The California Housing Market had a pretty solid year in 2015. Compared to 2014 prices were up nearly 7% and sales were up 8.1%. Unfortunately, the 2016 housing market looks to limp forward in comparison. Economists forecast that price increases will slow down, which is good seeing that home costs in the state have made ownership unattainable for most. But the damage may already be done by the high cost of homes.
According to the California Association of Realtors (CAR) and their Housing Affordability Index, only 34% of households can buy at the current interest rate. If the rates would climb to 6%, only 1 in 4 households could purchase a home, and that’s with a 20% down payment. Because of these high home costs reports by Beacon Economics show a large exodus of low and middle class residents. In a 7-year span leading up to 2014 around 625,000 residents have left the state. This is despite the California boasting some of the highest wage and job growth rates in the country.
“California has an employment boom with a housing problem,” Says co-founder of Beacon Economics Christopher Thornberg. Although California offers great employment opportunities at all wage levels, housing affordability and supply hinders the state’s real estate market.
Using the Los Angeles real estate market as an example we can see how one of the California’s middle-of-the-road markets (in terms of affordability) is still extremely high. On real estate website Trulia Los Angeles has a median sales price for all properties is currently $640,000. On rival website Zillow Los Angeles has a $579,750 median sales price. And these numbers are for the metro area, discounting the higher priced suburbs on the outskirts of the city.
In a survey by the same group nearly 40% of Millennials lived with their parents. And nearly half of those Millennials surveyed stated that they lived at home because they flat out could not buy a home. And which hich are the worst markets for affordability? Try the Santa Monica and San Francisco real estate property markets. Forget about purchasing a home. Rental prices are extremely high due to lack of availability.
Housing market prices in CA have resulted in homeownership rates to be lower than most states. Two disturbing stats: a year ago California ranked next to last in the nation in homeownership (54%), and those who did own a home spent a quarter of their income on housing costs (the highest in the country). To ease the swelling of inflated housing cost the state must look to increase the construction of new homes and rental properties.
“Left unchecked, housing costs could severely hamper the state’s ability to retain the low and middle income workers that help to power our economy,” says venture capitalist and philanthropist F. Noel Perry.
Influencing Factors for the 2016 California Housing Market
- Median sale price for all homes in the California housing market is $412,000. Looking at rental listings on popular websites like Craigslist California has an average rental cost of $2,288. This is nearly $1,000 over the national average. Due to the short supply for rentals and the inability for most to purchase a home in the state look for these numbers to continue to climb.
- Mortgage rates look to stay level due to a number of factors: the global economic slowdown and the heightened volatility in the stock market.
- Housing is in short supply. In a ten year period beginning in 2005 California had permits filed for only 22 housing units per 100 new residents, putting the state next to last in the nation to Alaska.
- Inventory of homes for sale ended 2015 at a 22-year low. This will fuel competition among buyers and place the advantage in the hands of sellers.
- Housing market predictions from Chapman University and Cal State Fullerton have median prices of a single family home increasing in 2016 by 2.5% and 5%, respectively. Bottom-line, it’s unsure how prices will go at this point. Outside investors may continue to buy real estate while residents are forced to look outside of the state.
Best Places to Live in California
The market for San Bernardino real estate is a great option for anyone looking to stay close to the action of Los Angeles without having to pay out of control housing costs. Median sale prices in the city are around $220,000. Sales have been stagnant due to recent events (the terrorist shootings) but seeing that this was most likely an isolated event it would be unfortunate to not include this city on our list. San Bernardino is home to California State University and a vibrant arts scene. While it may have some issues the cost of living in the city is hard to ignore.
Known as the “Gateway to the Sierras,” the Clovis real estate market is located in the middle of the state and has a median sales price of $280,000. The home appreciation rate has been growing steadily and projections see that trend continuing. About 75% of Clovis residents are homeowners and the city has low numbers in both foreclosures and mortgage delinquency. You won’t find the type of job market that you would in larger cities but the trade off can be well worth it. Clovis also has an exceptional public school system.
On the outskirts of the state capital the Folsom housing market has been on a tear recently. The median home values are a little higher at $464,000 but this has not deterred sales. Even the rent reflects the hot market. Average rental prices in Folsom are $2,100. Folsom is known for its great outdoor recreation facilities including its extensive 32-mile network of bike trails. And if Folsom is a little out of your price range but you like the area just to the north is the city of Yuba. Median sale prices are currently $222,000 according to Zillow. Yuba rental prices are on the lower end at just over $1,300.
If you’re looking for a happy medium between Los Angeles and San Diego real estate the city of Murrieta is a great find. Just off the beaten path Murrieta has some of the amenities of a larger city at about two-thirds the cost. With an average sale price of $366,000 this is well below L.A. and San Diego. The one thing that it does share in common with these larger cities is its high rent, at just under $2,000. The city is very family-centric. The appeal for residents is that there is something for everyone. Three golf courses are located within the city limits (including the famous Bear Creek Golf & Country Club), as well as several youth sports programs, and entertainment venues.
San Luis Obispo is one of the little known gems located between Los Angeles and San Francisco. This city has a higher median sale price of $652,300, but without the hustle and bustle of the larger cities. The Pacific Ocean is only 11 miles west of the city making it an ideal location for beach lovers who don’t want to pay the inflated cost of being closer. The city houses the California Polytechnic State University, which brings with it the amenities of any major college campus – arts, transportation, and entertainment. And one of the main draws is the wide range of outdoor activities like hiking, kayaking, surfing, and sailing.
Outside of Sacramento is the city of Davis. This is a little on the high end for both home cost and rental prices but there are a lot of great things going for Davis. Median sales are less than $500,000 but economists don’t expect this to rise much due to the fact that home appreciation is affecting the coastal areas at a higher rate than more centrally located markets. Davis is an extremely eco-friendly city. Not only is bicycling the preferred mode of transportation here, but Davis also hosts events such as the Whole Earth Festival and Picnic Day.
If you can afford higher on the pay scale San Jose real Estate has a lot to offer. Home sales tend to hover around the $800,000 mark, but this is relatively cheap when considering that the outlying neighborhoods are Palo Alto, Santa Clara, and Morgan Hill, all highly coveted markets. A short drive to San Francisco gives you all the joys of the City by the Bay, but for $300,000 less. The job market in San Jose is extremely well off thanks to the high concentration of high tech computer and engineering companies that are located in the city. Area colleges and universities also inject a lot of revenue into the community.