By: Dr. Lynn Reaser
After a tortuous boom-bust cycle, San Diego’s home prices rebounded last year, soaring by 18%. As sellers and buyers begin listing and looking for homes, what will be the outlook for the rest of 2014?
At this point, it appears that home prices will continue to rise but by only about half last year’s pace, or at a rate of approximately 9-10%. Three major forces will cause this moderation. First, mortgage rates have climbed from around 3.5% early last year to 4.15% currently and could be closer to 4.5% by year-end. Second, the rise in mortgage rates and home prices, along with only moderate income gains, has reduced affordability, especially for first-time buyers. Third, investment demand for housing has cooled as the lucrative returns evident at the bottom of the market have disappeared.
A moderation in housing’s price appreciation should be welcomed as it reduces the probability of a new bubble.
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