The economy has made a remarkable comeback from the Great Recession, according to a California Association of REALTORS® (C.A.R.) real estate analyst. The nation’s GDP is at 2.4 percent, up from 1.9 percent in the beginning of 2013. Personal consumption, the biggest component of GDP, hinges on consumer confidence, which has also rebounded, with its index climbing to 82.3 in March, the highest reading since January 2008.

“Right now, the economy is charging along and moving forward. There is positive economic growth,” Sara Sutachan told members of the Silicon Valley Association of REALTORS® during her visit to the area last month. Sutachan is manager of Broker and Real Estate Finance Outreach for C.A.R.

It’s even better in the Bay Area, especially in the San Jose metro area, which has experienced a 3.4 percent job growth, adding 110,000 in the area. Silicon Valley is charting a stronger course compared to other parts of the state.

“You are in a world of your own and going gangbusters,” Sutachan told the REALTORS®.

Sutachan then gave REALTORS® a heads-up on what to expect this year.
* Interest rates have begun tapering off, so consumers should expect to see rates hover around the 5 percent range. This will place a damper on housing affordability for many buyers, especially first-time home buyers.

* Financial reforms stemming from the Dodd-Frank Act are reining in lenders to ensure that they make a good faith effort to verify a borrower’s ability to repay their mortgage. Stiff penalties are imposed if they do not. Mortgage applications are required to comply with the Qualified Mortgage (QM) rule, which includes full documentation of income, assets and employment, a maximum of 3 percent for points and fees, a cap of 43 percent on the back-end debt-to-income ratio, among other requirements.

* Talk of dissolving Fannie Mae and Freddie Mac threatens home ownership since these government-sponsored enterprises are the cornerstone of housing. The GSEs and Ginnie Mae (Government National Mortgage Association) are responsible for 90 percent of mortgage originations and 99 percent of mortgage securitizations.

* The proposed draft legislation on federal tax reform could significantly impact home ownership because it proposes to lower the cap on the mortgage interest deduction, place tighter requirements on the capital gains exclusion, repeal the deduction for property taxes paid in connection with an owner-occupied home, along with all other deductions for state and local income taxes.

Sutachan forecasts statewide home sales could decline about 3 percent this year. She expects the median price to rise about 8.2 percent from last year. She said sales have stalled due to tight inventory since there has been little new construction for the past five years; sellers are reluctant to put houses their house on the market because they don’t have anywhere to go; because of the high appreciation, investors are renting instead of flipping their properties; there are fewer distressed sales in the market; off-market listings are growing.