Inventory Improving, Affordability Deteriorating
High home prices and eroding affordability is expected to cut into housing demand and contribute to a weaker housing market in 2019, and the volume of homes sold in 2018 will register lower for the first time in four years, according to the California Association of Realtors (C.A.R.) housing forecast.
The California median home price is forecast to increase 3.1 percent to $593,450 in 2019, following a projected 7 percent increase in 2018 to $575,800.
C.A.R. forecasts a modest decline in existing single-family home sales of 3.3 percent next year to reach 396,800 units, down from the projected 2018 sales figure of 410,460. “While home prices are predicted to temper next year, interest rates will likely rise and compound housing affordability issues,” said C.A.R. President Steve White.
C.A.R.’s forecast projects growth in the U.S. Gross Domestic Product of 2.4 percent in 2019, after a projected gain of 3 percent in 2018. The average for 30-year, fixed mortgage interest rates will rise to 5.2 percent in 2019, up from 4.7 percent in 2018 but will still remain low by historical standards.
“The surge in home prices over the past few years due to the housing supply shortage has finally taken a toll on the market,” said C.A.R. Senior Vice President and Chief Economist Leslie Appleton-Young.
Abridged from C.A.R. 2019 Housing Market Forecast
Existing-Home Sales to Stabilize and Price Growth to Continue
Consumers should expect home sales to flatten and home prices to continue to increase, though at a slower pace, according to the National Association of Realtors (NAR).
“Ninety percent of markets are experiencing price gains while very few are experiencing consistent price declines,” said Lawrence Yun, NAR Chief Economist. “2017 was the best year for home sales in ten years, and 2018 is only down 1.5 percent year to date. Statistically, it is a mild twinge in the data and a very mild adjustment compared to the long-term growth we’ve been experiencing over the past few years.”
When Yun was asked about the possibility that we are currently experiencing a small bubble, he was quick to shut down any speculation. “The current market conditions are fundamentally different than what we were experiencing before the recession 10 years ago,” said Yun. “Most states are reporting stable or strong market conditions, housing starts are under-producing instead of over-producing and we are seeing historically low foreclosure levels, an indication that people are living within their means and not purchasing homes they cannot afford. This is a stronger, more stable market compared to the loosely regulated market leading up to the bust.”
When asked about his forecast for 2019 home sales and median home prices, Yun said “the forecast for home sales will be very boring – meaning stable. Home price appreciation will slow down – the days of easy price gains are coming to an end – but prices will continue to rise.”
Abridged from the 2019 NAR Housing Market Forecast