Agent's Perspective - California Housing Market: A Shift is Afoot

CNBC reported this week that JP Morgan economists expect economic growth to slow down in 2019 to a pace of 1.9% for the year. The economists say that the slowdown from a ‘boomy’ 3.1% in year-over year 4th quarter will come as fiscal, monetary and trade policies get less supportive or more restrictive. 

Boosted by tax cuts and stimulus, the economy’s growth had picked up to a peak of 4.2% in Q2 2018 and is growing at 2.5% in Q4 2018 according to JP Morgan’s forecast. 

“We see the Fed needing to exert modest restraint on growth, hiking interest rates 4 times to 3.25%-3.50% by year-end 2019” said the economists. The Fed’s current forecast is for 3 interest rate hikes next year, and one more this year in December. The economists expect that growth will hold above 2% in the 1st and 2nd quarters at 2.2% and 2% respectively, before falling to 1.7% in the 3rd quarter and 1.5% in the 4th quarter. 

US consumers benefited in 2018 from tax cuts amounting to roughly $120 Billion. Trade policy thus far has been only a minor nuisance, but it is expected that tariffs will become a more noticeable drag on growth in 2019. “Next year if 25% tariffs go through on Chinese imports it would amount to a tax increase of over $100 Billion, much of which would fall on the consumer”. 

Per Leslie Appleton-Young, SVP & Chief Economist’s “2019 Economic & Market Forecast” presentation to the California Association of Realtors (CAR) in San Francisco this past week, rising interest rates could hit have a direct impact on home affordability, hitting pocketbooks hard. Per the graph below a median priced home of $595,000 w/20% down @ 3% would result in a mortgage payment of $2,013. The same scenario with a 6.5% interest rate would increase the mortgage payment to $3,017 – and increase of over $1000, making the Bay Area housing market even more unaffordable.

Rates in 2018 for a 30-year fixed loan are now above 5%, the first time since 2011. Sales-price to list-price as of October 2018 have hit their lowest levels in 21 months, and the share of MLS listings with a price reduction has risen to 43.6%. Also, home’s days on the market in California statewide has risen to 26 days. In the SF Bay Area the days on the market to date is still overall notably better (San Francisco 15 days; Marin 22 days; San Mateo 12 days; Santa Clara 14 days; Contra Costa 16 days. Alameda 15 days, Napa 41days & Sonoma 47.5 days).

The impact of all of this per Leslie Appleton-Young: California is no longer an affordable state. We now have a record number of homeless. We are losing significant amounts of workers to more affordable states. By 2025 California will become a majority renter state. The solution: build more housing. 

For a copy of Leslie Appleton-Youngs complete 2019 Economic & Market Forecast presentation go to: