California’s Housing Market Keeps Growing in 2018
July 2018. As if California isn’t fascinating enough to us all, the housing market here is the talk of the real estate world as well.
Along with becoming the 6th largest economy, California’s housing market has been the best performing of any and that’s music to the ears of investors. Zillow gives it a healthy 8.8 out of 10 and forecasts of 9.3% price growth. California has less owners with negative equity and fewer delinquent mortgages.
Realtor.com rates San Francisco, Sacramento, Vallejo, Stockton, and Santa Cruz as the hottest markets in California.
“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.
Unfortunately, the talk in California is mostly anxious chatter about affordability, low availability, rising prices, traffic congestion, long commutes, unrequited dreams, fears of crashes, and the frustration of many potential buyers who can’t afford nor even find a place to purchase, or perhaps rent.
From South to Central to North, California homes sales are down. At the same time home prices are way up again, amidst the cries of renters, hopeful millennial buyers, tax payers, homeless workers, and the working house poor, all within a market in severe conflict. Summer is the best time to sell with sellers getting a 5.9% premium on their sales price. Looks like we’ll see more homes on the market.
Not everyone is unhappy though. Sellers are getting near record prices for their homes, at amounts that we associate with big lottery wins.
Greater Los Angeles home prices rose about $16k on average MTM and $50k YoY and Bay Area home prices rose $62,000 MTM. San Mateo saw the sharpest price drops losing almost 10% MTM. Moterey, Fresno, El Dorado, and Plumas saw the biggest price rises month to month (Car.org stats).
Listings in California rose 7.8% from last year to 52,372 homes for sale currently. There are 9200 listings in Los Angeles, up 1.2% from last year. San Diego has the biggest growth in listings up 14.8% to 5200 listings, San Bernardino up 23% to 3545 listings, and Sacramento is up 24.8% to 2100 listings. 58% of all homes are listed above $500,000.
See the Stats below and please do share this report on Facebook and Linkedin for anyone hoping to find a home. Bookark this post as it will be updated frequently.
What’s Happening and What May Happen
This epic report on the state of California’s housing market explores what’s happening and has some helpful market predictions. You’ll find some eye-opening insight, stats, videos, and opinions about housing in this booming economy. A few pundits believe this market has peaked, yet economics, demographics, buyer demand (and last 2 months sales stats) seem to refute that.
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.
Affordability: Why It May Be Irrelevant Now
2018 sees battlelines being drawn between federal, state and local politicians, long time resident/owners, businesses, and the people moving here to work in this 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 may set a new record low at 46 this summer (Zillow stats).
Home prices have risen precipitously and some feel there’s still room for further price rises in 2018. If prices moderated or dropped a little, would it do much for the tens of thousands of hopeful buyers?
Tough Issues and Questions to Struggle 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 homes 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 are that can provide relief. What’s at the bottom of these price rises and can anything be done to give buyers and renters hope?
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 dry up building permits?
Please Do Share This Post and incorporate this material into your blogs and Facebook posts. Friends and Family considering buying and selling should have a good view of where the market is headed.
The War in California Could Happen Across North America
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. The housing situation in San Diego, Los Angeles, and San Francisco and the Bay Area could be their future.
Not in My Backyard or NIMBY is a huge force in real estate 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.
When Will the Housing Crash Happen?
Hoards of millennials, working poor, and homeless people are praying for a California housing market crash, yet after a short lull, housing prices in March have kept climbing (although not highest ever in inflation adjusted dollars).
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 2018/2019.
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.
Additional Housing and Property Management Topics:
See also: Los Angeles Home Prices | Los Angeles Apartment Prices | Best Property Management Apps | When is Best Time to Buy Property? | Rental Housing Market | Time Management Tips | Apartment Rental Prices | Energy Efficiency | Apartments for Rent | Renters Insurance |Best Cities to buy Rental Property | Invest in Texas Rental Property| Reduce Tenant Turnover | Property Management Solution | Tenant Screening | Raise Rent to Improve Property Revenue | Cash Flow for Property Managers | Property Management Issues | Write Apartment Rental Ads | Starting a Property Management Business | How to Use Property Software | ManageCasa Cloud Based Property Software