California Housing Market Stats

May 26, 2020

Is California’s Housing Market Good?

This epic report on the state of California’s housing market explores what’s happening. You’ll find some eye-opening insight, stats, videos, and opinions about housing in the booming Golden State economy.

California’s real estate markets are in tremendous pressure due to property tax policies, high building costs, building restrictions, and limited land in areas where companies have clustered.

If corporations in the major urban areas agree to allow workers to work from home, this can change the housing market dramatically. This would allow it achieve a better balance between buyers and sellers.

Home price vs mortgage payment is falling pointing to better affordability. Affordability grew 7.7% in the San Francisco Bay Area, and 3.2% in Los Angeles.

Mortgage Payments California. Screenshot courtesy of CAR.org

Key Factors in California’s Housing Market Growth

high employment and rising wages create fuel rising home prices and rents
demographics – lots of millennials buying and baby boomers selling
interest rates continue low
migration – slowed to keep prices stable
cost of business – extremely high (would you like to see my San Francisco parking fee?)
home prices – wickedly high and rising
rent vs buy – renting is better right now, but for how long?
multifamily new construction – total construction starts in 2019 were down 8%
With taxes dropping, interest rates stable, wages rising, prices stable, mortgage requirements reasonable, and rising personal savings, why aren’t people buying? Simple, they’re hoping prices will plummet.

Keep Your Eye on the Economy

A number of big IPO’s in the tech sector this year suggest the economy isn’t doing badly. In fact, California’s gross domestic product rose by $127 billion from 2016 to 2017, surpassing $3.137 trillion in 2019. These charts below show the fundamentals and the forecast for 2019.

A Healthier California Market

There are more homes for sale and many more buyers. After a strong lull, the upward march on California homes prices continues. The growth of active listings is slowing, and combined with lower new construction, we could forecast much higher home prices for summer 2020.

“We’re seeing interest and money shift away from the overheated markets into less expensive secondary markets…Even if we see some markets overheat and demand softens slightly, that doesn’t mean prices will go down” — Javier Vivas, director of economic research at realtor.com.

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Please see our San Francisco housing market, San Jose housing market, Los Angeles housing market, San Diego housing market, Oakland housing market reports for insight into how the economy is affecting each metro market.

What Tough Issues Are Californians Struggling With?

Is the talk of general affordability dying out and replaced by a new scrutiny of what’s really causing the problem? As the stats below reveal, lower priced home sales have dried up and entry level is now in the $500k range on average. In the major metros, it’s much, much higher.

Key Questions: Will property taxes become the bone of contention in this war? Would you be okay about higher property taxes? Will people push to repeal Proposition 13? Will a potential economic flat period continue to dry up building permits? Will the Fed keep pushing rates up?

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NIMBY’s are Still Blocking Housing Development

California is unique, however what’s happening here is happening in other hot locales such as Florida, Texas, New York, Seattle, and other North American cities.

Not in My Backyard or NIMBY is a huge force in North American housing markets. With local governments and agencies unafraid of State fines for not opening up development, especially multifamily development, we’re headed for a drawn out battle. Taxes, mortgage rates, labor and materials shortages, and growing wages will increase pressure on these local governments/agencies bent on preventing development. Something’s gotta give.

And this state’s economics and housing market dynamics are so complex, and political, that few real estate experts can reliably predict whether prices will rise and whether you should buy, or if this is the ideal time to sell your house.

Housing Crash Predictions?

Hoards of millennials, working poor, and homeless people are praying for a California housing market crash, but prices aren’t crashing.

With such strong demand driving the whole California housing market it’s unlikely the Corona Virus induced crash will be short lived. The optimism in the US is much to strong, and the government is committed to strong growth for the next 5 years. In fact, with the extra economic activity spawned by housing construction and household formation, there is upward price pressure.

Why Are Home Prices so High in California?

Some suggest the current problem blocking new housing development is “urban containment policies” and NIMBYism. They combine to make housing growth unwelcome. And with elections looming, politicians will be reluctant to push new controversial legislation that would open land development and thus alienate their voters.

California’s new earned income tax credit, rising wages and secure employment should boost demand in the lower price sectors through 2020, and without affordable housing growth, prices will likely rise. Some rental property investors are concerned about rent controls.

California’s Proposition tax laws enforce cheaper taxes for those who bought their properties long ago. Property owners pay taxes based on the base-year assessment value they purchased and not at not at current real market value. Any change to that tax law, would increase their property taxes considerably.

Battle Contestants: NIMBYs vs Anti-NIMBYs

The NIMBY’s (Not in my back yard) and YIMBY’s (Yes, in my back yard) are fighting it out to try to protect their positions on the future of California housing. If development is stopped, home prices in California could become the states absolute number one problem, thus heating up what is an emotion-generating issue.

Add to this is the lack of land available, long commutes for workers, booming economy and spectre of inflation, rising wages and buyer expectations, increasing numbers of millennials wanting to buy, and you get the record high home and apartment rental prices in San Diego, Los Angeles, Oakland, Orange County, San Jose, and San Francisco.

The resistance and political pressure is being increasingly seen in lawsuits, and feet dragging, and environmental roadblocks by local governments. Local governments don’t want further congestion, pollution, crime, higher taxes, and the destruction of their lifestyles.

Although construction is growing, it’s not enough to satisfy demand.

“The economists all cite the same reason: “As long as the economy keeps growing, that’s going to give a push to the housing market,” said Anil Puri, director of the Woods Center for Economic Analysis and Forecasting at Cal State Fullerton — from a report in the OCregister.

Big Cities and Big Prices

The demand has been strongest in the big metros of Los Angeles, San Diego, Orange County, San Francisco and the Bay Area. High prices have pushed workers inland to San Bernardino (7.9% forecast growth), Sacramento (5% growth forecast), Riverside (8.9% growth forecast), and other regions. Many hopeful buyers still can’t buy so they’re renting.

76% of the highest priced real estate markets are in California. Housing is heavily politicized due to the ongoing suffering of residents, tax base, excessive density, and congestion on the roads. And there’s a belief that politicians can make good changes. It’s hope vs NIMBYism.

California still has no rent price controls and bills to adopt price controls have failed. Given that the state wants to boost new housing construction, it can’t possibly introduce price controls. Smart investors would walk away.

Instead, California governor Jerry Brown pushed the largest collection of pro-housing legislation in recent memory, however he acknowledged that much more is needed.

Brown has had some strong words for Texas, and we wonder if this is resentment over businesses ditching California for the lower tax environment in Texas? Unfortunately, the governor’s legislation may add to the cost per unit of new housing and raise taxes.

The Booming California Economy

California’s economy is in the midst of a 7 year economic expansion. The last 3 years have seen per capita income and employment growth of more than 3%. During the last quarter of 2017, California per capita income rose at a nationwide leading 4.6%.

Pay attention to these key projected figures. With Californians well fixed financially, they have more money to buy. Governments will have to raise mortgage rates, reduce tax benefits, and stiffen mortgage qualification rules to discourage them from becoming buyers. It’s like a war against anyone who wants to buy!

Graphic courtesy of DOT

Graphic courtesy of DOT

These two graphics below show that although the average per capita income is rising fast, it’s not keeping up with rises in house prices or rent prices.

And with permits dwindling, housing developers aren’t coming to the rescue

Graphic Above Courtesy of DOT

The Predictions and Forecasts for 2020

Top institutional forecasters might look at large array of data, trends, and financial factors, however price forecasts in California comes down to a strong economy, continuing low mortgage and interest rates, rising wages, and the political resistance at the local level (NIMBYs). Sam Khater, chief economist at the Federal Home Loan Mortgage Corporation, or Freddie Mac interviewed by Wharton forecasts positive outlook for existing home sales and no relief in home affordability.

This price/sales Chart from CAR shows the forecast for California for 2020:

2020 CALIFORNIA HOUSING FORECAST
	2015	2016	2017	2018	2019p	2020f
SFH Resales (000s)	409.4	417.7	424.9	402.8	390.2	393.5
% Change	7.00%	2.00%	1.70%	-5.20%	-3.10%	0.80%
Median Price	$476,300	$502,300	$537,900	$570,000	$593,200	$607,900
% Change	6.60%	5.40%	7.10%	6.00%	4.10%	2.50%
Housing Affordability Index*	31%	31%	29%	28%	32%	32%
30-Yr FRM	3.90%	3.60%	4.00%	4.50%	3.90%	3.70%

The housing squeeze is making rental income suites a popular option and many are even choosing to start property management businesses. The California rental housing market is hot in 2018 but is this the right time to buy rental properties? However, from setting rental prices, to writing listing ads, to screening tenants to onboarding and communicating well with tenants, management and maintenance can be hard work.

That’s why smart landlords and property managers choose the best property management software to save time and keep tenants happy. Learn more about landlords and property management goals for 2019/2020 in our new State of Property Management report.

Housing Data resources and citations:

Housing stats: https://www.car.org/en/marketdata/data/countysalesactivity

Home Values: https://www.zillow.com/ca/home-values/

Mortgage Rates: https://fred.stlouisfed.org/series/MORTGAGE30US

California Taxes: https://www.boe.ca.gov/proptaxes/proptax.htm

Housing Starts: https://www.nahb.org/-/media/NAHB/news-and-economics/docs/economics/starts-and-permits/2019/housing-starts-us-and-regions-nov-2019.pdf