California’s five-year run of rising home prices is expected to last another three to five years, with median house prices on track to beat the record highs set during the housing bubble, a Realtor economist said Thursday, Oct. 12.
The California Association of Realtors forecast home prices will increase an additional 4.2 percent in 2018, rising to $561,020. If the forecast proves accurate, that existing single-family home price will exceed the record high of $560,270 set in 2007. Prices, however, will remain well below pre-recession records when taking inflation into account.
Single-family home sales also are projected to increase in the state next year, but at a much more modest pace, the Realtor forecast said. CAR projected 426,200 houses will change hands, up 1 percent from this year’s level.
Overall, the gains in both house prices and sales are lower than in past years, perhaps signaling the California housing market’s “rate of acceleration has been slowing,” said CAR Chief Economist Leslie Appleton-Young.
Southern California home prices are expected to rise at roughly the same pace in 2018 and to match the statewide median, Appleton Young said.
The big mystery in the housing market, however, is why the pace of sales and price growth isn’t higher given that jobs and incomes have been rising. The answer lies in twin ills that have plagued the housing market for the past four years: Too few homes for sale and too few buyers able to afford those that are on the market at today’s prices.
“It’s so odd to look at this in an environment where you’ve seen such rapid job growth and income growth and low (mortgage interest) rates,” Appleton-Young said. “A lack of inventory and affordability … are really keeping a lid on the California housing market. We have fewer transactions … today than when we had 10 million fewer people living in California.”
Pulling out an old economics lesson, Appleton-Young noted that high home-price appreciation usually leads to “a supply response” — that is, more homeowners taking advantage of higher prices.
“We just haven’t seen that happening,” Appleton-Young said.