California Housing Market Update 2018

The California Association of RealtorsĀ® (C.A.R.) released their 2018 housing market report. Here is an overview of the study:

2018 California Housiong Market Report

With years of low inventory, a good economy, and the solid growth of new households, home sales were predicted to rise. This was the case through April. However, in May housing demand dropped, prices continued to increase, but at a slower rate, and more homes became available. This all pointed to a market slowdown.

From August sales were down 2.1% over the first eight months of 2017. What caused this? The unpredictability of interest rates, low inventory, and primarily lack of affordability. The affordability factor is what will drive the market over 2019. Even with higher inventory buyers are no longer rushing into the market, either because they don’t want or cannot afford to.

In May the median price of homes in California reached $602,760 exceeding the high set in May 2007, and it seems that this is the peak. The rise in inventory will cause home prices to soften.

28% of homebuyers moved out of the Bay Area and Southern California, especially first-timers. However with the stronger economy, low interest rates and rush to take advantage of these factors first-time buyers accounted for 34.8% , the highest level since 2012 and were responsible for the multiple offer trend with homes selling over asking.

With no bargains available investors lost interest in the market in the first half of 2018, and this is likely to continue as rent growth flattens and there is uncertainty about rent control.

Sellers are not moving as often as they used to, staying in their homes an average of 11.5 years which is the longest in 38 years.

C.A.R. projects that home sales will decline by 3.3% in 2019, and prices will increase by a modest 3.2%.

Are we in danger of another housing bubble? Rising prices are not the only factor. The amount of risk that homeowners and buyers are exposed to needs to be taken into consideration. Current market conditions are healthier than they were during the crash in the mid-2000s with buyers putting more down and significantly less taking out second loans and opting for an Adjustable Rate Mortgage.

A slowdown in the California housing market is imminent. By how much remains to be seen.

Read the full report here.


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