Looking Forward to Home Affordability in 2015

If things turn out in 2015 as the California Association of Realtors’ (C.A.R.) chief economist Leslie Appleton-Young predicts, the number of homes sold in California will rise while the prices for these homes will remain relatively flat. Appleton-Young expects the median price for a California home to go up by just 5.4 percent — $22,500 — from the $455,500 2014 median home price to $478,000 this year. This rise in prices amounts to less than half of the projected 11.8 percent price increase experienced in 2014.

She expects an increase in existing home sales of 5.8 percent this year — 402,500 existing single-family homes sold, which is some 20,000 homes more than changed hands in 2014. This 2015 figure is down from 414,300 homes sold in 2013.

Appleton-Young said that mortgage rates will remain historically low at about 4.5 percent. The comparatively slow rise in housing prices combined with low mortgage rates could create a formula for better housing affordability — something that Appleton-Young calls "the Achilles heel of California’s economy." Soring housing costs not only impact jobs and economic growth, but neighborhoods and family stability as well.

A slower rise in the cost of homes could have a two-fold effect: It could help encourage homeowners to "trade up" — exchange their smaller homes for larger ones. This, in turn, could open up the market for first-time buyers to "step into" those smaller homes.

The recovery in the American economy has led to fewer foreclosures and loan delinquencies, factors that could loosen lenders’ purse strings this year. According to Appleton-Young "equity sales" — homeowners selling their properties for more than what they owe on them — now account for 90 percent of all home sales in California.

Fewer foreclosures and delinquent loans have teamed up to help stabilize the housing market. Big investors exiting the housing market in 2015 also plays a role. This not only leaves more inventory for America’s traditional homebuyers that include individuals and families, but frees up money that banks have to lend to homebuyers in 2015, further loosening the tight purse strings at the banks and savings and loans.

Rising rents should play a role in increased homeownership in 2015. As millennials — people age 35 and younger see their rents increase, they will likely look to what many see as the only way out of this dilemma — trading paying rent for paying a mortgage; investing in what still remains the American dream — homeownership.