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California Housing Market Report & Predictions 2020

March 24, 2020

California’s Housing Market Forecast

In the midst of the unexpected Corona Virus pandemic and temporary work shut down, buyers are wondering if housing prices will fall and stay lower throughout 2020. Landlords are concerned about vacancies, rental income losses, and further rent payment defaults.

Buyers and rental property investors are wondering if the California housing market will take a lasting hit. The forecast has to be for a good recovery. China is recovering quickly from its pandemic.

Housing demand in California remains strong against severe shortages, with the tech sector looking good for employment. Agriculture and tourism will return because California is too important to everyone. If home price and rent prices should fall, it would only encourage fewer people and businesses to leave the state.

Prices rose in January and February in San Francisco, San Diego, Los Angeles, Oakland, and Sacramento. Now the California economy is taking and March’s numbers might be subdued. There’s nothing landlords and property managers can do about that. The key is that the economy will return to normal and you have a chance to improve your business right now.

See the latest California Housing stats below.

Home buyers and rental property buyers from New York to Los Angeles are online right now looking for bargain priced properties, in California too. Hopefully yours won’t be one of them.

Keep your business running better using better strategy and managements tools, and you’ll come through this well. Enjoy all the helpful posts on this blog and good luck this summer.

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How Far Could Housing Prices Fall?

How far will home and rental prices likely fall? Experts seem to be of the opinion they won’t drop far. It would take an extended period before buyers give up, and where mortgage defaults occur. New construction was rolling along nicely, but this may have slowed.

China’s battle with Covid 19 is coming under control. They’re reporting few new cases of the virus. If the US follows a similar timeline, it might be only a month or two until the disease passes. But no one’s sure. Reports of 80,000 jobless claims in one day in California is alarming.

Screenshot courtesy of CDC.
cdc.gov/coronavirus/

California Housing Market Update

CAR’s California housing market stats for February are out. Seems like it’s all in the rear view mirror now, but demand was strong and that might tell us that when the Covid 19 pandemic is done, California’s markets will come alive again.

As the coronavirus pandemic worsens, the housing market is expected to decline precipitously in the coming months, particularly in counties and cities with a shelter in place mandate” said 2020 C.A.R. President Jeanne Radsick

Home prices grew at a solid rate across the state, particularly in the Bay Area.

February Home Sales in California. Screenshot courtesy of CAR.org

Strong Market in California

Low interest rates and strong employment lead to some stellar sales results in February. Single detached and house prices in most counties grew.  Existing, single-family home sales totaled 421,670, up 5.9% YoY.  House prices were up .8% from January and 5.9% from last February.  Sales rose strongly at 6.6% from January and 5.9% YoY.

California Home Sales February 2020. Screenshot courtesy of CAR.org

Condo Sales in California

California condo prices jumped 2.8% from January and were up 8.5% YoY. Only the central coast bucked the strong upward trend in price and sales.  Condo sales and prices rose most in the inland empire.

February Condo Sales in California. Screenshot courtesy of CAR.org

Bay Area Home Sales

Sales and prices rebounded in most districts in the Bay Area, except Napa.  San Francisco, San Mateo and Santa Clara had 10 to 12% rise, while seeing big increases in sales month to month.

Homes Sales and Price Bay Area California. Screenshot courtesy of CAR.org

So Cal Homes Sales Surge in February

Southern California Home Sales February 2020. Screenshot courtesy of CAR.org

Property managers will be less concerned as average rents rose again to $2800 per month contrasting to the US average of $1,650.  California rent costs 69.7% more. The 2020 year should prove profitable to investors in California cities.

San Mateo ( price +10.7%) Santa Clara (home price+12.5)  and San Francisco (home price up 10.3%) lead the way in the Bay Area. Santa Barbara home prices rose 14.5%, while Alameda County homes rose a strong 8% month to month.

Average Home Prices

Southern California Home Sales. Screenshot courtesy of CAR.org

This updated report covers important stats including home prices, sales, and recent home sales trends from CAR, NAR, DOT, St Louis Fed, NAHB, Statista, Zillow and more.

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The key story with Los Angeles, San Francisco, San Jose, Santa Clara, San Diego, Orange County, Riverside, San Bernardino, etc. is the lack of listings. February’s numbers rose however. The number of active house listings inched up by 0.9 percent from January. California’s governor has allowed construction workers on new construction projects to keep working during the pandemic.

California housing inventory in February 2020. Screenshot courtesy of CAR

This updated report covers important stats including home prices, sales, and recent home sales trends from CAR, NAR, DOT, St Louis Fed, NAHB, Statista, Zillow and more. Please do share with friends on Facebook.

California Home Prices

Los Angeles County had some hot zones in February.  LA’s median home price drop 6% month over month and 7.3% YoY.  Homes in Orange Country grew 2.9% month to month to $880,000 and sales rose 11.5%.  Yoy that was a 11% rise in price and 34% rise in sales. San Bernardino saw a2.9% rise in price to $329,000. And in Riverside, home price grew 3% to $428,00.

Los Angeles Housing Market Snapshot. Screenshot courtesy of CAR.org

San Francisco County saw it’s hot sales numbers return as buyers mood shifts quickly.  Housing sales grew 19.3% month over month and just under 1% YoY.  The Median San Francisco county home sold for $1,610,000 which is up $150,000 since last month.

House prices in SF dropped an astonishing $150,000. Marin, San Mateo, and SF counties suffered the worst price reductions of 17.1%,7.5% and 10.4% respectively.

San Diego county home prices grew 1.5% during the month and that’s up 7.2% from last year.  The median price rose $10,000 to $670,000 and this is well up from last years median price of #625,000.

Sales in NAPA fell strongly 32.3% while prices fell on 5.4% month to month, and that’s down 37.3% YoY.   Contra Costa home prices rose 3.5% month over month yet that was still down 2.2% from last year. Home sales in Alameda country rose 8.0% and prices there rose 9.9%.  Sales grew 1.1% but were well down from last year by almost 16%.

Although mortgage rates have fallen, down payments and mortgage payments are on the rise. Down payments are up 10% in Los Angeles and 10.3% in San Francisco.

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The Real Story of California’s Real Estate Market

The real story of California’s housing market is a persistent lack of supply, something that may never be remedied. This means overall home prices and perhaps rent prices might flash up later in 2020.  And this is despite recent high home construction numbers reported across the country.

Active listings fell again in February with huge drops in Southern California (26,779 listings last year compared to 17,868 listings this year.  Unsold inventory ticked slightly to 3.7% in So Cal and 3.0% in the Bay Area.

NASDAQ has fared better than other stock markets of late which means the tech sector is more resilient to global goods trade and work shutdowns in California. Unemployment is likely much higher than the 4.1% previously.

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 raising rent prices.

Rent Prices were rising in California. Screen shot courtesy of Zillow.com

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 higher in 2020. Zillow still believes prices will climb 4.9% over the next 12 months.

Jobs Report was Excellent

Nationally, the jobless rate remained was low at 4.1% while wages climbed 3%.  The California job market was excellent too, and as we know every US city is taking a loss at present.  We can come back to the strong employment, and rising rents later in the summer as things get back to normal.

California Association of Realtors believes low mortgage rates are the key to growing sales. If buyers’ debt to income ratios, credit ratings and employment changes, it could be more difficult for some Californians to qualify for a mortgage.

On a note with wealthy buyers, the recent stock market crash could factor into demand for luxury priced homes in California.

In CAR’s buyer survey, respondents who thought it was a good time to sell increased, while saying buying was a less desirable option.

Tight Rental Conditions and Rising Rents

Despite lower mortgage rates, and flat home prices, and falling rents last month, it is likely 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.  The rental market seems secure for landlords and investors. Rent prices fell with the implementation of  rent controls in California.

The situation is different from cities such as Chicago, Denver, Phoenix, and Las Vegas, for instance, where lower prices and low mortgage rates make buying instead of renting a wiser choice.

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 when they become affordable. Recent flat prices or price declines show how price affects buying activity.

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,

In this post, lets explore the main factors that will drive the California housing market for the years ahead.

California Dreamin

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, big business, and government regulations that creates a complicated investment environment for multifamily investors.

Definitely wise to hire a Realtor. The questions many are still asking now is:

  1. will the housing market crash in California?
  2. is this is a good time to buy a home in Los Angeles, Riverside, Anaheim, or Bay Area?
  3. is this the right time to buy rental property?
  4. will interest rates go back up in a couple of years?
  5. are property management costs going to rise?
  6. which California cities produce the highest rental yields?
  7. is the Los Angeles real estate market overpriced?
  8. is the US economy really growing?
  9. why is there so much negative forecasting by some media?

Los Angeles California

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, 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.

 

Home price vs mortgage payment is falling pointing to better affordability. Affordability grew 7.7% in the San Francisco Bay Area, and 3.2% in Los Angeles.

Mortgage Payments California. Screenshot courtesy of CAR.org

 

Key Factors in California’s Housing Market Growth

  1. high employment and rising wages create fuel rising home prices and rents
  2. demographics – lots of millennials buying and baby boomers selling
  3. interest rates continue low
  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 were down 8%
  9. 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 $3.137 trillion in 2019. These charts below show the fundamentals and the forecast for 2019.

A Healthier California Market

There are more homes for sale and many 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 2020.

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.

 

Bookmark this post as it will be updated frequently

 

Beautiful La Jolla by the Sea – Prices continue to recover going into 2020

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

California is unique, however what’s happening here is happening in other hot locales such as Florida, Texas, New York, Seattle, and other North American cities.

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 economics and 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.

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 the Corona Virus induced crash will be short lived.  The optimism in the US is much to strong, and the government is committed to strong growth for the next 5 years. In fact, with the extra economic activity spawned by housing construction and household formation, there is upward price pressure.

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, Oakland, 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.

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!

Graphic courtesy of DOT

Graphic courtesy of DOT

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). Sam Khater, chief economist at the Federal Home Loan Mortgage Corporation, or Freddie Mac interviewed by Wharton forecasts positive outlook for existing home sales and no relief in home affordability.

This price/sales Chart from CAR shows the forecast for California for 2020:

2020 CALIFORNIA HOUSING FORECAST

2015

2016

2017

2018

2019p

2020f

SFH Resales (000s)

409.4

417.7

424.9

402.8

390.2

393.5

% Change

7.00%

2.00%

1.70%

-5.20%

-3.10%

0.80%

Median Price 

$476,300

$502,300

$537,900

$570,000

$593,200

$607,900

% Change

6.60%

5.40%

7.10%

6.00%

4.10%

2.50%

Housing Affordability Index*

31%

31%

29%

28%

32%

32%

30-Yr FRM

3.90%

3.60%

4.00%

4.50%

3.90%

3.70%

 

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.

Housing Data resources and citations:

Housing stats: https://www.car.org/en/marketdata/data/countysalesactivity

Home Values: https://www.zillow.com/ca/home-values/

Mortgage Rates: https://fred.stlouisfed.org/series/MORTGAGE30US

California Taxes: https://www.boe.ca.gov/proptaxes/proptax.htm

Housing Starts: https://www.nahb.org/-/media/NAHB/news-and-economics/docs/economics/starts-and-permits/2019/housing-starts-us-and-regions-nov-2019.pdf

Home Prices in Los Angeles: https://www.trulia.com/for_rent/Los_Angeles,CA/SINGLE-FAMILY_HOME_type/ 

Multifamily Properties for Sale: https://www.loopnet.com/california_multifamily-properties-for-sale/

 

Additional Housing and Property Management Topics:

See also: Property Management Software | Apartment Management Software | Housing Market Forecast 2020PM Software ComparisonRental Software | State of Property ManagementHawaii Housing Market Forecast | Denver Housing Forecast 2020Los Angeles Home Prices | Oakland Housing Market Outlook |  Los Angeles Apartment Prices | San Jose Housing MarketBest Property Management AppsProperty Accounting Solution | When is Best Time to Buy Property? | Buying Home vs Renting |  Rental Housing Market |  Property Management Solution | Tenant Screening | Cash Flow for Property Managers | How to Use Property Software | ManageCasa Cloud Based Property Software | LA Property Management Companies

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