Will the California Real Estate Market Survive?!
San Diego (along with the rest of California) had a sharp increase in the number of year over year sales the month of December 2015 after a slight pullback in November. The jump in the statewide sales in December was attributed partly to the Consumer Financial Protection Bureau’s “Know Before You Owe” disclosure rule, as some sales that should have been closed in October or November were delayed due to the implementation of the new regulations, but were finalized in December. For the year 2015, San Diego County existing single-family home sales increased an average of 3 percent from 2014.
Statewide, the average home sale price jumped 6.4% as slower recovering counties finally posted year over year price increases for the first time since 2008. The annual statewide median price also continued to rise from 2014 but the increase was mild when compared to previous years. In fact, it was the smallest annual price gain in the last four years. The California median home price for 2015 increased to $474,420; San Diego County median was $465,000 for single family/condo/town homes with a median market time of 21 days.
The statewide housing supply remains an issue as the demand for housing continued to outpace inventory. The imbalance between the two sides not only intensifies market competition and pushes home prices higher, especially in high demand areas near downtown San Diego and the beach communities.
These figures underlie an important fact about American households, a smaller proportion of people and households have been moving between states since 1970, and this continues to decline. California especially is becoming more homegrown and less migratory.
Demand in regions with more affordable housing continues to improve and more home sales will likely take place in the coming year. As such, a further slow-down in home price appreciation at the state level is anticipated as the mix of sales changes in favor of lower-priced properties in 2016.
Looking forward, the state-wide California housing market is expected to have a decent performance in 2016. The Federal Reserve is expected to raise the federal funds rate two to three times. Modestly higher interest rates should not present that much of a direct challenge to the housing market. With the economy expected to grow, San Diego housing demand should continue its upward trend with sales of existing single-family homes projected to increase 3 percent in 2016.
While the recent volatility of the stock market has been drawing attention in the news, it is more of a distraction rather than a disruption to the continual improvement in the housing market. The drop in values of equity in January reduces the overall wealth and may have a small negative effect on the economy in general. Its impact to the housing market, however, should be minor, as solid employment conditions, anticipated increase in household formations, and record-low interest rates continue to provide support to the fundamentals of the housing market.