CA Housing Experts Forecast a Mixed Market in 2020

L-R: California Association of Realtors (CAR) Chief Economist Leslie Appleton-Young and fellow Senior Economist Oscar Wei
L-R: California Association of Realtors (CAR) Chief Economist Leslie Appleton-Young and fellow Senior Economist Oscar Wei

California Association of Realtors (CAR) Chief Economist Leslie Appleton-Young and fellow Senior Economist Oscar Wei weren’t overly hopeful — but not overly gloomy — during CAR’s recent 2020 California housing market forecast event.

“We’re not super optimistic, but we are much less pessimistic than we were six months ago,” Wei said during the recent live webinar. “Low mortgage rates and low unemployment do help, but we aren’t really making much progress on the longer-term housing challenges that the state faces.”

CAR’s outlook for next year is for 394,000 single-family existing home sales to transact (slightly higher than 2019 but lower than 2018); the 30-year fixed rate mortgage interest rate to average 3.7 percent; the association’s Housing Affordability Index to stay flat at 32 percent (due to recent and continued lower mortgage rates); and the median home price to hit $608,000 — up $15,000 or 2.5 percent, a much lower annual appreciation than the 6 – 7 percent range experienced from 2015 – 2018.

“We have still yet to see the rapid go-go housing growth we’ve seen in some past economic cycles,” Appleton-Young said. “If we get into a major trade war situation with China, our housing and economic projections could go lower.”

She forecasts the California and U.S. economies will stay out of recession in 2020, although growth will come in at a very historically low pace — probably 1.6 percent Gross Domestic Product (GDP). Worker employment should mostly remain steady. And California’s population will hit 40.1 million by next year’s end (a record high) as annual population growth slows to a pace it hasn’t experienced in decades.

Other issues impacting California’s housing market today across various regions include the following:

  • Although next year will probably see a 3.7 percent fixed rate 30-year mortgage rate on average, “the risks are to the downside” as to where they could end up (maybe lower). The record low was 3.31 percent in 2012.
  • Seller fatigue, increased discounts, and a reduction in bidding wars on properties.
  • Sellers in many cases are accepting noticeably lower offers than the original list price.
  • Lower mortgage rates are a nice boost for the market, but they can only offset appreciating home prices by so much.
  • Historically low inventory is the “new norm” (3 – 4 months home supply at any given time versus 6 – 7 months during past housing cycles).
  • Today’s housing scene is a tale of two markets: supply for homes with lower-end prices is very tight, and upper-end homes are “more rarified” where “sellers have to be more realistic to get their properties sold.” Higher-end homes are staying on the market much longer before selling (compared to the past few years).
  • Every month from May 2018 – June 2019, homes across the state were experiencing year-over-year sales declines. Yet the past few months (July – September 2019) have marked the first back-to-back annual gains since then.
  • No region across California is “particularly affordable” compared to other comparable regions in the rest of the United States, and every region across the state is “coming up short” when it comes to housing supply/inventory — even in the Inland Empire, the Central Valley and other inland areas where much more single-family home building is taking place versus in the coastal counties.
  • The reason California hasn’t seen robust upward pressure on mortgage lending growth with lower interest rates in play is because buyers still have to come up with “very large down payments in some areas.” Also, “financial literacy out there is very weak.”
  • Many baby-boomers are choosing to “age in place” rather than downsize their property for various demographic, late retirement, and property tax reasons. This helps constrict existing home supply and sales.

The market is balancing out a little bit in terms of price appreciation, Appleton-Young said. There used to be double-digit gains in some areas for several years. But today, especially at the higher end, that’s not the case anymore.

“We’re hearing that some buyers want the perfect home they see on HGTV,” she added. “There are two professional spouses working, and they don’t want to do anything themselves on the property. Sometimes if there are cottage-cheese ceilings from a past era, would-be buyers walk out because of that. So right now, staging and fixing things up for putting your house on the market is more important than ever.”

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