We’ve just entered the fourth quarter of 2018, which means home buyers and sellers are looking forward at the year ahead. Many of whom are wondering: Will home prices continue to rise, level off, or drop next year? Will 2019 be a buyers’ or sellers’ market? What will happen to mortgage rates?
One of the best ways to have a smooth home sale is to make sure you understand what’s going on in your local economy and real estate market. You also need to understand how market trends may impact your transaction. This post will examine current California economic and real estate market trends and will take a look at 2019 projections.
California Real Estate Market Overview
While the value of California real estate is steadily increasing, especially in Northern and Southern California, investors are struggling to find enough real estate to purchase. Demand is at an all-time high.
The shortage is due in part, to long-time homeowners. In the Bay Area, Los Angeles, and San Diego, these homeowners often oppose the construction of more housing for reasons ranging from environmentalism to nostalgia for historic-style homes and more. By advocating policies that make housing unaffordable for many, these homeowners are ensuring that their own homes become more valuable in a constricted market.
The end result? After years of steady home price gains, the market has reached a limit to what people can afford. Sellers are finally responding by lowering prices. And the frustrated buyers fatigued by bidding wars and competing with all-cash offers, they’re simply fleeing the state—nearly 140,000 residents per year.
Popular California Real Estate Markets
In Los Angeles, home prices are more expensive than ever before. Real estate analyst Attom Data Solutions gathered data and found that it was harder for LA residents to afford a home in the third quarter of 2018 than at any point in the last 10 years. To afford a median-priced home in Los Angeles ($610,000), a buyer must earn more than $170,000 per year, or spend more than the recommended 28% percent of their income on housing.
The San Diego housing market is beginning to cool, shifting to a buyer’s market. Following national trends, San Diego has seen more homes for sale during the last few months. According to the Greater San Diego Association of Realtors, there were 7,021 listings in July, up 17% from July 2017. Rising interest rates are keeping some home sellers from increasing their price to appeal to more buyers. “Rising home prices are beginning to catch up with housing,” said Mark Goldman, real estate lecturer at San Diego State University. “Even if the house stayed the same price, the house got more expensive because interest rates are higher.”
Like San Diego, San Francisco is shifting to a buyers’ market and red hot sale prices are starting to cool. Real estate experts believe this shift is a result of several factors: buyer fatigue, an increase in inventory, rising interest rates and over-eager sellers inflating their prices higher than even the Bay Area’s robust market can support. The median list price per square foot in San Francisco is $1,036 vs. the national average of $150.
California Trends & Statistics
According to the latest home sales data from the California Association of Realtors (C.A.R.), record-high sales for single-family detached homes are scaring off buyers with concerns that home prices may have peaked. “[Buyers] are waiting until there’s more clarity in the market,” said C.A.R. president Steve White.
This section will take a look at California’s median home prices, rent prices, homes sold, real estate trends, and finally, what to expect for the 2019 housing market.
Median Home Prices
California Association of Realtors research shows that the median home price in August 2018 increased by about 5.5% over the previous year. 2019 forecasts include a modest 3.1% increase in home prices. With that in mind, median home prices are expected to top out at around $593,450. The slowdown in value growth can be attributed to the fact that home prices have been rising aggressively for several years now.
In November, California voters will decide on Proposition 10, an initiative to repeal the Costa-Hawkins Rental Housing Act, a state law that keeps local governments from imposing rent control on apartment complexes constructed after 1995. The law also prohibits cities from implementing rent controls on single-family homes, allowing landlords to charge market rate for their apartments after a rent-controlled tenant moves out.
If Proposition 10 passes, those restrictions would disappear. Cities and counties could dramatically expand rent-control efforts at a time when millions of Californians face high rent burdens and the state struggles with a generation-long housing shortage.
Homes Sold in California
California dropped below the 400,000 sales benchmark in August, the first time in the last two years that sales have reached that low.
The steady rise in home prices is a large contributing factor to the decline, according to C.A.R. The statewide median home price hit $596,410 in August, up 0.8% from July and up 5.5% year-over-year. The price-per-square-foot in California reached $283, which is near the statewide record.
Types of Real Estate – Trends
In San Diego and Los Angeles, single-family homes are selling the best, while condos and townhomes have taken a backseat.
In the Bay Area, however, condos are selling better. In fact, after a steep climb, the number of single-family houses sold has plateaued. The rise in condo sales is most likely due to the rising home prices and rent, as condos are typically an ideal compromise between the two.
California Real Estate Market Predictions
According to the CoreLogic Home Price forecast, although the pace of price gains will slow, home prices will continue rising throughout 2019 with new construction, supported by a strengthening domestic economy.
A recent C.A.R. housing and economic forecast predicts that a combination of high single-family home prices and eroding affordability will disrupt the housing demand and contribute to a weaker housing market in 2019.
“The surge in home prices over the past few years due to the housing supply shortage has finally taken a toll on the market,” said C.A.R. Senior Vice President and Chief Economist Leslie Appleton-Young. “Despite an improvement in supply conditions, there is a high level of uncertainty about the direction of the market that is affecting home-buying decisions. This psychological effect is creating a mismatch in price expectations between buyers and sellers and will limit price growth in the upcoming year.”
- Would-be buyers concerned that prices may have peaked will wait to buy until they have more clarity on where the housing market is headed
- The average for 30-year, fixed mortgage interest rates will rise to 5.2% (up from 4.7% in 2018 and 4% in 2017)
- Median home prices are expected to top out at around $593,450, a modest 3.1% increase from 2018
- CA unemployment rate to remain at 4.3% (unchanged from 2018, but down from 4.8% in 2017)
- Growth in the U.S. Gross Domestic Product of 2.4%
2019 C.A.R. CALIFORNIA HOUSING FORECAST
p = projected; f = forecast; * = % of households who can afford a median-priced home
Now that you better equipped with 2018 real estate market trends and 2019 predictions, you can feel more confident in making educated real estate decisions for the upcoming year. What has been a seller’s market is now shifting to that of a buyer’s market in California.
Overall, the market in California is volatile. As many homeowners opt to sell their homes and instead rent, more housing inventory is becoming available. If you’re considering selling your single-family home in San Diego or Los Angeles—now’s the time.
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