California has come a long way since the housing market hit bottom in 2008. By February 2009, REO sales comprised 60 percent of all home sales, equity sales 30 percent and short sales 10 percent, according to California Association of Realtors senior vice president and chief economist Leslie Appleton-Young.
The keynote speaker at the annual Silicon Valley Association of Realtors Economic Seminar & General Membership Meeting held this month, Appleton-Young said today’s market is the reverse — equity sales comprise 98 percent and REOs just 1 percent.
The economy looks good. Unemployment is the lowest in 40 years. Consumer confidence is the highest in 18 years. Inflation remains low.
Growth, while good, has its side effects. The Feds have raised interest rates eight times since December 2015, may raise rates one more time by the end of the year and up to four times next year. Appleton-Young said the 2019 outlook is for higher interest rates, which will impact housing affordability even more. To add to this, the tax reform law has made homeownership less of an incentive.
Appleton-Young said the country is entering the 10th year of positive economic growth, but the pace of growth is decelerating. By next year it could return to a 2.4 percent level of growth.
California needs 180,000 units a year and is currently at a deficit of three million units. The state is losing its working class and millennials to other states that are building more homes and homes that are affordable.
“The question is, how long can the economy be strong if housing is not?” asked Appleton-Young out loud. Quoting C.A.R. CEO Joel Singer, she said, “At some point a supply problem becomes a demand problem.”
The C.A.R. chief economist believes California will continue to outpace the rest of the country, but job growth will suffer because of affordability. The homeownership rate is falling on a year-over-year basis. It is believed that California will become a majority renter state by 2025.
“We need to build more housing, redefine attitudes toward density, and build adequate infrastructure,” said Appleton-Young.
With its strong economy and expansion of its tech sector, Appleton-Young believes the Bay Area is the most solid in weathering the changes. “Silicon Valley is the hub of economic growth. You are it!” she exclaimed.
“The Bay Area is the juggernaut of growth in income and jobs,” added Appleton-Young. “Prices are not going down, they are just rising slowly. We are in a slow squeeze, but it’s not a cataclysmic. I don’t see the economy faltering.”
Summarizing the state of the market, Appleton-Young told Realtors, “We’re going from great to good. It’s a change you have to talk about with consumers.”
Expect a 7 percent pullback in sales next year, she said, noting Realtors need to counsel and educate consumers about the market. Since interest rates are rising, it is a good time to buy and it is a good time to sell.
“Sellers need to be straight up with their price and not play games,” said Appleton-Young.