REALTORS®: Economic Uncertainty and Affordability will Continue to Subdue Home Sales in 2020
Low mortgage interest rates will help California’s housing market in 2020, but economic uncertainty and affordability issues will mute sales growth, according the California Association of REALTORS® 2020 Housing Market Forecast.
C.A.R. forecasts a small uptick in existing single-family home sales of 0.8 percent next year, up from the projected 2019 sales figure of 390,200 units. The California median home price is forecast to increase 2.5 percent to $607,900 in 2020, following a projected 4.1 percent increase from last year to $593,200 in 2019. Interest rates are expected to remain low, with the average for 30-year, fixed mortgage interest rates at 3.7 percent in 2020, down from 3.9 percent in 2019.
While buyers have more purchasing power due to lower interest rates, they may continue to be reluctant to get off the sidelines because of economic, political and market uncertainties, like the possibility of an escalating trade war, a global economic slowdown, a stock market correction, inconsistent government policies. The affordability crunch will cut into demand in some regions such as the Bay Area, where affordability is significantly below state and national levels. These factors together are expected to subdue sales growth next year.
“California’s housing market will be challenged by changing migration patterns as buyers search for more affordable housing markets, particularly by first-time buyers, who are the hardest hit, moving out of state,” said Leslie Appleton-Young, C.A.R. senior vice president and chief economist.
According to C.A.R.’s 2019 State of the Housing Market Study, nearly 30 percent of those sellers who planned on repurchasing said they will buy their next home in another state outside of California - the highest level since 2005. Thirty-seven percent of baby boomers and silent generation planned on repurchasing in another state. Thirty percent of millennial sellers planned to do the same.
“With California’s job and population growth rates tapering, the state’s affordability crisis is having a negative impact on the state economically as we lose the workers we need most, such as service and construction workers, and teachers,” said Appleton-Young.
The study shows 750,000 people have left the state since 2010. While the state has picked up about 12,000 workers in high-income fields like computers, engineering, architecture and business, it lost those earning less than $100,000, whose services are most needed, including over 15,000 workers in office and administrative support, 9,500 in sales, 8,000 in cleaning and maintenance, 7,800 in construction, over 5,000 in food services, and nearly 5,000 in education.
Already 42 of the largest 152 cities in the state are renter cities, with over 50 percent of their residents being renters. If the housing crisis is not solved, C.A.R. predicts by 2025, California will be a majority renter state.
Appleton-Young delivered the forecast at the C.A.R.’s annual fall business meetings and EXPO held in Los Angeles this month. Among those attending the meetings were leadership from the Silicon Valley Association of REALTORS®, including President Alan Barbic, President-elect Mary Kay Groth, treasurer Jeff Bell, C.A.R. Region 9 Director Denise Welsh, National Association of REALTORS® Director Leannah Hunt and Executive Officer Paul Cardus.