California’s Housing Market Forecast
This report on the California housing market updated to September, covers important stats including home prices, sales, and recent trends from CAR, NAR, Statista, Zillow and more. And we’ll take a look at the forecast for 2020.
The California housing market came alive in September. Sales in So Cal, Central Valley and the Bay Area all rose significantly. Sales of existing single-family homes in September grew 5.8% YoY while condo sales dropped almost 12%.
Home prices rose 4.7%, the biggest gain in 12 months. Los Angeles home prices rose 4.8% and homes in the inland empire rose 4.6% making it the best performer of September in the state.
A Paradox of Good and Bad
Given the low interest rates and corporate withdrawal of capital expenditures, it’s not surprising to see low job growth in tech, manufacturing and banking & finance. Construction and administrative job growth was strong. Unemployment fell to a record low 4.0%.
Yet homelessness and extreme housing costs are making life tougher for most Californians, particularly rental tenants. Housing construction restrictions and other regulations are weighing very heavily on the quality of life in the Golden State and rent prices.
In what some expert economists forecast to be bearish times out west, it seems it’s going okay though. If some projections of a growing US economy from 2020 onward come true, home prices may roar back in 2020.
September Employment Data was Excellent
The California job market is still very good. Wells Fargo reports a gain of 21,300 jobs during September, and up 320,000 jobs over the past year.
California Association of Realtors believes low mortgage rates are the cause for this 3rd consecutive month of sales YoY, although prices over the last few months have remained the same.
Pending home sales are up 10% YoY. The median price fell to $605,680 in September from August’s $617,410. September’s median price was up 4.7% from $578,420 in September 2018. Home prices in the Bay Area declined for the 8th straight month while active listings plummeted almost 12%.
Unsold inventory rose slightly from August yet is down from September 2018. It takes 23 days to sell the average California home. C.A.R.’s statewide sales-price-to-list-price ratio was 98.5% last month, same as it was 12 months ago.
Is California Real Estate Recovering?
Zillow says September’s median prices in California came in at $550,000 which is up $2,300 from August ($547,700). They forecast prices will only rise another $9k by next August.
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Tight Rental Conditions and Rising Rents
Despite lower mortgage rates, and flat home prices, Zillow predicts California rent prices will rise. Unlike those in the national housing picture, Californians have solved the buy vs rent home dilemma, by continuing with renting. This is fueling a surge in build to rent developments. Given the ultra-high real estate prices, first time buyers simply can’t come up with the downpayment or manage the lofty mortgage payments.
Despite all the political turmoil, dour expert forecasts, and trade uncertainty, not much seems to get in the way of California’s immense economic machine. The Golden State is moving into the rank of 4th of world’s largest economies. A record 18.7 million Californians are employed, wages are rising, and they’re ready to buy homes if they’re affordable.
The issue is buying power, high home prices, and the lack of available homes and apartments in California that makes the market so tough here. It’s the price of prosperity and regulations. In some locales, $83,000 is considered the low income line.
Will US Economic Strength Persist?
It’s not all rosy, since some areas are suffering lower GDP,
“California’s biggest local economies are continuing to struggle,” Carl Bialik, Yelp’s data science editor, said in a statement. “Construction limits and increasing rent are pushing consumers and workers farther from businesses, contributing to continued quarterly declines in some of the state’s biggest metro areas, with retail and restaurants taking the biggest hits.” — from Fox Business Report.
In this post, lets explore the main factors that will drive the California housing market for the years ahead.
California is a special place to buy a home, live or even rent an apartment. It’s this dynamic contrast of outrageous wealth, big population, and government regulations that creates a complicated investment environment for multifamily investors.
Definitely wise to hire a Realtor. The questions many are asking now is:
- will there be a recession in California?
- is this is a good time to buy a home in Los Angeles, Riverside, Anaheim, or Bay Area?
- is this the right time to buy rental property?
- will interest rates go back up in a couple of years?
- are property management costs going to rise?
- is the Los Angeles housing market going to crash?
- which California cities produce the highest rental yields?
- is the Los Angeles real estate market overpriced?
- is the US economy really growing?
- why is there so much negative forecasting by some media?
Buyers are nervous yet the stats below show they are buying. And if there were more affordable properties available, the real estate market would be very hot. Okay enough chit chat, let’s get the to May California real estate stats.
Similar growth has occurred in New York, Phoenix, Las Vegas, Denver, and Seattle, but the CA cities of San Jose, San Francisco, Los Angeles, Oakland and San Diego have enjoyed unprecedented growth. House prices and multifamily prices have risen in California.
Please see our San Francisco housing market, San Jose housing market, Los Angeles housing market, San Diego housing market, Oakland housing market reports for insight into how the economy is affecting each metro market.
California property managers and income property investors should check out our posts on property management software, cloud platforms, property management automation, on demand services, growth strategy, and property accounting software. See our suite of property management solutions.
With the number of multifamily units being delivered, tax savings, and the millions still needed to be built, we know demand should never be a problem. What’s built will get occupied.
Is California’s Housing Market Good?
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.
Please share this material generously as you like and check out our US housing market report too.
Key Factors in California’s Housing Market Growth
1. high employment and rising wages create fuel rising home prices
2. demographics – lots of millennials buying and baby boomers selling
3. interest rates – on decline?
4. migration – slowed to keep prices stable
5. cost of business – extremely high (would you like to see my San Francisco parking fee?)
6. home prices – wickedly high and rising
7. rent vs buy – renting is better right now, but for how long?
8. multifamily new construction – total construction starts in 2019 are down 8%
9. taxation and tax savings – much better this year
With taxes dropping, interest rates stable, wages rising, prices stable, mortgage requirements reasonable, and rising personal savings, why aren’t people buying? Simple, they’re hoping prices will plummet.
Keep Your Eye on the Economy
A number of big IPO’s in the tech sector this year suggest the economy isn’t doing badly. In fact, California’s gross domestic product rose by $127 billion from 2016 to 2017, surpassing $2.7 trillion. These charts below show the fundamentals and the forecast for 2019.
A Healthier California Market
There are more homes for sale and more buyers. After a strong lull, the upward march on California homes prices continues. The growth of active listings is slowing, and combined with lower new construction, we could forecast much higher home prices for summer 2019.
“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.
California Housing Market Update
Greater Los Angeles home prices fell .9% in August to an average of $545,000, a drop of $5,000 from July 2019, and down $120k from April last year. Bay Area home prices dropped 5.3% month over month, but are down about $20,000 from last August. Home prices in San Francisco rose just slightly this month and are up 3.8% from 12 months ago and San Diego prices were flat.
Sacramento saw price drops of $4,000 to $386,000, a drop of 1%. San Mateo however suffered a -11.7% price drop, and NAPA home prices fell 20% month over month.
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.
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Affordability: Why It May Be Irrelevant Now
2020 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.
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.
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 drawn out 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.
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. While slow now during the US economic lull in 2019, is it poised to grow in 2021?
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 aren’t crashing.
With such strong demand driving the whole California housing market 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.
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 new earned income tax credit, rising wages and secure employment should boost demand in the lower price sectors through 2020, and without affordable housing growth, prices will likely rise. Some rental property investors are concerned about rent controls.
California’s Proposition tax laws enforce cheaper taxes for those who bought their properties long ago. 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.
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 to boost new housing construction, 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.
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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%.
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
The Predictions and Forecasts for 2020
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).
This Chart from CAR shows a forecast for sales in California for 2020:
2020 CALIFORNIA HOUSING FORECAST
SFH Resales (000s)
Housing Affordability Index*
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. Learn more about landlords and property management goals for 2019/2020 in our new State of Property Management report.
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