Look at the chart to the left, and notice the price trend between January 2013 (the first bar on the left) and January 2014 (in the middle) – it was a pretty sharp increase (24%). And then notice the trend line between January 2014 and January 2015 – almost flat (only a 5% increase). It appears that we are finally approaching a more balanced (dare I say normal) market, where most real estate economists are predicting that we are heading into the second year of growth around 5%. Most economists say that in a normal real estate market home prices grow a few points above the inflation rate. That is what we had in 2014 and what we are expecting in 2015. This is really good news for sellers and buyers who can, for the first time in the last 10 years, start to enjoy a more predictable market where consumers can buy and sell homes with some level of normalcy. On CNBC, I always hear that Wall Street investors want stability and predictability in the stock market, and when that is not present, stocks tend to fall and the market reacts erratically. You’ve heard this before. Well, the real estate market doesn’t have an “index” that monitors daily home prices, but the numbers and trends are starting to reveal a stable market and buyers and sellers should (a) start to understand this, and (b) start getting used to it!What about the always-popular inventory discussion? Inventory levels (the amount of homes for sale that can be absorbed by purchase activity) dropped from 3.8 months of inventory in January 2014 to 2.8 months of inventory in January 2015. Yet, even though inventory dropped during the last 12 months, prices only increased 5% during that time. This is an interesting market dynamic, since normally when inventory drops, prices rise more dramatically than they did in 2014. Prices are rising more slowly now, likely, because prices have increased so rapidly in the last 2 years (43% from 2012-2013), that the market itself (e.g., buyers reluctance), slowed things down enough where we are not actually headed to the next bubble. Buyers are not overpaying for homes anymore, and the market is not as heated or frothy as it was in 2012-2013.
We are anticipating a slight increase of inventory this year, now that the market is more than a year into this recent stabilizing trend. This should help buyers understand that they have more choices, making sellers more realistic, which will in turn help keep the real estate “ecosystem” healthy and strong. San Diego is a very desirable place to live, and people move here from other places every year. As long as builders continue to build new homes, and the market remains stable as discussed above, San Diego’s market will remain a draw for home owners and investors for generations to come.
If you have any questions about the real estate market and what to expect in 2015, contact us for an appointment.