The latest housing and economic forecast released by the California Association of Realtors indicates high home prices and eroding affordability are prompting buyers to wait in the sidelines. This will lead to a weaker housing market in 2019.
2018 home sales are expected to be lower for the first time in four years. The C.A.R. "2019 California Housing Market Forecast" projects a modest decline of 3.3 percent in single-family home sales next year, with 396,800 sold units, down from the projected 2018 sales figure of 410,460. The 2018 figure is 3.2 percent lower compared with 424,100 homes sold in 2017.
According to C.A.R. senior vice president and chief economist Leslie Appleton-Young, who delivered the 2019 forecast at the C.A.R. fall business meetings in Long Beach last week, the surge in home prices over the past few years due to the housing supply shortage has finally taken a toll on the market. While it is not yet a buyer's market, indicators are moving in this direction. As sales continue to decline, prices will drop.
"Buyers are exhausted. They're done for a while," said Appleton-Young. "Buyers can't afford and don't want to pay those prices, so they're sitting on the sidelines, waiting."
Silicon Valley Association of Realtors president Bill Moody, who attended the C.AR. meetings last week along with the local trade association's C.A.R. Region 9 directors, said rising interest rates are compounding the affordability problem. "This case of buyer fatigue is compounded by rising interest rates. We remind buyers that the interest rate environment is still low compared to double-digits in the 1980s, but the reality is one percentage point can mean thousands of dollars to homebuyers who are already stretching their limits to afford a home at current prices," said Moody.
The Federal Reserve has raised interest rates eight times since December 2015. C.A.R. projects the average for 30-year, fixed mortgage interest rates will rise to 5.2 percent in 2019, up from 4.7 percent in 2018 and 4 percent in 2017.
C.A.R. forecasts growth in the U.S. Gross Domestic Product of 2.4 percent in 2019, after a projected gain of 3 percent in 2018. California's job growth is expected to be at 1.4 percent, down from a projected 2 percent in 2018. The state's unemployment rate is expected to remain at 4.3 percent in 2019, unchanged from 2018, but down from 4.8 percent in 2017.
The state's median home price is forecast to increase 3.1 percent to $593,450 in 2019, following a projected 7 percent increase in 2018 to $575,800. The high housing cost is driving Californians to leave their current county or even the state. C.A.R.'s 2018 State of the Housing Market/Study of Housing: Insight, Forecast, Trends (SHIFT) report found 28 percent of homebuyers moved out of the county in which they resided, up from 21 percent in 2017. The outmigration trend was even worse in the Bay Area, with 35 percent of homebuyers moving out.
"Housing is becoming a luxury good in California," said Appleton-Young. "We really have to ask that question - where will our own children live?"
The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.
The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.
Variations of this article have appeared in local area newspapers.
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