Shortage of Inventory Will Keep California Home Prices Rising in 2016

 

California’s housing market is expected to improve in 2016, but a shortage of available inventory and continuing high costs are expected to limit the improvement, according to a report released Thursday by the California Association of Realtors.

According to CAR's 2016 California Housing Market Forecast, existing home sales are expected to rise in 2016 by 6.3% over 2015’s expected total.

Additionally, existing home sales are expected to hit 407,500 in 2015, which would also represent a 6.3% increase over 2014, when there were 383,300 existing home sales.

CAR’s forecast calls for existing home sales to rise to 433,000 in 2016.

The state’s rising prices are predicted to hold back home sales slightly. The California median home price is projected to increase 3.2% to $491,300 in 2016, following a projected 6.5% increase in 2015 to $476,300.

 

Despite those increasing prices, 2016 is still estimated to have the slowest rate of price appreciation in five years.

CAR’s forecast projects growth in the U.S. gross domestic product of 2.7% in 2016, after a projected gain of 2.4% in 2015.

With projected nonfarm job growth of 2.3% in California in 2016, the state’s unemployment rate should decrease to 5.5% in 2016 from 6.3% in 2015 and 7.5% in 2014, the CAR forecast said.

Additionally, the CAR forecast projects the average interest rate for the 30-year, fixed mortgage will climb only slightly to 4.5%, but should still remain at historically low levels.

With a statewide market as diverse as California, some areas will see the effects of those changes more than others, according to CAR President Chris Kutzkey.

“Solid job growth and favorable interest rates will drive a strong demand for housing next year,” Kutzkey said.

“However, in regions where inventory is tight, such as the San Francisco Bay Area, sales growth could be limited by stiff market competition and diminishing housing affordability,” Kutzkey continued. “On the other hand, demand in less expensive areas such as Solano County, the Central Valley, and Riverside/San Bernardino areas will remain strong thanks to solid job growth in warehousing, transportation, logistics, and manufacturing in these areas.”

CAR Vice President and Chief Economist Leslie Appleton-Young said that there may be a shift in sales to more inland areas of the state in 2016.

“The foundation for California’s housing market remains strong, with moderating home prices, signs of credit easing, and the state continuing to lead the nation in economic and job growth,” Appleton-Young said.

“However, the global economic slowdown, financial market volatility, and the anticipation of higher interest rates are some of the challenges that may have an adverse impact on the market’s momentum next year,” Appleton-Young added. “Additionally, as we see more sales shift to inland regions of the state, the change in mix of sales will keep increases in the statewide median price tempered.”