The real estate forecast for California in 2018 is definitely not flying under the radar, just like all the previous forecasts that have been prepared previously. The market continues to perform phenomenally while being famously characterized by a shortage of supply and ever-growing prices. So what does the coming year have in store for home buyers and sellers?
California home sales volume is low
37,700 new and resale home transactions closed in California in December of 2017. The number of homes sold that month was 4% below what it was in December 2016, amounting to about 1700 fewer sales. By the end of 2017, 461,900 home sales total had been made in California—3800 more than in 2016, marking an increase of less than 1%, and still 39% below the peak sales volume experienced in 2005.
Home sales will likely continue to be a slog throughout 2018. Potential homebuyers are being discouraged by extremely low inventory coupled with fast-rising prices and interest rates. Experts are predicting the next significant rise in home sales volume to land in 2019 if construction increases enough to up supply and turnover rates. Reasons for this predicted delay in home sales volume include fewer participating first-time homebuyers than usual, lower homeowner turnover (fewer people buying upgrades or relocating thanks to negative equity and late retirement), diminished supply across the state, and almost no turnover in rental properties.
Many of these negative factors affecting the California real estate forecast are in large part due to the as of yet incomplete jobs recovery which has been going on since the 2008 recession: although California finally regained all lost jobs by mid-2014, wage increases are still below the rate of consumer inflation. In other words, taking into account its 1.1 million working-aged population increase, California has yet to return to pre-recession employment levels.
The effect of the tax reform bill on the California real estate forecast for 2018
There has been no lack of talk about the effect that this year’s new tax laws have had on real estate markets around the country. With the unlimited federal deduction for property taxes, state income taxes and local income taxes now capped at $10,000, homeowners too, are only allowed a maximum deduction of $10,000—a huge shift from being allowed to deduct the amount in full! This is definitely not good news for homeowners residing in high-tax states such as California. But the full impact of the bill and its effect on home prices is still developing, and some high-end real estate market observers feel that even with tax burdens on the rise and home values poised to fall, the market will see a cool-down as opposed to the drastic hit others have forecast.
Battle for rent control
Rent control is, and has long been, a hot topic in discussions around California housing. Tenant advocates credit rent control for helping people keep their homes while landlords and economists worry that it discourages new building projects. California pro-rent control advocates recently staged protests to urge support for the repeal of the Costa-Hawkins Rental Housing Act, which, as it stands now, greatly limits rent control in California. Costa-Hawkins has been in place since 1995.
California home prices for 2018 still on the rise
According to Southern California Real Estate Forecasts, home prices are expected to rise at about the same pace as California on the whole: 4.2%, according to the California Association of Realtors (CAR). This would put November 2018’s median price for an existing house at approximately $525,000.
According to Chapman University and Cal State Fullerton, home prices in Orange County are forecast to rise 5 to 6%, while Metrostudy, a market intelligence and research firm, foresees a 3.2% gain in the region’s home prices. By comparison, Orange County house prices were up 6.9% in the year ending in November 2017 according to CAR.
Los Angeles County home prices are set to rise 3.1%, according to Metrostudy. UC Riverside’s Center for Economic Forecasting and Development has a more optimistic forecast, predicting gains of 5 to 10%. L.A. County house prices were up 9% in the year ending November 2017.
Meanwhile, Inland Empire home prices are set to rise 3.9%. UC Riverside forecast a price gain of 8.9% in Riverside County and 7.3% in San Bernardino County, with prices quite possibly moving back to the record levels they had reached before the 2007 housing crash. Riverside County prices rose 8.7% in the year ending in November, while San Bernardino County prices rose 12%.