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California Forecast: Rising Sales, Flattening Prices

forecastHome sales in California are expected to rebound in 2015 following a step backward this year, according to a forecast [1] from the state's Realtor group.

In its 2015 housing market forecast, the California Association of Realtors [2] (CAR) calls for existing-home sales in the state to reach 402,500 next year, an increase of 5.8 percent from 2014's projected sales figure of 380,500.

Even with the increase, home sales are still expected to fall short of last year's total of 414,300, demonstrating how much California's market has slowed down in 2014.

"Stringent underwriting guidelines and double-digit home price increases over the past two years have significantly impacted housing affordability in California, forcing some buyers to delay their home purchase," said CAR President Kevin Brown. "However, next year, home price gains will slow, allowing would-be buyers who have been saving for a down payment to be in a better financial position to make a home purchase."

The median home price in the state in 2015 is forecast to rise 5.2 percent to $478,700, less than half the 11.8 percent increase expected for this year. The forecast appreciation rate is the slowest in four years, CAR said, reflecting improvements in housing inventory and investors' diminishing market presence.

The slowdown in price appreciation, coupled with an expected minor increase in mortgage interest rates to an average 4.50 percent for a 30-year fixed-rate loan, are anticipated to help boost sales.

"While the Fed will likely end its quantitative easing program by the end of this year, it has had minimal impact on interest rates, which should only inch up slightly and remain low throughout 2015," said CAR VP and Chief Economist Leslie Appleton-Young, who will present the association's forecast at the California Realtor Expo this week. "This should help moderate the decline in housing affordability we saw occur over the past two years."

Continuing a trend recorded over the last few years, the San Francisco Bay area is expected to outperform the other regions of the state, owing its growth to a more vigorous job market and tighter supply conditions.