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California real estate forecast 2016, part 2

In my last article, I discussed the forces at work in the real estate market driving sales ratios and prices. Most notably, the three factors slowing the number of sales were low inventories, interest rate concerns and most especially, the lack of affordability. The California Association of Realtors is constantly tracking all sorts of variables in the market and I took a look at their latest report for October 2015.

The report basically accords with what I suggested, reviewing a market that is fairly stable, but lackluster. Homes are still selling in decent numbers, higher when compared to sales in October 2014, but slipping from the earlier months of 2015. The slowdown can be attributed to buyers taking a “wait and see approach” perhaps hoping for new inventory to come on board. The Board expects demand in 2016 to grow at a modest pace.

Here are some highlights of the posting:

1. Affordability remains a significant deterrent to increasing home sales in many areas of the State, particularly the Bay Area, and other desirable coastal communities. The numbers are hefty for current median prices: San Francisco proper at over $1.2 million; Santa Barbara at $635,000; Los Angeles at $475,990 and San Diego at $539,000.

2. With the exception of the Bay Area, we are not seeing the bidding wars with homes selling over list. The exceptional prices in the Bay Area are due to a serious lack of supply, and this too is related to affordability. If sellers cannot afford to move, they don’t list, and we wind up with a limited supply of upscale homes.

3. There’s a sharp divide in the State between the coastal areas, which far exceed the ability of middle class individuals to purchase, and the Central Valley and other inland areas where prices are half or less.

Median prices in San Bernardino are $231,000; in Fresno $214,000 and Sacramento $292,000.

4. Interest rates are expected to rise, but only slightly. Current rates for 30 year fixed loans are still under 4 percent, but though rates are low, many potential buyers still do not qualify for loans with prices so high. The median price for a single family house in the State of California is $475,000, and this leaves many just simply out of the running for homeownership.

The forecast for the real estate market for 2016 is in step with the macro-economic forces at play. Flat earnings and lack of confidence in the economy create hesitation. To enter a cycle of growth, we need something positive that will energize the market. It could be job growth, relief for millennials suffering from college debt or relaxed lending. We’ll see what our presidential candidates have to offer us. In the meantime, we’re OK, and will just have to hope for fabulous.

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Posted by on Dec 24, 2015. Filed under Real Estate. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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