California’s Housing Market Forecast 2019
California will keep its reign as America’s most prosperous state in 2019/2020. As the world’s 6th largest economy, California is thriving even though its housing market has slowed of recent. Some predictions are gloomy, yet others including Zillow’s, are still positive (see below).
What confounds many housing prediction experts, property managers and Realtors is whether the market will take off again in spring. Is this minor uncertainty enough to deter buyers?
What’s Happening and What May Happen in California
This epic report on the state of California’s housing market explores what’s happening. You’ll find some eye-opening insight, stats, videos, and opinions about housing in the booming Golden State economy. A few pundits believe this market has peaked, yet economics, demographics, buyer demand (and last 2 months sales stats) seem to refute that. Millions of condos need to be built in the next decade, a good portion, right here in CA.
California’s economy grew 4.7% in the 12 months ended in February compared to the national rate of 2.8%. It could grow at a 2.55% pace in the next six months — faster than the national 1.59 – report from Mercury News.
The specter of the Fed raising rates is spooking many including Millennials and speculators. Most predictions are for price discounting and slower sales in 2019. It could be we’re too impressed with the short term political and economic issues. Zillow forecasts below that prices will rise strongly in many counties in California.
Keep Your Eye on the Economy
California’s housing market is the focus of many worrying US and foreign property investors. Owners in California might be panicking based on price discounts offered. In California, buyers have been sitting on the sidelines, waiting for home prices to slide a little. And for these next few months, they get their wish.
The economic trend for the US is upward even while global economies are declining. Can any political party knock this train off the rails? As more production comes back to the US due to import tariffs and trade rules, it suggests we’re in for wage growth and more housing demand from a huge group of Millennial-aged buyers who are forming families and expecting to live in homes.
Lots of concern for home sales however, this graphic via FRED shows resale stats doing well. Sales continue right into last month. As housing prices fall in January, sales are expected to pick up from hungry cash rich buyers.
Price growth has been pronounced the last few years and that makes adjustments along the way very likely. Zillow suggests prices will grow a further 5.7% over the next 12 months. CAR expects the average home price to increase 3.1% to $593,450 in 2019, following a projected 7% over 2018 to $575,800.
This telling chart above from First Tuesday, shows us how much potential is still in this housing market. Home sales were phenomenal in 2004/2005, and total home sales in US (green line) reached near 77,000 homes in June of 2004.
Given the incredible growth potential of the US economy, we’d wonder why we couldn’t surpass those levels in the years ahead? And which California cities are best to buy in?
It suggests that housing sales are still being suppressed right across the country. A re-ignited housing market could add immeasurably to the economy. New home related accessory sales such as furniture, appliances, etc could add to GDP (American made) in 2019 and 2020.
A Healthier California Market
However, shortages of housing and new construction units means prices may rise again in 2019. Although real estate prices fell in major metros of San Diego, Orange County, Los Angeles, San Jose, San Francisco and Sacramento, the median price actually rose again in August.
Zillow gives California an improved 9.6 out of 10 rating and a revised forecast of 7.6% price growth prediction for the next year.
“We’re seeing interest and money shift away from the overheated markets into less expensive secondary markets…Even if we see some markets overheat and demand softens slightly, that doesn’t mean prices will go down” — Javier Vivas, director of economic research at realtor.com.
Latest Market Update
Greater Los Angeles home prices fell .8% in November to $512,000, down about $10k on average MTM, yet LA homes are still up $11,500 YoY. Bay Area home prices dropped 5.6% or $53,800 MTM, but are still up from last year. Marin County, Sonoma, San Mateo, and San Francisco saw the biggest price drops (Car.org stats).
Listings in California rose 17.2% from last year. Sales rose to 399,600 in August. Price reductions happened on 42.5% of listings.
Sales in Los Angeles dropped 14% while prices rose 9.9% MTM. Sales were down 8% in San Bernardino yet prices here rose 3.6% or just under $10k on average.
Sacramento was a bright spot with sales up 1.4% and average price up $5000. Monterey too saw its prices rise $10,000 or 1.6% over Octobers.
Prices dropped 8,500 in San Diego to $626,000, down 1.5% since last year. In Orange County, home prices dropped $15,000 to a new average of $795,000.
Up in San Francisco, prices dropped 147500 to a new average of $1,442,500. That’s 9.8% lower than October. Obviously a point of concern for owners looking to sell. Prices in Santa Clara dropped 3.1% to $1,250,000.
Zillow’s predictions are strong. They forecast San Jose Prices to rise 19.25 over the next 12 months. Even if you don’t believe the Zesstimate, it is a positive sign for the market in California. Sometimes, we have to keep our eye on the long term prognosis.
Is This the Beginning of a Buyers Market?
Given the economy and the US outlook, even high rising interest rates may not slow down this juggernaut. Sure sales are down of late to their lowest in many years which suggests a short period in favor of buyers. It’s likely due to the cancellation of free trade and the transition back to US manufacturing and business. If US GDP production ramps up again in 2019, that will pull prices back up.
The shortage of housing and new construction units means prices still prevail in California for 2019.
Lower Priced Home Market Falls
The uncertainty is hitting the lower end of the market. And mortgage lending tightening seems to be suppressing sales of properties below $299k. Sales dropped 22% for homes less than $199k in value (how many homes are left in this price range?).
California Home Prices
Los Angeles County and Marin County saw the most significant price declines last month with drops of 10% and 19% respectively. That is a sizable reduction, however many smart investment advisors are advising to buy on the drops. There’s too much to buoy the market back up.
American confidence is very strong and home equity is reaching its highest levels. Fewer underwater mortgages exist so a potential collapse is even less likely.
Home sales have plummeted in these counties:
- Del Norte down 3.6% with prices down 17%
- Lassen down 40% with prices down 24.3%
- Plumas sales down 45%
- Tehama sales down 38%
- Mono sales down 47% with prices down 21% (prices down 81% YoY)
It might be wise to dig into these particular markets to discover why they’re so sensitive to recent political, lending and economic events.
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Affordability: Why It May Be Irrelevant Now
2018 sees battle lines being drawn between federal, state and local politicians, long time resident/owners, businesses, and the people moving here to work in California’s booming economy. It’s a battle over home prices, quality of life, pollution, lifestyle, commuting, taxes, and whether people’s dream of home ownership will ever be realized.
This screen capture from Zillow reveals prices are on a steady incline and show no quit. The forecast is for further price appreciation.
Days on market for homes for sale in California has risen in typical fashion for late year end.
What Tough Issues Are Californians Struggling With?
Is the talk of general affordability dying out and replaced by a new scrutiny of what’s really causing the problem? As the stats below reveal, lower priced home sales have dried up and entry level is now in the $500k range on average. In the major metros, it’s much, much higher. Strong sales of 3+ Million dollar homes is the big news.
Exasperated Californians and those investing here are wondering how much more home prices and rental prices can rise, and where new developments might provide relief. What’s at the bottom of these price rises and can anything be done to give buyers and renters hope?
Key Questions: Will property taxes become the bone of contention in this war? Would you be okay about higher property taxes? Will people push to repeal Proposition 13? Will a potential economic flat period continue to dry up building permits? Will the Fed keep pushing rates up?
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NIMBY’s are Still Blocking Housing Development
Not in My Backyard or NIMBY is a huge force in North American housing markets. With local governments and agencies unafraid of State fines for not opening up development, especially multifamily development, we’re headed for a battle. Taxes, mortgage rates, labor and materials shortages, and growing wages will increase pressure on these local governments/agencies bent on preventing development. Something’s gotta give.
And this state’s housing market dynamics are so complex, and political, that few real estate experts can reliably predict whether prices will rise and whether you should buy, or if this is the ideal time to sell your house.
Video below: Southern California home prices were up 8.4% and reached record levels. And that means even bigger prices in Malibu!
A Market Bursting at the Seams
The metro markets of Los Angeles, Orange County, San Diego, San Jose, San Francisco and Sacramento are bursting at the seams with an overall price growth rate of 10% annually since 2012.
Seeing the impossibility of buying in the big cities, buyers are wisely looking inland to Riverside, San Bernardino and Sacramento Counties to find affordable homes or rental properties. This trend to remote locations and commuting will continue to shape buying and investing in California real estate over the next few years.
Housing Crash Predictions?
Hoards of millennials, working poor, and homeless people are praying for a California housing market crash, but prices have only leveled or dropped a little.
With such strong demand driving the whole California housing market in 2018, 2019 and beyond, it’s unlikely a crash will happen. In fact, with the extra economic activity spawned by housing construction and household formation, there is upward price pressure. And the US economy as a whole is booming and we could be looking at an even longer run of economic prosperity.
That spells opportunity for buyers in California if home construction is allowed in an era of ecology-inspired building code red tape. How confident are you right now in buying a home or rental income investment property? Which cities are best for buying?
Let’s take a closer look at the California housing market for those people and demand factors that are influencing the business of housing here. By the end of this post, you’ll have a better idea of price predictions and whether you should buy or sell or rent in this market in 2019/2020.
Why Are Home Prices so High in California?
Some suggest the current problem blocking new housing development is “urban containment policies” and NIMBYism. They combine to make housing growth unwelcome. And with elections looming, politicians will be reluctant to push new controversial legislation that would open land development and thus alienate their voters.
California’s Proposition tax laws enforce cheaper taxes for those who bought their properties. Property owners pay taxes based on the base-year assessment value they purchased and not at not at current real market value. Any change to that tax law, would increase their property taxes considerably.
Pic Below from Calmatters.org shows how California compares to the national price growth up until 2015. Prices of course have grown substantially in 2016, 2017, and continue in 2018.
Battle Contestants: NIMBYs vs Anti-NIMBYs
The NIMBY’s (Not in my back yard) and YIMBY’s (Yes, in my back yard) are fighting it out to try to protect their positions on the future of California housing. If development is stopped, home prices in California could become the states absolute number one problem, thus heating up what is an emotion-generating issue.
Add to this is the lack of land available, long commutes for workers, booming economy and spectre of inflation, rising wages and buyer expectations, increasing numbers of millennials wanting to buy, and you get the record high home and apartment rental prices in San Diego, Los Angeles, Orange County, San Jose, and San Francisco.
The resistance and political pressure is being increasingly seen in law suits, and feet dragging, and environmental roadblocks by local governments. Local governments don’t want further congestion, pollution, crime, higher taxes, and the destruction of their lifestyles.
Although construction is growing, it’s not enough to satisfy demand.
“The economists all cite the same reason: “As long as the economy keeps growing, that’s going to give a push to the housing market,” said Anil Puri, director of the Woods Center for Economic Analysis and Forecasting at Cal State Fullerton — from a report in the OCregister.
Big Cities and Big Prices
The demand has been strongest in the big metros of Los Angeles, San Diego, Orange County, San Francisco and the Bay Area. High prices have pushed workers inland to San Bernardino (7.9% forecast growth), Sacramento (5% growth forecast), Riverside (8.9% growth forecast), and other regions. Many hopeful buyers still can’t buy so they’re renting.
76% of the highest priced real estate markets are in California. Housing is heavily politicized due to the ongoing suffering of residents, tax base, excessive density, and congestion on the roads. And there’s a belief that politicians can make good changes. It’s hope vs NIMBYism.
California still has no rent price controls and bills to adopt price controls have failed. Given that the state wants new housing development, it can’t possibly introduce price controls. Smart investors would walk away.
Instead, California governor Jerry Brown pushed the largest collection of pro-housing legislation in recent memory, however he acknowledged that much more is needed.
Brown has had some strong words for Texas, and we wonder if this is resentment over businesses ditching California for the lower tax environment in Texas? Unfortunately, the governor’s legislation may add to the cost per unit of new housing and raise taxes.
The Booming California Economy
California’s economy is in the midst of a 7 year economic expansion. The last 3 years have seen per capita income and employment growth of more than 3%. During the last quarter of 2017, California per capita income rose at a nationwide leading 4.6%.
The state’s economy is much more diverse than New York or Texas and many of the biggest high tech firms are located in the Bay Area. Wage gains are expected to rise higher in the Bay Area and Sacramento region along with apartment rents. That makes it a good place to invest for rental apartment income.
“The nation will create approximately 2.1 million jobs during the 2017 calendar year, but this will slow to 1.4 million in 2018 as the unemployment rate continues to tighten and wages rise” — from the DOT economic forecast for California
The Big 3 Factors Driving Housing Demand for 2018/2019
Pay attention to these key projected figures. With Californians well fixed financially, they have more money to buy. Governments will have to raise mortgage rates, reduce tax benefits, and stiffen mortgage qualification rules to discourage them from becoming buyers. It’s like a war against anyone who wants to buy!
These two graphics below show that although the average per capita income is rising fast, it’s not keeping up with rises in house prices or rent prices.
And with permits dwindling, housing developers aren’t coming to the rescue
Graphic Above Courtesy of DOT
What’s happening in the California market today?
Rising interest rate fears have increased home sales in January and February. People are buying ahead of forecasted higher rates and other issues. For 2018/2019, new mortgage tightening and the new SALT tax limits mean buying and selling aren’t as attractive as they used to be (61% fewer homeowners/investors will claim them).
|City/Metro||Average Home Price||Price Change MTM||Price Change YoY|
|San Jose/Santa Clara||$1,400,000||-1.8||16.7|
What Are They Buying?
The latest stats from CAR show buyers are buying more expensive properties, likely due to the fact there are more available. Condo townhouse prices trended up in May to $494,000. Overall inventory continues to decline although not as much as 2017 where listings dropped dramatically. Availability dropped most severely in homes less than $200k.
Who is Buying Homes in California?
The Predictions and Forecasts for 2018/2019
Top institutional forecasters might look at large array of data, trends, and financial factors, however price forecasts in California comes down to a strong economy, continuing low mortgage and interest rates, rising wages, and the political resistance at the local level (NIMBYs).
NAR predicts home prices in California will only grow by 1.1% in 2018. Potential home prices will be suppressed by 2.4% due to rising interest rates, and lowered a further .9% due to government tax changes. They couldn’t comment on construction permit and employment change effects.
Nationwide, in February Nonfarm payrolls jumped by 313,000 jobs boosted by the largest rise in construction jobs since 2007 according to the Labor Department.
CAR’s 2018 Projections:
- The average for 30-year, fixed mortgage interest rates will increase slightly to 4.3 percent in 2018
- C.A.R.’s forecast projects a slight rise in the U.S. Gross Domestic Product of 2.3 percent in 2018
- The California median home price is forecast to decrease 3% to 4.2% to $561,000 this year
|2018 CALIFORNIA HOUSING FORECAST|
|SFH Resales (000s)||439.8||414.9||382.7||409.4||416.7||421.9||426.2|
|Median Price ($000s)||$319.30||$407.20||$446.90||$476.30||$502.30||$538.50||$561.00|
|Housing Affordability Index||51%||36%||30%||31%||31%||29%||26%|
|Data Courtesy of CAR|
“At some point, there’s going to be a correction, but I don’t see it on the horizon,” said Pat Veling, president of Brea-based Real Data Strategies.. “Sellers want more than sellers got six months ago.” “Projections by the California Association of Realtors show a gradual decrease in home price appreciation over the next few years, said Oscar Wei, a senior economist for the group.
Is this The Best Time to Sell?
The stats show conclusively that sellers are above 55 years of age on average, (babyboomers) yet many homeowners are not selling. Many there is nowhere better than California to move to, and where would they buy a cheaper home anyway?
If you can find a new place to move to, selling your California home may be a wise move. The market won’t tank anytime soon, yet we may be nearing price peaks. What’s different about this housing boom is the strength of wages which have been subdued. If and when they take off, we might see prices climb 10% to 20% more.
Average rate on 30-year fixed-rate loans in 2007 were 6.53% yet today they are well low of that.
Is buying income rental property in your future? Learn more about the best cities to buy property for investment purposes. Take a look at apartment listings, and you’ll note how much prices for apartment rentals have risen.
The housing squeeze is making rental income suites a popular option and many are even choosing to start property management businesses. The California rental housing market is hot in 2018 but is this the right time to buy rental properties? However, from setting rental prices, to writing listing ads, to screening tenants to onboarding and communicating well with tenants, management and maintenance can be hard work.
That’s why smart landlords and property managers choose the best property management software to save time and keep tenants happy.
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