On October 11, the California Association of REALTORS® (C.A.R.) published its 2019 California Housing Market Forecast. Among other things, the industry group predicts that rising home prices and reduced affordability will lead to a slower, weaker housing market in 2019.
California Housing Market Forecast for 2019
Affordability has become a big problem in many real estate markets across the state of California. This is especially true within the San Francisco Bay Area, where a typical resident with average income can scarcely afford to own a home. These issues have also arisen in some of the large coastal cities like San Diego and Los Angeles.
According to the C.A.R. forecast for the California housing market in 2019, these trends could result in weaker demand and fewer home sales next year.
“A combination of high home prices and eroding affordability is expected to cut into housing demand and contribute to a weaker housing market in 2019, and 2018 home sales will register lower for the first time in four years,” the group stated.
They expect to see a modest decline in the sale of existing single-family homes next year, along with a general cooling trend for prices. According to C.A.R. president Steve White: “While home prices are predicted to temper next year, interest rates will likely rise and compound housing affordability issues.”
During 2017, the median home price for the state of California rose by 7.2% year over year. During 2018, it is expected to rise by around 7%. But looking forward, into 2019, C.A.R. predicts that the median home value will rise by just 3.1%.
Of course, real estate conditions can vary widely from one city to another. Most of their 2019 housing market forecast pertains to California as a whole. But when you drill down to the city and metropolitan level, there’s quite a bit of variance.
For example, in the tech-driven city of San Jose, home prices are expected to rise by much more than the 3.1% figure projected for the state as a whole. The economic research team at Zillow recently predicted that the median home value in San Jose would rise by nearly 14% over the next 12 months (through October 2019). That bold forecast is largely due to strong demand and tight inventory conditions in San Jose.
Statewide, however, the C.A.R. forecast predicts slower home-price growth during 2019 compared to this year and last.
Rising Mortgage Rates, Home Prices Could Reduce Affordability
The state’s Realtor association also predicted a slight rise in mortgage rates for 2019. They anticipate that the average rate for a 30-year fixed home loan will rise to 5.2% in 2019, compared to an average of 4.7% in 2018. This long-range outlook closely resembles forecasts issued recently by both Freddie Mac and the Mortgage Bankers Association (more).
Granted, that’s not a huge increase in lending rates. But when you add in the prospect of additional home-price gains, it could definitely reduce affordability for a lot of would-be buyers. This is partly why the C.A.R. forecast for California’s housing market predicts fewer home sales in 2019. With steadily rising costs, fewer and fewer people will be able to afford a home purchase.
According to the report: “The California median home price is forecast to increase 3.1 percent to $593,450 in 2019, following a projected 7.0 percent increase in 2018 to $575,800.”
Disclaimer: This article includes forecasts and predictions for the California real estate market in 2019. Those projections were made by third parties not associated with the Home Buying Institute. As a general rule, HBI makes no claims or predictions about future housing conditions.