California real estate market shows troubling signs that may keep new buyers in their homes for years to come
Natalie Campisi @NatalieMCampisi
August 13, 2018 in Mortgages
George Gutenberg/Getty Images
In the California real estate market the “b” word is on the minds of many: bubble. With reports of sharp declines in home sales, shrinking inventory and rising home prices, it might be an understatement to call California’s situation a puzzle, and one that may have implications for the entire country.
June marked the slowest home sales month for California in four years. The state saw an almost 10 percent year-over-year drop in transactions, according to a report by CoreLogic. This number stood in sharp contrast to the record-breaking cost of new and existing houses. The median price, across the state, rose to an all-time high of $500,000.
California’s trends might be exacerbated, but they’re not out of line with what’s going on in the rest of the country, says Eric Sussman, adjunct professor in accounting and real estate at UCLA Anderson.
The tax bill changes limiting home equity loan interest and property tax deductions, lack of affordable housing supply, wage stagnation and higher interest rates are all problems California shares with the rest of the country, Sussman points out.
However, California is unique in many ways, which means it might not be the most accurate barometer for judging the rest of the housing market.
“California is California. People are always going to want to come here. We’ve got 40 million people. We’re the fifth-largest economy in the world. Global capital is going to come here. In that way, we’re different,” Sussman says.
Prices are up, sales down and unemployment is low
Like California, national median home prices are at an all-time high, hitting $276,900 in June. This is a 5.2 percent increase from a year earlier, according to the National Association of Realtors, or NAR. Existing national home sales were sluggish, falling 2.2 percent in June from a year ago.
Meanwhile, the economy is strong. The national unemployment rate has fallen to 4 percent, which is the same on the state level for California. One problem is wages aren’t keeping pace, says Sussman.
“The real wage growth is squat. It’s been persistent for some time. You’ve got wage growth running, nominally, at 2.5 percent and inflation running at 2.5 percent so you’re treading water,” says Sussman. “Those are national trends, they’re just magnified in California.”
California is getting more expensive all the time, wages aren’t keeping pace
In California, price parity is higher than most of the country, according to a report by Money. The results were gathered by calculating the Census Bureau’s median income from the 2015 American Community Survey using the regional price parity method.
This method shows how much cash will buy in any given area. For example, in California the median income was $64,500 but the actual value was $56,878 when you factored in cost of living.