California’s housing recovery is projected to continue for a sixth straight year in 2018, but gains will be more modest than in the past, according to the California Association of Realtors housing forecast released Thursday, Oct. 12.
The median price of an existing house will increase 4.2 percent to $561,000 next year, compared with a projected increase of 7 percent in 2017.
Sales will rise 1 percent to 426,200 transactions, somewhat weaker than the 1.3 percent gain projected for this year.
After five years of recovery, prices are getting too high for some buyers, while the number of homes to choose from remains too low, said CAR Chief Economist Leslie Appleton-Young.
“It’s kind of a slow squeeze between low inventory and higher prices,” Appleton-Young said. “It’s certainly not a demand-side issue. … It’s an affordability issue and what do I choose from.”
While half of Californians could afford the median-priced house when the recovery started in 2012, only 26 percent will be able to afford a detached, single-family home next year.
A lack of homes for sale — due in part to underbuilding — has become the new norm, Appleton-Young said. But the scarcity is most pronounced for lower-priced, entry-level homes for first-time buyers.
“The low end is kind of disappearing,” she said. “It pushes people inland. It pushes people out of state.”
CAR also expects mortgage interest rates to rise slightly next year, but not enough to deter homebuyers. Rates for traditional 30-year, fixed mortgages are forecast to rise to 4.3 percent in 2018. That’s still low compared with historical averages, but up from 4 percent this year and 3.6 percent in 2016.
If rates were to go much higher, “housing will be hit hard,” Appleton-Young said. She doesn’t expect that to occur, however.
Instead, Appleton-Young expects home prices to continue rising for the next couple of years.
“I don’t see prices declining in the midterm. But we’re seeing prices moderate,” Appleton-Young said.
