Tight inventory, high costs expected to slow California housing market in 2016

by Ryan Smith12 Oct 2015
California’s housing market is hot right now, but tight inventory and continuing high costs are expected to put limitations on its improvement in 2016, according to the California Association of Realtors.

Existing home sales are expected to rise over 2015’s expected totals by 6.3%, according to CAR. Those sales will probably be held back a bit by rising prices. The median home price in California is expected to increase 3.2% to $491,300 in 2016, after a total projected increase of 6.5% to $476,300 in 2015.

“Solid job growth and favorable interest rates will drive a strong demand for housing next year,” said CAR president Chris Kutzkey. “However, in regions where inventory is tight, such as the San Francisco Bay Area, sales growth could be limited by stiff market competition and diminishing housing affordability. On the other hand, demand in less expensive areas such as Solano County, the Central Valley, and Riverside/San Bernardino areas will remain strong thanks to solid job growth in warehousing, transportation, logistics, and manufacturing in these areas.”

Leslie Appleton-Young, CAR vice president and chief economist, thinks the sales trend may shift to more sales in inland areas next year.

“The foundation for California’s housing market remains strong, with moderating home prices, signs of credit easing, and the state continuing to lead the nation in economic and job growth,” Appleton-Young said. “However, the global economic slowdown, financial market volatility, and the anticipation of higher interest rates are some of the challenges that may have an adverse impact on the market’s momentum next year. Additionally, as we see more sales shift to inland regions of the state, the change in mix of sales will keep increases in the statewide median price tempered.”
Despite those increasing prices, 2016 is still estimated to have the slowest rate of price appreciation in five years.

CAR’s forecast projects growth in the U.S. gross domestic product of 2.7% in 2016, after a projected gain of 2.4% in 2015.

With projected nonfarm job growth of 2.3% in California in 2016, the state’s unemployment rate should decrease to 5.5% in 2016 from 6.3% in 2015 and 7.5% in 2014, the CAR forecast said.

Additionally, the CAR forecast projects the average interest rate for the 30-year, fixed mortgage will climb only slightly to 4.5%, but should still remain at historically low levels.

With a statewide market as diverse as California, some areas will see the effects of those changes more than others, according to CAR President Chris Kutzkey.

Click the graph below to enlarge and for the full CAR 2016 housing forecast.
(Source: CAR)


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