State’s Housing Prices Leap 5.5% During March, B of A Reports
California housing prices rose 5.5% in March and state housing starts rose 8.9%, exceeding national increases and providing further evidence that lower mortgage rates are sparking a housing boom reminiscent of the late 1970s, a Bank of America report said Wednesday.
However, the higher housing prices are offsetting some of the benefits of lower interest rates, B of A economist Michael Salkin said. Gains from lower interest rates “can be eaten up very rapidly by increases in housing prices,” Salkin said, adding that waiting for lower interest rates amid rising housing prices “doesn’t pay off.”
Median Price Hits $129,849
Bank of America, reporting data released last week by the California Assn. of Realtors, said the median price of a home in California hit a record $129,849 in March, up 5.5% over February. By contrast, the median price of a home nationally hit $80,000 in March, up 3.4% from the previous month, according to the National Assn. of Realtors.
California housing price rises are greater than in the rest of the nation because of greater demand and the fact that higher home prices here give the fall in interest rates greater impact in stimulating sales, Salkin said.
The average monthly price increase for the first quarter in California totaled 1.67%, which, if continued, would result in an annual price jump of 20%. However, Salkin said, prices are more likely to rise 10% for the year, which would be the largest increase in six years. Only two months ago, B of A was predicting a 5% jump in California housing prices this year.
California housing starts in March rose to a seasonally adjusted annual level of 280,000 units, the highest since 281,000 in July, 1978. By contrast, housing starts nationally actually declined 2.5% in March to 1.949 million, according to the National Assn. of Realtors.
Permits issued for future construction in the state rose 32.8% in March to a seasonally adjusted 344,100 houses and apartments, the highest since the mid-1960s, Salkin said. However, he said, that rate cannot be sustained and is more likely to total about 275,000 for the year.
May Spark Rise in Interest Rates
Existing house sales, as reported by the California Assn. of Realtors, increased 7.9% in March to an annualized rate of 391,721 units.
Salkin predicted that surging demand for housing will eventually spark a rise in interest rates, which could dampen the housing boom. However, Robert Arrigoni, general residential sales manager for Coldwell Banker, a real estate brokerage based in Los Angeles, said increasingly long escrow periods for home buyers will dampen interest rate rises.