REALTOR®: Top Economists See Bright Outlook for California’s Housing Market
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 Corelogic Deputy Chief Economist 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. 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.
On the other hand, California’s housing market looks bright. After seeing sales plunge, housing has rebounded, driven by low interest rates and lean supply, with record high prices.
While there is concern about a higher FHA delinquency rate, Hepp said current forbearance data indicates 9 percent of mortgage loans in the state are in forbearance. The good news is of 41 percent of Covid-related forbearances plans, 6 percent have paid off their mortgages, 30 percent currently performing, 5 percent are delinquent. Hepp also noted, “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. The average equity per homeowner in California in the second quarter of 2020 was $408,000, up $12,000 from Q2 2019.
The Bay Area tops the average equity, with San Francisco having an average home 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 increase 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 also wondered with work-from-home trending, if there would be more outflow from the cities or the state. Hepp does not believe urban centers and their amenities will lose their importance.
“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,” said Hepp.
“There’s no substitute for face-to-face meetings, meeting with clients, and people in real estate know that more than anyone else,” added Kleinhenz.
The economists agreed the pandemic has definitely highlighted the benefits of homeownership. “The huge benefits of homeownership begin with the opportunity to build wealth, not in stock market portfolio, but in 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.