C.A.R. Predicts a Possible Decline in California Housing Market in 2019

The California Association of REALTORS® (C.A.R.) has indicated a slower and weaker housing market in California in 2019. In its Economic and Market Forecast Report 2019, C.A.R. predicts that reduced affordability of the average home buyer will contribute to dampening of home sales in 2019.

In 2018, for the first time in four years, home sales in California will end at a lower level, while the housing demand for next year could be even weaker.The economic forecast by C.A.R. shows that in 2019, single family home sales will decline 3.3 percent to 396,800 units, down from the projected 2018 sales of 410,460.


Higher Interest Rates will Affect Sales

While the sales are projected to decline next year in California, the cause behind this trend will not be higher prices. According to the C.A.R. forecast, the median home price in California will increase only 3.1 percent to $593,450 in 2019, compared to a projected seven percent increase in 2018. C.A.R. estimates that home prices will temper in 2019, but the interest rates could go up, which will compound housing affordability challenges. Potential buyers may choose to wait on the sidelines in such a scenario, which will hamper home sales and curb housing demand in 2019. The C.A.R. forecast shows that in 2019, the average interest rate for a 30-year fixed home loan will increase to 5.2%, against an average rate of 4.7% in 2018.

While this may not be a very alarming jump in lending rates, but when coupled with the additional home price rise in 2019, it is bound to impact the affordability of many potential home buyers in California.


Drop in Existing Home Sales

The economists at C.A.R. predict that sales of existing homes will decline to 410,450 in 2018, which will be followed by a further drop to 396,800 transactions in 2019. If this occurs, it would be lowest sales level in California since 2014. These estimates from C.A.R. mark a significant shift from the hot demand the housing market in California experienced in the past four years. That period witnessed consistent rise in demand and price gains driven by bidding wars. However, things have dramatically changed in 2018, and the declining trends are likely to continue in 2019.


Price Reduction Predicted

C.A.R.’s chief economist and senior VP, Leslie Appleton-Young said that the rise in home prices over the last few years occurred due to a shortage of housing supply.

This trend has finally begun to take a toll on the market. Although California is not yet a buyer’s market, the trends are also pointing in that direction. Prices are likely to drop as sales continue to decline, Appleton-Young said. Buyers are fatigued, and they are choosing to sit on the sidelines, waiting for the prices to come down.