2017 California Real Estate Market Predictions: Coastal Cool, Inland Hot

The California Association of Realtors predicts 2017 is going to be a good year for the state’s inland markets as those on the coast get less and less affordable.

The trade group’s 2017 Housing Market Forecast, released Thursday, anticipates that the number of homes sold statewide will rise slightly between this year and next. But economists believe soaring prices in Los Angeles, San Diego and San Francisco could slow sales there, while the relatively affordable Inland Empire and Central Valley will see more activity.

“Job creation, low interest rates, the availability of low-down-payment mortgages… all make it a little more attractive and a little easier for first-time homebuyers to realize that demand. They can’t always do it in the urban coastal area, which is slowing, but they can do it in the Inland Empire, the Central Valley and Northern California,” said Leslie Appleton-Young, CAR’s chief economist and vice president. “In general, the migration pattern fits hand-to-glove the housing affordability pattern and the creation of jobs.”

Since 2014, when foreclosures and real-estate-owned sales returned to their historical levels, prices have risen steadily but inventory has remained tight as construction lags and homeowners stay in their homes longer. According to CAR, sales were effectively flat from 2015 to 2016. Median prices statewide rose 6.2 percent over the same period. In 2017, the group predicts a 4.3 percent rise in prices statewide and a continued drop in affordability.

Although interest rates remain historically low, 31 percent of Californians could currently afford to purchase a home at California’s median price — $526,000 through the first seven months of 2016 — according to the forecast. In 2012, 50 percent could afford homes.

And Appleton-Young estimated that 400,000 to 700,000 single-family homes were purchased by investors during the recession and are now occupied by renters instead of owners, taking even more inventory off the market.

“The impact on first-time homebuyers has been really dramatic,” Appleton-Young said, pointing out that first-time buyers have comprised just 29 percent of all buyers in 2016. Over the last 30 years, the average has been about 38 percent. “Even with this amazing rate environment, with jobs coming back, household formation, first-time buyers are still having a very tough time.”

Statewide, a key demographic trend is contributing to the lack of inventory, Appleton-Young said. Millennials, the source of much hand-wringing by housing economists, are finally entering the market — but Baby Boomers aren’t moving. According to the group’s 2016 Annual Housing Market Survey, 71 percent of Californians over the age of 55 haven’t moved since 1999.

“Historically, we’ve never seen quite a recalcitrant group in terms of putting their homes on the market as the current crop of Baby Boomers,” Appleton-Young said. She said CAR’s housing market survey found that 64 percent of Boomers don’t plan to move when they retire, citing fears that they won’t find another affordable home in their area, aversion to paying capital gains taxes on homes that have skyrocketed in value, or concern about paying higher property taxes when they move.

“Many, many of them are choosing to make their current home their dream home with remodeling and repairs,” Appleton-Young said, pointing out that spending on home remodeling is up 16 percent year over year.

Webb and Bernal said they don’t think that trend is visible — that people are staying in their homes longer and remodeling more — remains relevant.

“We tend to say no one keeps their home for more than five years,” Bernal said. “There’s a big segment of the population that, rather than selling and buying their dream home, they’re modifying their current home and making it their dream home, because that’s where their affordability is.”