Housing forecast 2019: Market slows amid ‘high level of uncertainty’
Would-be buyers ‘concerned that home home prices may have peaked will wait on the sidelines’
California’s housing market will face many challenges in 2019, from federal income tax changes to an increasing wait-and-see attitude by would-be homebuyers.
The once red-hot housing market — complete with above-asking price offers and bidding wars in recent years — cooled off during the second half of 2018, and will continue to slow during the next year, according to the annual forecast by the California Association of Realtors. Other housing economists and experts, including those from Redfin and Zillow, agree the state’s housing market is slowing.
CAR estimates existing home sales will decline 3.3% to 398,000 units in 2019, compared to the predicted 410,460 homes sold in 2018 (final figures are expected in mid-January). Homes sales have been solid but slowed during the past two years, especially compared to the 7.0% increase in 2015.
And home sales have dropped for the past seven months, compared to the comparable months the previous year.
Would-be buyers have become more cautious in recent months due to cost, from the asking price to mortgage rates, which are higher than a year ago but have fallen since late October (see charts on how higher rates affect buying power). In addition, more consumers are waiting to see what happens with prices.
Potential buyers “concerned that home home prices may have peaked will wait on the sidelines until they have more clarity on where the housing market is headed,” says CAR president Steve White. “This could hold back housing demand and hamper home sales in 2019.”
‘A mismatch in price expectations between buyers and sellers’
The issues have created more of a so-called buyers’ market, with more homes listed and staying longer on the market.
“Despite an improvement in supply conditions, there is a high level of uncertainty about the direction of the market that is affecting home-buying decisions,” adds Leslie Appleton-Young, senior vice president and chief economist for CAR. “This psychological effect is creating a mismatch in price expectations between buyers and sellers, and will limit price growth in the upcoming year.”
Indeed, despite the estimated decline in sales, home prices — already at record highs in some regions of the state, including the Bay Area — will increase 3.1% to $593,450 in 2019. Home sales are predicted to rise 7.0% in 2018 (again, final figures are expected in mid-January).
“The surge in home prices over the past few years due to the housing supply shortage has finally taken a toll on the market,” Appleton-Young says.
Homeowners ‘losing a long-standing incentive’
Federal tax code changes, which limit the amount higher-income homeowners can deduct on their taxes, will play a role in the housing market in high-tax states like California, according to more than 100 housing experts recently surveyed by Zillow.
Many Californians are “losing a long-standing incentive” with the federal tax changes,” Appleton-Young says. Owning a house is “becoming a luxury good.”
The federal tax changes and affordability are causing more consumers to move from high-priced housing counties — or even out of state, according to CAR. Statewide, 28% of homebuyers moved from their current county, and the rate is much higher in the pricey Bay Area and Southern California regions at 35%.
By the numbers
- An estimated 64,900 single-family home building permits will be issued in 2018, about one-third as many as 2005.
- Only 270 housing units added per 1,000 new residents between 2005-2016 in California.
- Only one county (Lassen) in California has a higher affordability rate than the U.S. average.
- California has the second-lowest homeownership rate at 54.4% in the nation, behind only New York.
- 42 of the 142 largest cities in the state are majority renter cities. California is expected to become a majority renter state by 2025.