Bay Area Real Estate Expected to Cool in 2019

Higher home prices. Weaker demand. Fewer sales. More traffic.

Economists for the California Association of Realtors on Thursday offered a somber forecast for the state housing market in 2019, expecting rising interest rates and a lack of affordable housing to push more prospective buyers out of the market.

“Home ownership is becoming a luxury good in California,” said CAR chief economist Leslie Appleton-Young. Across the Bay Area, the strong economy coupled with a lack of new housing has led to record prices. “There is no quick fix.”

California continues to be among the least affordable states in the nation for housing. Nationally, about 53 percent of families can afford mortgage payments on a median-priced home in their community. Just 1 in 4 Californians can afford to purchase a home.

In Alameda and Santa Clara counties, only 16 percent of residents can afford the typical home, while 14 percent of residents in San Francisco and San Mateo counties can handle the steep mortgage payments.

The residential market seems to be nearing a peak, Appleton-Young said, although the association expects California home prices to climb 3.1 percent next year. Total sales are expected to dip slightly, despite a growing workforce.

The expectations mean a continued windfall for Bay Area homeowners, while renters and lower-income workers scramble for affordable housing options. The median sale price for the nine-county region peaked in April, with sales of existing homes hitting $935,000, according to CoreLogic.

Median sale prices in the Bay Area have climbed, year-over-year, every month since April 2012. The historic run has given long-time homeowners spectacular returns, while forcing home searchers out of the market and sometimes the region.

As workers move into more affordable, outlying counties, congestion on the roads will increase, said association senior economist Jordan Levine.

He expects the pool of home buyers to dip as many Bay Area residents are priced out of the market. But, he added, “demand is not going to disappear.”

The statewide survey expects continued pressure on the housing market. Interest rates have climbed this year, reaching 4.6 percent last month for a 30-year-fixed rate loan, according to Freddie Mac, adding to monthly costs.

Although the market still favors sellers, economists also see signs it has begun to turn. About 40 percent of recent real estate listings have dropped prices this year, and homes have begun to spend a few more days on the market.

California Voters Reject Proposition 10

California voters on Tuesday rejected a controversial ballot measure known as Proposition 10 that would have expanded local government authority to enact rent-control laws on residential property, according to an NBC News projection.

Opponents of Proposition 10 claimed that the measure would worsen the state's chronic housing crisis and lead to more than 500 local rental boards setting just how much homeowners could charge to rent out their home.

More than $100 million was spent on the fight over Proposition 10, with opponents spending more than $76 million and backers shelling out about $26.2 million, according to state campaign finance records. The real estate industry, including major landlords operating in California, led the fight against the measure by donating significant amounts of money.

A PAC affiliated with the California Association of Realtors contributed about $8 million to fight the ballot measure while more than $5 million apiece came from New York-based real estate private equity firm Blackstone Property Partners, Chicago-based apartment real estate investment trust Equity Residential, and Essex Property Trust, a California-based real estate investment trust.

The proponents of Proposition 10 received most of their money from Los Angeles-based AIDS Healthcare Foundation, a nonprofit organization which donated about $23.2 million. Michael Weinstein, president of the foundation, helped lead the effort to get the voter measure on the November ballot.

The ballot measure sought to repeal California's Costa-Hawkins Rental Housing Act, a state law enacted in 1995 that weakened municipal rent control ordinances. The law specifically applied to rental control on single-family homes as well as on all housing built after Feb. 1, 1995.

California's renters typically pay 50 percent more for housing than renters living in other states, according to an analysis by the state's nonpartisan Legislative Analyst's Office. It also found that rents in some parts of the state are more than double the national average.

Sen. Bernie Sanders, the liberal Vermont independent and a potential 2020 presidential candidate, supported the ballot measure. He argued that local governments should have the right to set rents to ease the affordable housing crunch and protect tenants against huge rent increases.