California’s 2018 Real Estate Market Predictions-No Bubble in Sight

A real-estate site’s predictions for 2018 offer yet more disappointing news for would-be first-time homebuyers in California hoping that the New Year might bring some relief.
“The outlook for next year is rising prices, rising rates and rising property taxes,” said Redfin’s chief economist, Nela Richardson. “I wish I could have better news.”
Here is how Redfin’s housing market team predicts that the new year will shake out:
  • California exodus: Buyers in high-tax states such as California will move elsewhere if federal tax reform takes away deductions for state and local taxes — one of the more controversial aspects of the proposals pending in Congress. Redfin surveyed 900 homebuyers about this question last month; 37 percent of those from California said they would consider leaving the state as a result, compared to 33 percent nationally.
  • Waiting to sell: Proposed federal tax code changes relating to tax breaks and how long sellers must live in their homes to qualify — if passed — will make some people wait for another few years to list their homes, making the inventory shortage worse.
  • Urban suburbs: “Wealthier millennials” will drive the development of a new, denser kind of suburb with modest-sized homes built close to transit, complete with walkable neighborhoods, some urban amenities and good schools. But they won’t necessarily be affordable. Mountain View, where the median price for 2-bedroom home is over $1 million, was Redfin’s Bay Area example of an urban suburb. Regardless, Richardson says, far-flung, sprawling homes known to those who don’t live in them as “McMansions” are simply not what this generation wants.
  • Sellers market: Homes will sell even faster than they did this year, when nearly one in five sold within a week.
  • Mortgage rates will climb from below 4 percent to 4.3 percent or higher for a standard, 30-year loan. And because of high demand, home prices are expected to keep climbing, pushing the monthly payments 15 to 20 percent higher.
  • Housing bubble? Even in impossibly hot markets like the Bay Area, analysts aren’t seeing a bubble. They drew that conclusion partly because people are making larger down payments or paying all cash, and partly because sellers are getting their asking price — and then some. Richardson found that in cities such as Oakland, the average buyer has less debt relative to the value of their home — 80 percent — than they did in 2006, before that infamous bubble burst.
  • Roommates: More people will be doubling or tripling up to afford these skyrocketing rents and prices — a la the 1990s TV show “Friends,” Redfin predicts. Finding a compatible roommate of any age will get easier with real-estate startups like Nesterly, which matches younger renters with baby boomers, and CoBuy, which helps people go in on a house together. “We love the innovation,” Richardson quips in her report, “not to mention the new sitcom possibilities.”