Hello Friends. 2013 was a phenomenal year for real estate. Prices jumped up and surpassed the peaks of the pre-crisis in many bay area neighborhoods. So the obvious question I get asked many times is, what is the further upside in the bay area real estate market?
The content of this video were shared with my clients throughout the year and many of them took action and bought a home either as first time home buyers or SOLD a home and upgraded to a bigger better home in desirable neighborhoods. Those who took my advice have made substantial gains on their home investment both emotionally and financially. So Congratulations!
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For those of you who are still on the sidelines, to either sell their home or buy a home, I am going to share the secret with you. Even though the information is available to those who seek it, to interpret such information requires real estate market knowledge and understanding of the workings of this market.
So what do you expect to happen to bay area prices in 2014? The rates are on the rise with Fed decision to taper quantitative easing. The inventory levels are still low and the number of buyers in the market is unseasonably high. This is a recipe for prices rising further. Such complex interactions can be defined by a single parameter called AFFORDABILITY.
Affordability is nothing but the ability to afford a home. It is typically represented by a percentage. For example, affordability of 60% means 60% of the people living in the neighborhood can afford to buy a home in that neighborhood. Affordability can be defined for a specific neighborhood, specific city or county or bay area as a whole. Irrespective of any bubble or investor flooded markets, affordability is a good predictor of slowdown in the housing market.
For example, if history is any guide let’s look at the affordability numbers during the boom time of 2004 to 2007. The affordability of home buying for the first time home buyers was about 50% in 2003. It dropped to 45% in 2004 and during the housing boom of 2004 to 2007, the affordability dropped down to 20-25% across the bay area neighborhoods. What I observed during this period was the number of offers on a given home went down from crazy 20-30 offers per home down to 1 to 3 offers by the peak time. During the same period, interest rates went up from high 5% to almost 7.5% along with the 30 to 40% jump in the home prices.
After the housing and mortgage crises of 2008, when the prices dropped and interest rates dropped, bay area affordability climbed as much as 70%. This affordability number started dropping as home prices started to rise with government incentives for home buyers in terms of tax credits and attractive interest rates. Affordability was as high as 55-60% in 2012. However, by the end of third Quarter of the 2013 the affordability was anywhere from 35% to 45% across bay area neighborhoods.
So per my analysis there is still upside in this market. I have my own opinions based on my in-field knowledge. I can share with you when such affordability drop will cause the markets to peak across bay area neighborhoods. Also affordability numbers are different for different counties and cities across the bay area. To set up one-on-one meeting click on the appropriate link.
Additionally, do listen to my weekly radio show “Power Hour with Amit Inamdar” between 4 and 4:30 each Friday on RadioZindagi.com or Radio 1550 AM. You can also access my radio show archives Playlist by visiting on YouTube or searching Power Hour with Amit Inamdar on YouTube.