California Housing Market Report and Predictions 2019-2020

California Housing Market Report and Predictions 2019 2020

California’s Housing Market Forecast 2019

Despite all the political turmoil and trade uncertainty, not much seems to get in the way of California’s immense economic machine. It’s now the worlds 5th largest economy, ahead of the UK, and its best cities are the apple of global real estate investors.

Yet forecasting its longer term future (prices, availability, taxes, rents, appreication) is something even that perplexes the experts. Most readers are looking for a simple way to cut through all the confusion and news.

As you’ll see in the February home and price sales stats below, the state enjoyed the biggest increase in 5 months, back in line with the traditional upward thrust.  In this post, lets explore the main factors that will drive the California market for the years ahead.

California Dreamin

California is a special place to live and rent, and to buy and sell a home. The market diversity is hard to comprehend. And the battle for homeowners hanging onto proposition 13 benefits is very different for young buyers who discover that renting an apartment is better.

It’s this dynamic pull of outrageous wealth and outrageous regulations that makes it hazardous to invest in real estate in this state. Definitely wise to hire a Realtor.

No other economy is as diverse and dynamic. It’s the opportunity that attracts millions of newcomers to live and start businesses here. Most tech startups for instance launch in the Bay Area despite the high cost. Employment and wages have grown and that has put pressure on the California housing market.

Similar growth has occured 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.

Despite lowered sales, the research below suggests California won’t be standing still for very long this spring. The much forecasted recessions and housing market crashes simply haven’t happened. With the Fed relaxing on interest rates and with Trump tariffs in place, California businesses might well go into overdrive in the coming years.

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 out 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.

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. Please share this material generously as you like.

A few pundits believe the California housing market is well past peak. Yet economics, demographics, buyer demand (and last 2 months sales stats) seem to refute that notion. Millions of apartments need to be built in the next decade, a good portion, right here in CA to soothe in insatiable demand (housing crisis).

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.

With interest rates fears gone, and new trade deals with China, any negative economic aspects could disappear. That would mean fast rising prices again for the whole state.

Trade Show Alert: We’ll be in Chicago on May 4th for the Cooperator Chicagoland Expo. Please visit us.

Key Factors in California’s Housing Market Growth

1. wages create prices pressure on housing
2. demographics – lots of millennials buying and babyboomers selling
3. interest rates – staying stable
4. migration – slowed to keep prices stable
5. cost of business – extremely high (would you like to see my SanFranciso parking fee?)
6. home prices – wickedly high
7. rent vs buy – for most the idea of purchasing is a hopeless dream
8. multifamily new construction – picked up nicely but NIMBY’s still winning
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.

According to CAR, sales and prices have already returned from the recent slump.

February California home sales stats. Screen capture courtesy of CAR.org

Prognosis Positive

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.

Screen Capture courtesy of Firsttuesday.com

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

There are more homes for sale and more buyers. After a strong lull, the upward march on California homes prices continues.

Median home prices to February 2019 courtesy of CAR.org report

Screen capture courtesy of CAR.org

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 4.3% in February to $541,390, down about $15k or$14,000 from February 2018.  Bay Area home prices rose 3.7% to $867,000 MTM, but are down about 1% from 12 months ago. Marin County (12.2%), Contra Costa (9.2%) and San Francisco County (9.3%) were surprising gainers. (Car.org stats).

Condo/townhome sales were up 15% last month to an average price of $450,000.

Single family home prices in Los Angeles dropped 4.3% to $541,390.   Sales dropped by 2.5%.

Sacramento was a bright spot with sales up 1.4% and average price up $7500 to $360,000. Sales rose 12.4% from January.

Single detached home prices rose to $625,000 in San Diego which is up 2.5% from last month up 3.3% YoY.  In Orange County,  home prices dropped $4,000 to $792,500.

Up in San Francisco, prices rose $29,500 to a new average of $1,505,000.  That’s 9.3% higher than last month even if it’s 13% lower than last February.

Strangely, home prices in Santa Clara dropped 1.3% to $1,170,000.

Over in Contra Costa, house prices rose 9.2% to $649,475 and sales grew 6.2% last 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.

Beautiful La Jolla by the Sea saw its home values rise 8.8% last year with another 4.8% predicted rise for 2018.

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.

Screen Capture courtesy of Zillow

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?

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, Toronto, Vancouver, 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 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 Franciscoand 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.

Illustration courtesy of Calmatters.org

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 rentalprices 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%.

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

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?

Who’s buying homes in California and Nationwide. Infographic Courtesy of the California Association of Realtors.

The Predictions and Forecasts for 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

CALIFORNIA HOUSING FORECAST
	2012	2013	2014	2015	2016	2017p	2018f
SFH Resales (000s)	439.8	414.9	382.7	409.4	416.7	421.9	426.2
% Change	4.10%	-5.90%	-7.80%	7.00%	1.80%	1.30%	1.00%
Median Price ($000s)	$319.30	$407.20	$446.90	$476.30	$502.30	$538.50	$561.00
% Change	11.60%	27.50%	9.80%	6.60%	5.40%	7.20%	4.20%
Housing Affordability Index	51%	36%	30%	31%	31%	29%	26%
30-Yr FRM	3.70%	4.00%	4.20%	3.90%	3.60%	4.00%	4.30%
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.

(CREDIT: MANAGECASA, WRITTEN BY GORD COLLINS)