Top economists see bright outlook California’s housing market, need for more opportunities for all
At the October California Association of Realtors Reimagine Conference, a panel of top economists shared their views with respect to a booming housing market and an economy laden with many issues. They included C.A.R. Deputy Chief Economist Jordan Levine, who served as moderator, Principal Economist of Kleinhenz Economics Robert Kleinhenz, and Deputy Chief Economist with Core Logic Selma Hepp.
Today’s economic downturn is different from that experienced during the Great Recession, said Kleinhenz. Hardest hit businesses today include leisure and hospitality which account for half of the losses, retail, health care, social assistance groups and non-profits, personal care services, small businesses and the self-employed.
Kleinhenz said California has been hit harder than the rest of the country because of its slower re-opening and many of the hard-hit industries figure more prominently in the state’s economy than the nation as a whole. The housing market looks brighter. After seeing sales plunge, housing has seen a comeback in sales, driven by low interest rates and lean supply with record high prices. There is concern about a higher FHA delinquency rate and a decline in the share of renters paying over the last few months.
Hepp said before the pandemic, California had the lowest delinquency rate in its history. Current forbearance data indicates 9 percent of mortgage loans in the state are in forbearance. The good news is 41 percent of Covid-related forbearances plans have since exited - 6 percent have paid off their mortgages, 30 percent currently performing, 5 percent are delinquent.
“Overall, it’s a positive trend,” said Hepp. “Amazingly, the average home equity in California is incredible.”
Due to spectacular home price appreciation, only
1.7 percent of homeowners have negative equity in California compared to 40 percent during the Great Recession, said Hepp. “This saves the day in terms of how the recession will play out for the housing market.”
The average equity per homeowner in California in the second quarter of 2020 was $408,000, up from $12,000 in Q2 2019. The Bay Area tops the average equity, with San Francisco having an average equity of $1 million per household. The nation’s average home equity is $185,000. The forecast through August 2021 is California home prices will rise 4 percent.
Kleinhenz voiced concern that with higher prices, homeownership has become unreachable for majority of the state’s population. “Over time what we’re seeing is we are becoming less of a homeownership state and more of a renter state.”
Levine indicated there already was movement out of state even before the pandemic. With workfrom-home trending, he wondered if the state would see more outflow.
“I don’t believe we are losing the importance of urban centers and urban amenities,” said Hepp. “We are seeing people buying second homes elsewhere, but not necessarily selling their home in the city. If they were, inventory numbers would increase. I see a shuffling, but not long-term.”
Kleinhenz also does not see the work-from-home trend as not a “permanent state of affairs,” even as developers are taking the trend into consideration in layout and design of new homes. Recent analysis shows the percentage of people working from home might be as high as 25 percent for now, but by Thanksgiving next year, expectation is things will return close to normal.
“There’s no substitute for face-to-face meetings, meeting with clients, and people in real estate know that more than anyone else,”said Kleinhenz.
The economists said the pandemic has definitely highlighted the benefits of homeownership. They emphasized the need to open more homeownership opportunities for all people in the state.
“The huge benefits of homeownership begin with the opportunity to build wealth, not in stock market portfolio, but in a being a homeowner and the sense of community it brings. They don’t just buy a house, they buy a sense of community,” said Kleinhenz.