The first interest rate rise in the United States for a year could hit the housing market in California where there are already signs of the real estate sector cooling, new research suggests.
The property market in California have been regarded as overheating for a while with house prices falling in some locations such as San Jose which has seen values fall for the first time since 2011.
According to the latest analysis report from real estate firm Clear Capital San Jose, one of the nation’s previously top performing housing markets, is reporting negative quarterly price growth for the first time in five years.
And there could be further cooling as, although it is only the second interest rate rise since the downturn in 2008, the US Federal Reserve has indicated that three more rate rises can be expected in 2017, meaning home loans are set to become more expensive.
According to Clear Capital home prices have fallen 0.3% over the last quarter, the lowest current quarterly growth rate in the country and a far cry from this market’s peak growth rate of just under 6% quarter on quarter during its recovery in late 2013.
Additionally, there are other Californian markets teetering on the edge and exhibiting a similarly bubble like behaviour to San Jose, which the report suggest makes it likely that more markets in the state could turn negative in the very near future.
For example, San Francisco, Los Angeles, and Bakersfield are currently reporting 1% growth quarter on quarter or less, each underperforming quarterly growth from this time last year by at least 0.7%.
If the market climate of San Jose is any indication of what is in store for other high priced Californian markets, more cities may dip into the red during 2017, according to Alex Villacorta, Clear Capital vice president of research and analytics.
Nationally, quarterly home price growth is holding steady at 0.9%, while national annual price growth has risen slightly to 5.6%, a rise of 0.1% since last month. Additionally, as market conditions across the county continue to improve, the national average distressed saturation rate decreased by 0.4% to 12.8%, a level which has fallen just over 2.5% in the last year.
Regional quarter on quarter price growth remains largely unchanged since the previous Clear Capital report. The West, Midwest, and South all continue to hover closely around the 1% quarter on quarter growth mark. Quarterly growth in the Northeast, however, has increased 0.2% to 0.5%, the highest reported quarterly growth rate for the relatively lethargic region since February of this year.
‘San Jose going negative over the last quarter is a huge deal, although no surprise given that growth in this market, and the Bay Area region as a whole, has greatly slowed over the last couple of years,’ said Villacorta.
‘Rapid price growth combined with lagging, sticky income levels quickly pushed home prices out of the affordable range for a majority of home buyers, which is a key factor in this market’s recent downturn in performance. For this metro, turn times have slowed for both performing and distressed properties as demand has begun to slack, finally pulling the area into the red during this real estate slow season,’ he explained.
‘While the San Jose market is the only major metro area in the nation reporting negative price growth, an increasingly likely interest rate hike by the Feds this month could just be the shock to the system that pulls other over heated markets even outside California and the West into the negatives, too. We’re keeping an eye on the situation in San Jose and markets nationwide as we begin to put together our 2017 housing market performance forecast,’ he added.