficult. If a borrower doesn’t fit into the little Qualified Mortgage box the fed built, I’m approved with over 75 lenders, and there are non-QM loan program options.
If you are in Los Angeles region, and have any specific questions, always feel free in contacting me me through my website mres.com, or my email address or phone number shown below.
Ron Henderson GRI, RECS, CIAS
Multi Real Estate Services, Inc
Gov’t Affairs Chair – California Association of Mortgage Professionals