Bay Area Home Sales Cool Off

The sizzling Bay Area housing market cooled in August following one of the most dramatic run-ups in recent years, according to a report released Friday.

After months of increases, single-family home sales dropped 3.2 percent from a year ago, and were down 8.8 percent from July, according to real estate information service DataQuick. While the median single-family price of $588,000 extended several months of double-digit annual gains, it was 3.9 percent lower than it was in July, the first such drop in six months, DataQuick reported.

The market is stabilizing, said Arvin Paredes of Keller Williams in Campbell. "The competitive market made it super-exhausting for people," he said. "They're exhausted from looking for places, school's back in, and the market tends to slow down seasonally in the fall."

 Jim Kabel, a remodeling contractor in San Jose, might be a poster child for the new market conditions. He started looking for a home several months ago but lost out several times to higher bidders. Recently, though, he snagged a townhouse in San Jose.

 "Earlier in the season it was much busier with multiple offers, and people were bidding higher than what I was offering," Kabel said. "Now it's calmed down quite a bit. Places are staying on the market longer, prices are dropping and there's much less competition."

 That means shopping for a home is likely to be less of a challenge in the coming months, said DataQuick's Andrew LePage.

 "Compared to the last four to five months, the evidence is that it will be a pleasurable experience for home shoppers," he said. "There is more to choose from and prices aren't leaping any more."

 That's what Louis and Keelin Marcoux found after months of getting beaten out by higher bidders for homes in Pleasanton. Louis Marcoux, an executive with a Pleasanton medical electronics firm, said they lost out on three houses, only to win the fourth time around in August.

 "It was a blessing in disguise" to be beaten out on the other homes, he said. "It is a better house, a better location, and everything we were looking for. Prices started to cool down just a tiny bit by the time we came to it. It's definitely a little less competitive."

 The months-long trend of strong annual price gains is expected to taper in the fall with fewer buyers, a greater selection of homes to buy and rising mortgage rates.

 "There's not quite the frenzy there was before," said Lanny Baker, chief executive of Zip Realty. "Higher prices and higher interest rates are causing that."

 In Alameda County, the median price for existing single-family homes was $570,000, up 32.6 percent annually but unchanged from July; in Contra Costa County, $435,000, up 39.4 percent annually but down 3.3 percent from July; in Santa Clara County, $744,500, up 24.1 percent from last year but nearly unchanged from July, and in San Mateo County, $867,500, up 33.5 percent from last year and up 4.1 from July.

 Real estate agents report increasing supplies of homes for sale in some -- but not all -- parts of the Bay Area, giving buyers more choices and more time to make a decision to buy. There are still multiple offers and all-cash sales, but the number has dropped.

 The new market conditions mean Sagar Pandey, a civil engineer in Southern California, can take his time shopping for a home in San Ramon. "I have a lot of family members up there and it's time for me to slow down a little bit," he said.

 Pandey plans to look around for at least two months to find the right place.  It's taking longer to sell a home in Contra Costa County, especially homes priced around $700,000 to $800,000, said Marilyn Cunningham of Executive Brokers in Walnut Creek.

 "We have seen a slowdown in our pending sales" in August, she said, a change from six months ago when "in three days you had at least several offers. There's definitely been a shift in the market."

Nearly 10 percent of the homes listed last week in central Contra Costa County had price reductions, said Kevin Kieffer, a Danville real estate agent. He said some sellers overshot the market and had to pull back. "There's more of a selection for buyers, and more of an opportunity to come in at the asking price or even below it," he said.

 Even in Silicon Valley, where the number of homes for sale has dropped since August, the frenzy has eased because there are fewer buyers, said Carl San Miguel, president of the Santa Clara County Association of Realtors. "The pressure is off at this point," he said.

Caroline Miller, president of the Silicon Valley Association of Realtors, said a home that sold last week for $730,000 after a $5,000 price reduction fetched three offers. "Two months ago I would have had six or seven offers on this little house in Campbell as opposed to three or four," Miller said.

Condos, which made up about a fifth of all sales, are still going strong, with sales at an eight-year high for the month of August. The median price of a condo was $445,000, up 39 percent from a year ago.

Top 10 Housing Markets for Year-Over-Year Price Gains

 

This list shows how single-family home prices changed from July 2012 to July 2013. These rankings are based on a repeat-sales index that tracks increases and decreases in sales prices and includes distressed sales.

1. Los Angeles-Long Beach-Glendale, CA +22.62%

The Southland housing market includes the cities of Los Angeles, Long Beach and Glendale, Calif. It’s also one of the hottest real estate markets in the country right now, with home prices rising more than 22% annually, according to CoreLogic.
It’s so hot, in fact, that some analysts are starting to use the “bubble” word. According to Jed Kolko, chief economist for the real estate website Trulia, Los Angeles is one of only two metropolitan areas in the U.S. where home prices are more than 10% overvalued (Orange County is the other).
To be clear, home prices in the Los Angeles area are still well below the 2006 peak that occurred during the housing bubble. So there’s no quantifiable cause for concern — yet.

2. Riverside-San Bernardino-Ontario, CA +22.53%

The Inland Empire housing market (which includes the cities of Riverside, San Bernardino and Ontario, Calif.) has also seen major home-price gains over the last year. Prices jumped 22.53% from July 2012 to July 2013, according to CoreLogic’s HPI report.
San Diego-based DataQuick also reports strong numbers for this region. The median sale price for the Riverside housing market rose nearly 26% in July, compared to the same month last year. San Bernardino’s MSP climbed 24.2% over the same period.
Just don’t expect these trends to continue. The number of homes for sale across this metro area is rising sharply. One of the reasons we are seeing such significant price gains in the Riverside and San Bernardino real estate markets (and across much of California) is because inventory plummeted over the last couple of years. But now it’s rising again. This will likely have a cooling effect on local home prices.

3. Phoenix-Mesa-Glendale, AZ +18.10%

Much can be said about the Phoenix real estate market. It was one of the cities hit hardest by the housing crisis. Home prices in the Phoenix-Mesa-Glendale metro area started to plummet in 2006 and didn’t find a solid bottom until the fall of 2011. Today, however, this is one of the fastest rising markets in the country.

4. Atlanta-Sandy Springs-Marietta, GA +15.61%

Atlanta’s housing market is leading the charge in the eastern half of the country. After falling longer and further than most east-coast metros, home prices in Atlanta are now rebounding strongly. Prices in this metro area rose by nearly 16% in July, compared to the same time last year.
Atlanta was also a standout in the latest S&P/Case-Shiller Home Price Index, posting the largest monthly gain of the 20 composite cities.
But here again, we are seeing a significant change with inventory trends. The number of homes for sale in and around Atlanta fell sharply toward the end of 2011, and into the first part of 2012. But the trend is reversing. According to Realtor.com’s monthly housing summary, the total number of active listings in Atlanta’s real estate market has risen by 17.85% in the last year.
Bottom line: Inventory is still tight in this market, but it probably won’t stay that way. Expect home-price appreciation to wane somewhat over the coming months.

5. Houston-Sugar Land-Baytown, TX +11.3%

Job gains and growing demand for housing have yielded strong numbers for the Houston real estate market. According to the Houston Association of Realtors (HAR), home sales rose by a whopping 26% in July, compared to a year earlier.
Listing volume has declined in this market as well, but the inventory crunch seems to be easing. “We are seeing more homes listed for sale, which should help bring the supply-and-demand scale into healthier balance,” said HAR chairman Danny Frank.
See: Texas real estate roundup for August 2013

6. Dallas-Plano-Irving, TX +10.03%

Call it the Texas two step. Like Houston, the Dallas metro area has also moved into the top ten for home-price gains, according to CoreLogic’s latest report.
The broader Texas economy is thriving right now. This is largely the result of oil and gas production, combined with brain drain from other states like California. Job growth in the major metros of Dallas, Houston and Austin has been strong and steady over the last year. When last measured in July, the unemployment rate for Dallas had fallen to 6.4%, below the national average of 7.7%.
But not everyone is happy about the price gains within Dallas’s real estate market. According to Steve Brown, housing writer for the Dallas Morning News: “The pace of home price increases in North Texas is unprecedented and unsustainable. And the quicker the market cools down, the better it will be for everyone.”

7. Washington-Arlington-Alexandria, DC-VA +9.07%

Washington, D.C. was one of the first U.S. housing markets to recover, after the nationwide crisis that began in 2008. We reported on this as far back as January 2011, when the first signs of a rebound were emerging.
The difference here, when compared to some of the cities listed above, is that home prices in Washington, D.C. have been rising steadily over a longer period of time. When viewed on a graph, it’s a gradual upward slope, as opposed to a sharp spike. This is a good thing.
According to Washington Post writers Sheree Curry and V. Dion Haynes, local real estate agents are reporting multiple offers on desirable properties, as buyers and investors compete for limited inventory. Talk about a blast from the past.

8. Chicago-Joliet-Naperville, IL +8.63%

We covered the Chicago real estate market in depth a few days ago (see: Winds of Change Blow Into Windy City). So I won’t rehash it all here. Suffice it to say the Chicago housing market has changed dramatically over the last year and a half. Inventory has declined and continues to fall. This is driving prices up, as evidenced by the CoreLogic numbers and also those reported by Zillow and Realtor.com.
According to Realtor.com, the median list price for this market has climbed by nearly 20% over the last year or so. Meanwhile, Zillow reports a 16% jump in the median sale price. Whether listing or selling, the trend is the same. Values are rising.

9. New York-White Plains-Wayne, NY-NJ +7.82%

The housing recovery took longer to reach New England than, say, California and the Southwest. But it’s getting there. Home prices in the New York metro area have risen by nearly 8%, according to CoreLogic. The New York State Association of Realtors (NYSAR) reports a 16.4% increase in closed sales for the month of July, compared to last year.
It’s a good time to be a seller in this market. “The combination of strong buyer demand and constrained inventory levels continue to drive median price gains as sellers received nearly 96 percent of their asking price in July,” said Duncan MacKenzie, the chief executive at NYSAR.
The speed of recovery is mixed across this metro area. For instance, Zillow reports a 4.7% year-over-year increase in the median sale price for White Plains, N.Y.. In Newark, N.J., the MSP rose by 18.4% during the same period.

10. Philadelphia, PA +4.29%

I’m actually surprised to find Philadelphia on CoreLogic’s top-ten list for metro-level price gains. The median list price for the Philadelphia housing market has been mostly flat over the last year or so. Additionally, Philly’s unemployment rate is still higher than the national average. The jobless rate was 10.8% in July, according to the Bureau of Labor Statistics. This limits demand for housing.
As for the future of this market, much will depend on the inventory situation. For-sale inventory has declined a bit recently in the Philadelphia real estate market. If that continues, it could drive additional price gains. Otherwise, appreciation will level off.
Disclaimer: This story makes forward-looking statements about various housing markets across the country, as well as broader economic trends. Such statements should be viewed as matters of opinion, not as matters of fact. We make no guarantees or assertions about future economic conditions within the cities and metro areas listed above


 

Bay Area Housing Hits a Peak in July

 

The Bay Area's housing market staged a breakthrough in July, reaching the highest level of sales for any month in nearly seven years, according to a report Thursday. The housing recovery has been bogged down by a lack of inventory. This month's report indicates that is no longer the case, as sellers respond to double-digit price increases.

 

July's median sale price of $562,000 for all types of homes is up 33.5 percent across the nine-county Bay Area in 12 months, according to real estate information company DataQuick, meaning that homeowners who have been sitting on the sidelines for years can finally sell at a profit.
Jonathan and Breanna Everett just sold their Walnut Creek townhouse for $425,000, about $100,000 more than they paid for it 3 years ago. 

"It was a really big win we never anticipated," said Jonathan Everett. The money was enough for a 20 percent down payment on a single-family home in a desirable neighborhood in Portland, Ore., where the couple is relocating for new jobs in the health industry.

With 9,339 sales in July of all types of homes -- houses, condos and townhomes -- the nine-county region has topped sales for every month since July 2005, before the housing market slumped with the bursting of a home price bubble, DataQuick reported.

"The pendulum is swinging back to normalcy," said Andrew LePage of DataQuick.
Sellers are coming back into the market, said Realtor.com's president Errol Samuelson. "You're seeing the market start to stabilize, which is a really good thing. We didn't want a nice recovery to turn into an overheated market."

Sellers are benefiting from the large yearly gain in median sale prices. Single-family home prices were up 31.7 percent from July 2012 across the nine counties.

In the South Bay, Peninsula and East Bay, median sale prices for existing single-family homes were up double digits from a year ago to $570,000 in Alameda County, $450,000 in Contra Costa County, $740,000 in Santa Clara County and $833,000 in San Mateo County.

Single-family sales in those four counties were not at their highest in seven years for any month, but Santa Clara and Alameda counties had the strongest July in sales since 2005; San Mateo County topped any July since 2006, while Contra Costa had the best July since 2009.

There's good news for buyers, too. Some real estate agents are reporting fewer numbers of multiple offers and some sales for less than the asking price, making it easier for move-in buyers to get into the market. That may be partly because investors are bidding on fewer homes. Absentee buyers -- typically investors -- were 20.9 percent of the market in July, down from a peak of 28.7 percent in February.

"It seems like the investors have backed out of the market abruptly," said Kevin Kieffer of Keller Williams Realty in Danville. "There's enough owner-occupy buyers coming in to fill the gap, and they're getting a better price."

An investor himself, Kieffer said that lately people buying to move in "will beat me back every time."
Bryce Ellsworth of Windermere Ellsworth Associates in Brentwood said he is seeing fewer multiple offers. "Houses that two months ago would have gotten 20 offers are now getting six or seven," Ellsworth said. "One of my clients said he was surprised at the number of choices he had and how nice the homes were."

One of Kieffer's clients, patent lawyer David Chung, is buying a home in downtown Walnut Creek with money from the sale of homes in Sacramento and Santa Clara."We timed it well," Chung said. Even though interest rates have jumped above 4 percent, he's not complaining. "These are incredibly low rates. I couldn't be happier," Chung said.

While overall sales were up, they fell in the most affordable markets, said DataQuick. Sales of homes below $500,000 dropped 14.6 percent from a year earlier, and home sales above that price increased by 55.9 percent.

The median price reached a low of $290,000 for all types of homes in March 2009. It peaked at $665,000 in June and July 2007 -- and at $562,000 in July, the median price has recovered nearly 85 percent of that high.

The median price is partly affected by a decline in the sales of lower-cost homes and an increase in higher-priced homes, DataQuick noted.

What You Can Expect From Housing In The Second Half of 2013

The U.S. housing recovery continues to make gains. New home sales have surged 38% since last year, hitting a five-year high in June, according to the newest figures from the Commerce Department. And despite a monthly drop in activity, sales of previously owned homes remain 15% higher than last year as well, according to the National Association of Realtors.


If housing in the first six months of 2013 could be summed up in one sentence, it would go something like this: Inventory is painfully tight, sales activity is surging and home prices have jumping.Now real estate experts are sounding off on the trends that will help shape the sector in the second half of 2013. Here’s what you need to know.

We Are Not Re-inflating A Bubble
Home prices have clocked double-digit price appreciation this year. Prices across the 20 major U.S. metro markets were 12% higher in April than they were a year before, according to the S&P/Case-Shiller Home Price Index. Other indexes have registered similarly dramatic gains. The last time prices appreciated by double digits were during the last housing bubble, motivating to question whether a new bubble is beginning to inflate.

It isn’t.  The current pace of growth, while certainly unsustainable for long term market health, is nothing to worry about just yet. “Prices are now rising as fast as they were during the bubble years, but they are still low relative to the levels where they were back then,” explains Jed Kolko, chief economist of Trulia TRLA -0.05%, a San Francisco, Calif.-based real estate site.

He says prices are actually undervalued across most of the country, lower not just than their bubble-era peaks but also lower than their historical norms when adjusted for inflation.
“You can sort of think of it as we overshot on the way down and this is sort of a correction back to something more normal,” adds Mark Fleming, chief economist of CoreLogic, an Irvine, Calif.-based real estate data firm.

Economists do believe home prices will continue to climb throughout the rest of this year. CoreLogic CLGX -0.26% projects 2013 will end with a 6% increase over 2012. And Altos Research, a Mountain View, Calif.-based firm that tracks real estate data in real time, believes 2013’s final tally will be even higher. “Based on the actual supply and demand data, we are looking at 12% year-over-year,” says Michael Simonsen, chief executive of Altos Research.

Still, it won’t last. They say several variables, including increased inventory and higher mortgage rates, will slow the pace growth, which to be clear, is expected to stay positive over the next several years.

More Homes Coming To Market
I’ve said it before. The abnormally tight inventory levels fueling the return of such frothy buyer practices as bidding wars and contingency-free offers will slowly begin to ease. Inventory – which hit a 12-year low earlier this year — is already starting to increase and economists believe that trend will continue despite the season.

In June, there were 7% less home for sale than a year earlier, according to Realtor.com, but the monthly numbers offer the forward-looking story. From May to June, inventory grew by 4%; last year that monthly increase was only 1%.“We think inventory levels on a year-over-year basis will probably flatten out by the end of this year. That will be the first time since 2007,” says Errol Samuelson, president of Realtor.com. “I think you are actually going to see inventory growth on a year-on-year basis starting in the fall, but prices nonetheless will continue to appreciate.”
“Inventory started to expand very slowly maybe about four months ago,” echoes Kolko. “We will see that continue as rising prices help owners get back above water and help other sellers decide to take advantage of price appreciation.”

Still, some experts, like Simonsen, believe we could see housing shortages in the most sought after locales as far out as the next three years.

It will come down to new construction as more homebuilders continue to gain confidence and roll new developments. Kolko expects to see more construction commence in places like Texas, the Carolinas, Northern California and other parts of country where there’s strong housing demand, spurring job growth in both construction and housing-related industries.

Since an unusually large portion of new construction is multifamily, increased inventory won’t just help slow the rapid rate of home price growth but also quell rent prices. As many as six million more households will join the rental market ranks over the next decade, according to the National Association of Realtors;  more building in major cities will help keep rents from rising too much in response.

Mortgage Rates Will Keep Climbing
Mortgage rates have risen over the past two months. A recent Trulia survey found rising rates was the number one worry among prospective buyers right now.

Economists believe rates will continue to climb, though at a much less feverish pace than recently witnessed. But while the higher rates – the 30-year fixed loan is about a point higher than it was in early May – mean borrowing is getting more expensive, housing won’t become unaffordable anytime soon. “Prices are still low relative to rents, so at 4.5%, it’s still more than a third cheaper to buy than to rent on average across the U.S.,” notes Kolko. “Not every market will remain cheaper to buy but on average… buying will stay cheaper than renting until rates reach 10.5% — a level we haven’t seen since 1990.”

Still, in metro areas like San Francisco, San Jose, New York and Honolulu, markets that were always historically cheaper to rent than buy before the downturn, rates will begin to tip the scale back toward renting once they rise above 5%.“Our estimation is it would take a 6.5% interest rate to bring affordability just back up to the level of early 2000s, [meaning] neither too affordable nor unaffordable,” adds CoreLogic’s Fleming. “There’s plenty of room for appreciation and rate increases before that and we will probably get a little of both.”

Rising rates may help fuel another trend in the coming months: an easing of tight mortgage credit that has hampered the purchases of even qualified homebuyers. As rates rise, refinancing business dries up, pushing lenders to begin ramping up the mortgages they underwrite for prospective buyers.

Southern California Home Market Cools Off, Prices Flatten

The red-hot Southern California housing market finally got a dose of cold water.

The region's median home price in July remained flat from a month earlier, at $385,000, real estate firm DataQuick said Wednesday. The figures followed a record-setting June, when the median price rose 4.6% over the previous month and 28% year-over-year, the highest percentage since DataQuick started tracking the statistic in 1989.

The cooling off came with a surge in the number of sales to an eight-year high, indicating a growing supply of homes that could steady the market after this year's frenzy. Rising mortgage rates may also have propelled more buyers to close deals, fearful that rates could climb higher, the San Diego research firm said. "We are slowly moving toward a normalized market," said Stuart Gabriel, director of UCLA's Ziman Center for Real Estate. The market nonetheless remained strong, with the median price up 25.8% from July 2012.

Prices have risen at a breakneck pace this year with an improving economy, a short supply of homes and heavy investor demand. The gains have frustrated many would-be buyers who found themselves on the losing end of bidding wars and raised questions about whether the market is getting overheated. Many economists say the increases should moderate as the inventory crunch loosens. Rising prices, many have predicted, will spur new-home construction and lure more sellers into the market.

Rising mortgage rates should also eventually help cool the market. But rate increases could also spur more sales and price increases in the short term, as buyers look to get into the market before rates go up further. Mortgage rates have risen about 1 percentage point since the beginning of May. Inventory has increased in all six Southern California counties last month from June, according to Realtor.com. Los Angeles County, for instance, saw 7.8% more home listings in July than a month earlier. Orange County inventory rose 8.4% last month.

The increasing supply and rising rates could now be putting a damper on prices, although economists usually like to see three months of data to prove a trend. "As the mismatch between supply and demand eases, it will be more difficult for home prices to rise as steeply as we've seen over the past year," DataQuick President John Walsh said in a statement. This year's sharp price rebounds have brought both pain and gain.

For those who bought during last decade's housing bubble, just before the housing crash, rising prices brought relief in the form of increased home equity. Thousands of homeowners have escaped negative equity positions — so-called underwater mortgages, on which they owe more than their home is worth. But many buyers have struggled in the fast-paced recovery, often losing out to cash buyers in bidding wars over the paltry selection of homes.

Many have been priced out of the market entirely as prices have soared. Only 36% of Californians could afford a single-family house at the state's median price in the second quarter, according to the California Assn. of Realtors. That's down from 44% during the first three months of this year and 56% during the first quarter of 2012.

Blair Newman, a real estate agent who specializes in Lakewood, said the market remains hot. Two weeks ago, Newman said one of his clients signed a contract to sell her three-bedroom home for about $15,000 over the asking price after receiving six offers within a week. "It's been pretty consistent," he said. Investors remained a heavy presence in the Southland in July, although their presence is receding.

Absentee buyers — mostly investors — purchased 27.4% of homes last month, down from 28.6% in June and the lowest level this year. Esmael Adibi, director of Chapman University's A. Gary Anderson Center for Economic Research, said because the market fell so hard during the bust, there is still room for future price appreciation. Still, he said interest rates are likely to rise, inventory expand and the year-over-year median price figures will soon be compared with a period of more robust growth.

California Real Estate Recovery Continues with 200% Drop in Bank Owned Sales

In June, home sales with equity value jumped again to their highest level in over a year. At the same time, a large drop in distressed sales, fueled by a 200% drop in bank owned sales showed that the real estate market is growing a healthy, wide spread recovery. "These are the types of good numbers everyone can be happy with," said Chris Pollinger, Senior Vice-President of Sales for First Team. "Bank owned sales this time last year represented more than 1 in every 5 sales. Today that number is down to less than 1 in 15. That just shows how positive growth is." In the latest analysis from the California Association of Real Estate, healthy equity sales of residential property grew by almost 50% year over year to 79.9% of June's sales from 57.8% in June 2012. During that same time frame, bank owned real estate sales dropped to 6.6% of sales from a June 2012 high of 20.4%. "Distressed sales are just that. The seller is either absent or distressed by the sale, the property is often the same, so seeing these healthy numbers is very encouraging," continued Pollinger. "And the numbers in Orange and San Diego counties are substantially better than the state average shows the time to enter the market is now!"

Mortgage Rates: Where We've Been and Where We're Going

In 2012, the housing market got a boost from the long-term stability of mortgage rates. The Federal Reserve’s stimulus measures helped keep borrowing costs near record lows for much of last year, and through the first few months of 2012.

Low rates helped bring home buyers off the sidelines and into the market, driving home prices north across much of the country.

But mortgage rate trends shifted significantly in May 2013. That’s when Federal Reserve officials met for one of their Federal Open Market Committee (FOMC) meeting.
These meetings are a regular occurrence, taking place eight times a year. But the event that took place on May 1 sent waves through the stock market and the broader economy. That was when Fed officials said they could begin winding down their bond-buying stimulus program known as quantitative easing.

Shortly after that seemingly innocuous statement, the 10-year Treasury yield rose sharply. Mortgage rate trends tend to follow the up or down movements of the 10-year T-bond, and this time was no different.

Trend Watch: Current Mortgage Rates 1% Higher Than May

On May 2, the benchmark 30-year mortgage rate began an upward climb that put it well into 4% territory. During the week ending on July 12, the benchmark rate hit an 18-month high of 4.51%.

Delaying a purchase until later this year will likely increase the total cost of the purchase.

The sudden shift in mortgage rate trends alarmed housing analysts and home buyers alike.

Analysts are concerned that rising rates could slow the nascent recovery taking place in the housing market. Home buyers worry that higher borrowing costs could put homeownership out of reach entirely.

So far, rising rates haven’t had a major effect on home-buying activity. Refinancing activity, on the other hand, has dropped sharply in response to the recent rate trends. Last week, the Mortgage Bankers Association’s refinance index — a measure of refinancing activity based on application volume — fell to its lowest level since July 2011. The purchase index, which measures home-buying activity, rose slightly during the same period.

Home prices are a bigger concern in some parts of the country. Property prices in California and throughout the Southwest are rising fast enough to shrink the buyer pool. For instance, home prices in the San Francisco metro area jumped by more than 20% over the last year. This trend will definitely squeeze some buyers out of the market.

But these tremendous price gains are limited to a dozen or so metropolitan areas. In other parts of the country, prices are rising much more gradually or not at all. So there should still be plenty of housing demand through 2013 and into 2014.

Recent mortgage rate trends haven’t stopped the housing recovery. But they have generated plenty of headlines and caught the attention of home buyers across the country. Savvy buyers can put two and two together. With home prices rising in most cities, and mortgage rates following an overall upward trend, it’s clear that market conditions are changing.

From a home buyer’s perspective, the best days are in the rear-view mirror. Delaying a purchase until later this year will likely increase the total cost of the purchase, from both a pricing and interest standpoint.

Looking Ahead: Market and Rate Predictions Through 2013

So what can we expect in the weeks and months ahead? Home prices will likely continue along their current trajectory. A reversal of the current trend is unlikely. Housing inventories have shrunk considerably in most parts of the country, at a time when demand is rising. So we will likely see more of the price gains we’ve seen over the last year.

We anticipate a gradual rise in rates through the end of the year

As for mortgage rate trends, these are much harder to predict. The Federal Reserve’s stimulus program have kept lending rates near record lows for months. But there is a lot of concern about how and when the Fed will taper this program.

The mere mention of tapering caused mortgage rates to jump by more than a full percentage point.