Sales of detached existing single-family homes are expected to decline in 2004 from 2003's record-setting pace, while price appreciation will continue to be driven by strong demographics and higher, though historically low, interest rates in 2004, according to the California Association of REALTORS® (C.A.R.) "State of the Housing Market 2003" report.The median price of a single-family home is forecast to increase 13 percent from $369,5000 in 2003 to $417,500 in 2004, while sales are projected to decline 2 percent to 584,600 in 2004 from a record 596,500 in 2003.
As long as mortgage rates remain in the 6 to 7 percent range, most households will favor fixed rate mortgage instruments over adjustable mortgages, according to the report. However, the share of adjustable rate mortgages will climb in the year to come. Supply conditions in the market will remain very tight, and have the potential to set new record lows in the coming year.
"Strengthening economic conditions should drive job growth and household incomes should head upwards, adding fuel to the housing market," said C.A.R. Vice President and Chief Economist Leslie Appleton Young. "Repeat homebuyers will continue to dominate the market in 2004, rolling their equity gains on prior home sales into subsequent home purchases.
"Job growth was nil over the past two to three years, but households with jobs saw their incomes increase," she said. "With job numbers on the rise, there will be a spurt in household income growth. The cooling effects on the housing market of rising mortgage rates will be partially offset by gains in household incomes, resulting in continued strength in the housing market."