Prediction: California and Texas Housing Markets Could ‘Soften’ in 2016

Home prices in California and Texas housing markets could rise more slowly in 2016, compared to last year. But a major downturn in house values is unlikely. This is the latest real estate market prediction offered by Fitch Ratings, one of the three recognized credit ratings in the U.S.

Of course, if you’ve been following the housing market headlines recently (or my column), this prediction should come as no surprise. We have covered similar forecasts for Texas and California housing markets in the past, and the general consensus is that home prices in both states will rise more slowly in 2016 than in the previous year.

California and Texas Housing Markets Could Cool in 2016

The Fitch Ratings housing prediction was part of a press release published on January 13, 2016. According to the release: “some regional U.S. markets are overvalued. California and Texas may experience a softening in their housing markets, though large downturns are unlikely.”

More broadly, the ratings agency predicts that U.S. home prices will increase by 4.5% in 2016, and that “nominal prices will approach levels reached during the 2006 housing bubble.”

Some local real estate markets (including Denver, Dallas and Portland) have already reached and exceeded their housing bubble peaks. Home prices in such cities are now entering uncharted territory.

Latest Forecast Good News for Home Buyers?

The Fitch forecast for smaller price gains is good news for home buyers in both Texas and California. After all, house values have been rising much faster than wages in recent years (13 times faster when measured last year). And nowhere is this disparity more evident than in California — and to a lesser extent Texas.

In both the Golden State and the Lone Star State, an increasing number of would-be home buyers are being priced out of the market. House values have risen at a much faster pace than wages and median income levels. So it’s becoming harder and harder for residents in the lower to middle-income bracket to purchase a house.

According to the real estate information company Zillow, home prices in California and Texas rose 5.6% and 8.5%, respectively, over the last year or so. But the annual gains are even higher in some markets, when you drill down to the city or metro level.

For instance, Zillow says home prices in Dallas, Texas rose by a staggering 16% in the last 12 months. They reported an annual gain of 14.3% in San Francisco. This is based on the company’s “Zestimate” method of measuring house values, as of January 2016.

In these and other red-hot housing markets, a cooling trend is probably a good thing. (Let’s not forget what happened the last time home prices skyrocketed in this manner. In a word — crash.)

At the state level, Zillow has predicted smaller gains for both California (2.6%) and Texas (4.4%) over the next year or so. This echoes the “softening” forecast issued by Fitch Ratings last week.

So the message to home buyers and sellers in both states is this: There’s a good chance home prices will continue rising through the end of 2016, in most Texas and California cities. But you probably shouldn’t expect the kinds of gains we saw last year.

Disclaimer: This article contains real estate market forecasts for California and Texas in 2016. Predictions were made by third parties not associated with the Home Buying Institute. The publishers of this website make no claims or assertions about future home prices or other housing-related conditions. Third-party data are deemed reliable but not guaranteed.