In 2017 we will see modest gains in price and inventory in the housing market in California.
Leslie Appleton-Young is the chief economist at the California Association of Realtors. In her latest update on the market, Young explored a number of issues facing the California homeowner.
Our Economy We are growing at a very slow pace. Our GDP has grown less than 3% a year for the past 11 years. However, consumer confidence is the highest it’s been in 9 years. We’ve gained lots of jobs in the state, the highest gains are in San Jose and the Inland Empire.
The Inventory– we are in a state of tight inventory with just a couple months supply of inventory. Young feels this is the new normal as people stay in their homes for longer periods of time and new construction falls well below the number of units needed. LA County is one of the hardest hit.
Young posed a lot of reasons for this tightness in inventory. A current homeowner probably has a very affordable mortgage, they can probably make a nice income renting it, taxes are very low and the low inventory means there are not a lot of places to move “to”. This means boomers are remodeling thier large homes or renting them out and buying second homes in vacation areas. The average length of ownership in California has moved from 7 years to 10 years.
Jobs– Young showed us that people will follow jobs and housing affordability. Migration trends show a clear path of jobs and people to places like Riverside and Fresno and away from previous destinations like LA and San Francisco.
Affordability – We are one of the least affordable places in the nation. 57% of people can afford to buy a home in their communities across the nation. In California affordability is between 13% and 23%.
Interest Rates– Arg! We’ve been warning consumers about rate increases for 4 years, but we’ve been wrong every year. That being said, the forces that be must raise rates at some point, if only to take back a tool they will need to fight inflation. The Fed projects 4 rate increases in 2017. Young is certain there will be at least two, the first one will happen in March.
Are we about to crash?– No. 2017 would mark the end of a typical 10 year cycle and this leads many to predict a crash. Appleton-Young says that in order to crash we need a major boom- and that has not happened. We’ve been a very, very slow recovery for 10 years. She thinks 2017 will be more of the same with average homes prices rising just 2.2% over the year.