Why California Could Have the Hottest Housing Markets in 2016

According to a recent ranking by the economists at Realtor.com, eight of the top 10 hottest real estate markets are located in California.

This is based on a review of hundreds of metro areas across the United States. And while home prices have cooled a bit in the Golden State, there’s a good chance California housing markets will continue to dominate the rankings in 2016.

You’ll find the full top-10 list of “hottest” markets below, followed by a California real estate outlook for 2016.

The Hottest Real Estate Markets in the U.S.

On November 2, 2015, Realtor.com updated its list of the 20 hottest housing markets in the U.S. for the month of October. Led by chief economist Jonathan Smoke, the economic team at Realtor.com analyzed real estate conditions in hundreds of metro areas across the country. They used listing views as an indicator of demand, and median days on market as an indicator of supply.

Here are the top 10 hottest housing markets for October 2015:

  1. Denver, CO (related coverage)
  2. San Jose, CA
  3. San Francisco, CA
  4. Dallas, TX (related coverage)
  5. Vallejo, CA
  6. San Diego, CA
  7. Sacramento, CA
  8. Santa Rosa, CA
  9. Yuba City, CA
  10. Los Angeles, CA

Homes listed for sale in these cities receive 1.8 to 3.6 times the number of views per listing, when compared to the national average. Homes in these markets are selling 30 to 47 days faster than the rest of the nation. Additionally, the number of days on market has dropped by an average of 19% in these markets, year over year.

Translation: If you’re selling a house in one of these metro areas, you’re in a better position than sellers elsewhere in the country.

Outlook for California Housing Markets in 2016

As you can see, California cities dominated the list of hottest housing markets. This has been the case for some time now, since the list has been fairly stable from one month to the next. Eight of the top 10 hottest markets are located in California.

The list above was based on real estate trends as of October 2015. But what about next year? What is the outlook for California housing markets in 2016? Will the Golden State continue to dominate the list of hottest real estate markets? While no one can predict future housing trends with total accuracy, we have good reason to believe California’s metro areas will continue to outperform the nation in 2016.

Inventory is the big story here. Housing supply is still falling short of demand across much of the state. This forces buyers to compete for a limited number of homes, which in turn puts upward pressure on home prices. We expect this imbalance to carry over into 2016. After all, you can’t just snap your fingers and create housing supply — it takes time.

But we also expect to see some degree of cooling in 2016, where home prices are concerned. While new-home construction is still lagging behind demand in many California cities, it has picked up a bit. So we might see a better balance of supply and demand in 2016 compared to the last couple of years. This would slow home-price appreciation and give buyers more options in terms of housing.

Related: California housing forecast for 2016

California has a lot of diversity among its local real estate markets. This makes it unique among the states. The California Association of Realtors (CAR) noted this in its 2016 housing forecast, published in October. According to CAR president Chris Kutzkey:

“…in regions where inventory is tight, such as the San Francisco Bay Area, sales growth could be limited by stiff market competition and diminishing housing affordability. On the other hand, demand in less expensive areas such as Solano County, the Central Valley, and Riverside/San Bernardino areas will remain strong thanks to solid job growth in warehousing, transportation, logistics, and manufacturing in these areas.”

This underscores the importance of doing localized research when buying a home in this state. The statewide stats can be useful from a macroeconomic standpoint. But when it comes to buying a home, buyers need to know what’s happening in their local areas.

CAR’s outlook for California home prices in 2016 is more modest than the last couple of years. In 2014, the statewide median house value rose by 9.8% compared to the year before. In 2015, the median rose by 6.5% (projected). In 2016, the association expects California home prices to rise by a more modest 3.2%.

Getting back to our 2016 outlook: California housing markets could continue to dominate the “hotness” list in 2016. But many analysts expect the market to cool a bit next year. Additionally, new construction could help create a more normal balance between supply and demand, taking some of the steam out of the rapid home-price appreciation we’ve become accustomed to.

Disclaimer: This story contains forward-looking statements (outlooks) regarding the California real estate and housing market in 2016. Such statements are speculative in nature and therefore should not be treated as facts or financial advice. The Home Buying Institute makes no claims or assertions regarding future real estate trends.