2015 Prediction: California Housing Markets Will Post Biggest Gains

New research from the economists at Zillow suggests that California housing markets will lead the nation in price gains next year. Some could experience double-digit appreciation through 2015.

The harder they fall, the higher they bounce. Local real estate markets in California were among those hit hardest by the national housing crisis and recession. Entire neighborhoods were emptied by foreclosure. House values dropped like a rock. Would-be home buyers retreated back to renting, sending the entire real estate market to a screeching halt.

But that was then, and this is now. In 2015, California housing markets could experience some of the biggest price gains in the country. This is according to an analysis and forecast by the economists at Zillow.

Earlier this year, the real estate information service Zillow published home-value predictions for hundreds of cities and metro areas across the U.S. It was meant to show where home prices “are headed over the next 12 months, from May 2014 through May 2015.”

The projections came in the form of an interactive (and highly addictive) tool that allows you to scale the projections up and down. In other words, you can “zoom in” to see which housing markets are predicted to appreciate the most in 2015. And guess what? They’re all in California and Nevada.

Map: Zillow Home Value Forecast, May 2014 – May 2015

To create the map shown below, I set the home-value slider to show markets that are expected to appreciate between 10% and 15.9% (the max) over the 12-month projection period. As I moved the bottom range higher, other metro areas dropped off the map like bubbles popping. Once the bottom range reached 10%, only Nevada and California housing markets remained.

zillow forecast map
Zillow forecast: Cities projected to see 10% – 15% appreciation through May 2015

As you can see from the map screenshot, the only metro areas predicted to experience double-digit home price gains during the 12-month range are located in California and Nevada. Zillow’s 2015 predictions were highest for 10 California housing markets, as well as Reno and Las Vegas, Nevada. See the breakdown below for city-by-city forecasts.

California Housing Market Price Predictions for 2015

Here are the California housing markets with the highest projected appreciation through May 2015, from least to greatest:

  • Salinas: 10.0%
  • El Centro: 10.3%
  • Santa Rosa: 10.5%
  • Merced: 11.1%
  • Hanford: 11.8%
  • Yuba City: 12.2%
  • Madera: 12.3%
  • Stockton: 13.5%
  • Riverside: 15.4%
  • Modesto: 15.9% (highest in the nation)

I should stress these are merely predictions for California real estate markets. So don’t bank on them, as our legal folks will tell you. But they were created by veteran economists using comprehensive data. Think of it as a highly educated guess.

Low Supply, Strong Demand Driving Gains in Golden State

So what’s going on in the Golden State? Why are so many local housing markets experiencing high appreciation. Three reasons, actually:

  1. Real estate markets in California depreciated more than most U.S. cities during the housing bust. They fell further, so they have more “room” to rise to reach normal levels again.
  2. Over the last few years, inventory was severely depleted in many cities. This was largely the work of real estate investors, who snatched up properties when home prices were at their lowest. The investment activity has waned, but the depleted inventory remains in many areas.
  3. Economic improvements have put more people in a position to buy a house. The state’s unemployment rate fell to 7.4% in June, down from a high of 12.4% during the Great Recession.

On the subject of the state economy, Christopher Thornberg of Los Angeles-based Beacon Economics said the following:

“It wasn’t but a couple of years ago that folks were more or less writing us off. Now we are growing, and at a sizable clip, suggesting an economy that has some fundamental strengths.”

Disclaimer: This story contains forward-looking statements (forecasts and predictions) regarding the California real estate market in 2015. Such statements were based on third-party data and do not necessarily reflect the views of the publisher. We make no claims or assertions about future housing and economic conditions.