Leslie Appleton-Young, the Chief Economist at California Association of Realtors gave a keynote on the 2020 California housing market forecast at REimagine 2019 in Los Angeles. For those who weren’t able to attend, or for those who want to keep an eye on some of the biggest markets in the United States, this keynote is a must review!
“There is no such thing as a bad market. Markets go up and down. Plan for it and you will succeed.”
In 2019 - everyone is worried about everything. There is a lot of uncertainty and the economy is a wildcard. When this happens, people pull back and get cautious. When that happens, the housing market stagnates.
People believe we are due for a recession, including many economists.
Consumer confidence has dropped 9 points in September. People don’t trust that the money they lend will get paid back, which negatively impacts the economy.
C.A.R. asked 300 California consumers – “is it a good time to buy, or is it a good time to sell?” 1:5 think it’s a good time to buy and 1:2 think it is a good time to sell. The outlook isn’t as strong as it has been in the past.
Of the 15% of listings that have fallen out of escrow, 47% pulled out because they changed their mind and decided not to buy. People are waiting for a recession to invest.
Currently, the economy looks spectacular, especially the unemployment rate at 3.7%, the lowest it has been in 50 years. And interest rates have been dropping, which should drive housing investments. And 2020 looks to have a slowing but still increasing GDP.
In California, sales have remained high and haven’t dipped.
However, as you can see in the graph above, housing sales aren’t as strong as they were in 2005. What’s wrong with this market? Where did 30% of sales go? Sales are constrained by tight supply, particularly in the low end.
Sales are stagnant, but prices are going up a lot, especially at the entry level of the market. First time home buyers don’t have a lot to look at, and there are a lot of bidding wars.
Active listings in Aug 2019 had the largest drop since Dec 2017. There are fewer active listings than the year before.
And the average time on the market is still only 23 days.
There is demand for housing, and we have population growth. However, sales are completely stagnant and new housing unit growth has dropped. That’s the problem in the nutshell: lots of people want housing, but we don’t enough supply.
The fact is, we’ve been under developing our housing need for decades. We need 185,000 permits a year to meet our housing needs, but only had 114,370 in 2018. Because of this: prices are increasing and more and more families are being pushed out of our cities, or ending up homeless.
Job growth in our major metropolitan areas is enormous. In Southern California, 1.4M jobs were created in 8 years, and only 380k new units came online.
Why don’t we build enough housing? Community resistance, limited land, commercial development brings in more money than residential, and our regulations greatly extend the time it takes to approve new buildings.
Prices have grown much faster than incomes. Ratio between price and income is high.
In only 8 years, the annual income required to buy a home has doubled. Although the interest rates have dropped, people still can’t afford the down payment and need assistance.
In San Francisco and Santa Cruz, less than 20% of the residents can afford to purchase a home. The US average is 57%.
By 2025, California will be a majority renter state, with most of our cities already predominately majority renter.
Workers are leaving our state at a high rate because they cannot afford to live here anymore. And we are losing the workers we need to continue driving our economy and innovation.
We are losing construction, farming, and many jobs that hold the community together.
People are relocating out of CA so they can have a decent quality of life.
More people are moving out of state. To Texas, Oregon, Arizona, Utah, and Nevada.
So let’s look at the 2020 forecast. Sales look strong, with the median price continuing to increase. We’re anticipating the interest rate to continue to drop.
So what should you do to prepare for 2020?
- Price your houses correctly, use the data available to you.
- Expand your relocation networks to major cities that people are moving to.
- Financial literacy should be a top priority for you. Be the expert in financing; and share your knowledge.
- Interest rates are low and people haven’t refinanced. Follow up with your buyers and provide them with value. (They might have a friend moving!)
- The HGTV effect is real – everyone wants an Instagram ready home. Stage everything.
- Know what people are looking for in your area. Smart homes, home offices, solar, pet amenities. The tastes and amenities people are looking for have changed. Make sure you promote these benefits in your listings.
Remember that 77% of people find their agents because of an existing relationship. Continue to build and strengthen your networks. Focus on delivering impeccable service and building your expertise.
That's a wrap! You can find more analysis at the C.A.R. website here.