Home ownership is expected to be key to the California real estate market over the next year.  The 2014 California Housing Market Forecast" released today said that the diminishing importance of distressed home sales and a shift from investors toward primary home buyers will bode well for both sales and home prices in 2014.

The Forecast, released by the California Association of Realtors® (C.A.R.) sees home sales rising by 3.2 percent in 2014 to 440,000.  Sales in 2013 are projected at 420,300, down 2.1 percent from the 439,400 existing single-family homes sold in 2012.

"The housing market has improved over the past year, and we expect this trend to continue into 2014," said C.A.R. President Don Faught.  "As the economy enters the fourth year of a modest recovery, we expect to see a strong demand for homeownership, as buyers who may have been competing with investors and facing an extreme shortage of available housing return from the sidelines."

Home prices are projected to grow by 6 percent in 2014, moderating from the soaring 28 percent price increase expected by the end of this year and an 11.6 percent gain in 2012.  This would bring the median home price in the state to 408,600 by the end of this year and $432,800 in 2014.   

"We've seen a marked improvement in housing market conditions in a year with the distressed market shrinking from one in three sales a year ago to less than one in five in recent months, thanks primarily to sharp gains in home prices," said C.A.R. Vice President and Chief Economist Leslie Appleton-Young.  "As the market continues to improve, more previously underwater homeowners will look toward selling, making housing inventory less scarce in 2014.  As a result of these factors, we'll see home price increases moderate from the double-digit increases we saw for much of this year to mid-single digits in most of the state."

C.A.R. also forecasts a growth in the U.S. Gross Domestic Product of 2.8 percent in 2014, following an expected 1.8 percent gain in 2013.   Nonfarm jobs will grow by 1.9 percent in California, and the state's unemployment rate should decrease from 9 percent to 8.3 percent.  The average for 30-year fixed mortgage interest rates will rise to 5.3 percent but will still remain at historically low levels.

Appleton-Young said "The wildcards for 2014 include federal, fiscal, monetary and housing policies - such as the mortgage interest deduction and mortgage finance reform - as well as housing supply and the actions of the Federal Reserve, which will ensure a higher rate environment."