PUBLISHED: October 11, 2018 at 8:00 am | UPDATED: October 11, 2018 at 6:16 pm by Jeff Collins
After years of red-hot home sales and rapidly rising prices, California will experience “a weaker housing market in 2019,” with fewer transactions and the smallest price gains in years, according to a statewide industry group.
This year’s house sales are expected to drop for the first time in four years, falling 3.2 percent from 2017 levels, said a California Association of Realtors forecast, released Thursday, Oct. 11. Next year, sales are expected to drop even further, falling another 3.3 percent.
And while buyers waiting for price drops will be disappointed, sellers won’t reap the type of gains they’ve become accustomed to. House prices are projected to rise just 3.1 percent next year, less than half the appreciation rate for the past five years.
“I don’t think it comes as any surprise that we’re seeing a slowing in the market,” CAR’s Chief Economist Leslie Appleton-Young said.
Specifically, Realtor economists predicted:
— Sales of existing houses will drop this year to 410,450 transactions, followed by a decrease to 396,800 transactions in 2019. That would be the lowest number of sales since 2014.
— Median house prices are forecast to rise to $593,450 next year, up from this 2018’s projected median of $575,800.
The forecast marks a dramatic shift from the torrid housing market of the past four years, which saw steady demand and price gains fueled by bidding wars. This year, however, the market shifted. California’s home sales, for example, have been down in five of the past eight months.
Asked in an online poll last month if now is a good time to buy a home in California, 78 percent of respondents said no. Where are the buyers going?
“They’re on the sidelines waiting. They’re going to see what’s going to happen,” Appleton-Young said.
With fewer buyers, sellers are cutting their asking prices. Nearly 40 percent of California sellers reduced their asking prices in August. The average price chop was 4.3 percent.
“Would I call this a buyer’s market? No,” Appleton-Young said. “But are we moving in that direction? Yes.”
Mortgage interest rates also are forecast to go up next year, pushing monthly payments further out of reach for many buyers.
Rates for the 30-year, fixed mortgage rose from an average of 4 percent in 2017 to 4.7 percent this year. In 2019, the forecast states, it will average 5.2 percent.
As a result, only one in four households will be able to afford the median-priced home in the Golden State, the forecast says.
“The low rates are what kept mortgage payments reasonable,” Appleton-Young said.
With rates rising – hitting 7½-year highs on Thursday – more people are moving to more affordable parts of the state — or out of state entirely, CAR economists said.
Twenty-nine percent of California home sellers this past spring moved out of state, up from 19 percent in 2013, a CAR survey of its members showed. More than a third of Southern California and Bay Area homebuyers moved to more affordable counties.
“Where are people that leave Southern California going? They’re going inland, to the Inland Empire, and they’re going to other Western states,” Appleton-Young said. “Where are people in the Inland Empire going? They’re going out of state. They’re going to Arizona and Texas.”
Meanwhile, the state’s homeownership rate has barely budged after dropping to a post-recession low of 53.2 percent in the summer of 2016. As of last spring, just 54.3 percent of California households owned their own homes, vs. 64.4 percent of U.S. households.
Homeownership rates are lowest for African-American households and other minorities. Just over a third of African-Americans are homeowners in California, compared with nearly two-thirds of non-Hispanic whites.
CAR projects that by 2025, California will be a majority renter state. “Homeownership is becoming a luxury item,” Appleton-Young said.
When will prices actually stop going up and start dropping?
“I think you’ll start to see some softening next year. I think we’ve already seen it at the upper ends of the market, … the $1 million and more properties,” Appleton-Young said. “At the lower end of the market, I would expect people to start jumping in as they see more inventory and more concessions in price. We’re just not seeing it yet. The shift is in process.”
For more than a decade, Jeff Collins has followed housing and real estate, covering market booms and busts and all aspects of the real estate industry. He has been tracking rents and home prices, and has explored solutions to critical problems such as Southern California’s housing shortage and affordability crisis. Before joining the Orange County Register in 1990, he covered a wide range of topics for daily newspapers in Kansas, El Paso and Dallas. A Southern California native, he studied at UC Santa Barbara and UC Irvine. He later earned a master’s degree from the USC School of Journalism.