California’s Housing Market Forecast

California real estate market retreated slightly during November. Our updated report covers important stats including home prices, sales, and recent home sales trends from CAR, NAR, DOT, St Louis Fed, Statista, Zillow and more. And we’ll take a look at the forecast for 2020.

CAR reports a slight decrease in the home prices and sales during November. However, we are moving deep into the off season, and buyers simply aren’t as active despite low mortgage rates and the recent plateau in home prices.

This is the 5th straight month of sales above 400,000 units (seasonally adjusted). November’s sales totals fell 0.3% from the October sales numbers (404,240), yet this is up 5.6% from last November’s total sales of 381,690. Realtors feel it was a good second half of 2019.

The median home selling price across California was $589,770, a drop of 2.6 % from October yet it that is still up 6.4% from November 2018.

Year to date sales are down 1.9% in November.

California Home Sales

In the San Francisco Bay Area, home sales grew 4.6%. Sales outside San Francisco dropped 4.8%. Tehama had the biggest growth in sales at 69.2%.

Year over year, median home prices have risen significantly during a troubled economic period. Southern California had a 7.5% rise, the Central Valley up 6.3%, Central Coast up 3.3%, while the Bay Area had only a 2.2% rise. The Bay Area housing market’s lower yield reflects the uncertainty in the tech sector.

Los Angeles County has seen it’s prices rise 7.4% over the last 12 months, yet home prices fell $52,000 from October. San Diego county home prices rose 1.1% or $7000.

San Francisco County saw it’s hot sales numbers cool significantly in November, dropping 20%. Home prices there dropped $31,000 or 1.9% in November. Marin and Napa countiessaw price reductions of 9% or more from October. Sales in NAPA plunged 39%.

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. That means overall home prices and perhaps rent prices might persist high as well.

Active listings fell for the 5th straight month, down 22.5% from last November. This was the 3rd consecutive double-digit drop and the largest since April 2013. Unsold inventory index dropped from 3.7 last year to this November’s rate of 3.0.

The sales to price ratio stands at 98.4%, up.5% from last November. Days to sell dropped to 25 days (-3 days).

 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 has fallen now 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 raising 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 higher in 2020.

November Employment Data was Excellent

Nationally, the jobless rate remained at a very low 3.6% while wages climbed 3%.  The California job market is still very good. Wells Fargo reports a gain of 23,000 jobs during October (up 1.8%) , 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.

The California Association of Realtors reports that sales of home priced between $500k and $1 Million rose about 15.5% on average. Sales under $300k dropped strongly (-14.7%) and homes above $2 million dropped 3.2%. Condos prices rose to $473,000.

In CAR’s buyer survey, respondents who thought it was a good time to sell increased 4% to 51%.  Only 24% of buyers stated they felt it was a good time to buy, down only 1% from last year, despite lower rates. Prices, down payments, and selection are likely the key factors stopping buyers from buying homes.

Average mortgage payments dropped throughout the state from 7% to 11% over the last 12 months. That would seem to point to more affordability, but really it doesn’t come close. In the silicon valley region, homeless tech workers and homeless in general are huge problems. Apple, Google and Amazon have pledged billions to help out, but observers say that amount is negligible in the over priced California real estate market.


Tight Rental Conditions and Rising Rents

Despite lower mortgage rates, and flat home prices, it is likely California rent prices will rise. Unlike those in the national housing picture, Californians have solved the buy vs rent homedilemma, 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 grew slightly overall in the state.

Screen Capture courtesy of Zillow.com

The situation is different from cities such as ChicagoDenverPhoenix, 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 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.

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.