2019: Review
What goes up, must come down—or go flat.
The aggressive gains of the California real estate market—double digit year-over-year growth in some regions—came to a halt after several years of record growth.
Rewind the tape to Spring 2018: the real estate market across California, and notably in SLO County, experienced a surge in competition and skyrocketing home values. But eventually, enough was enough. Homebuyers were fatigued by the vicious bidding wars, the ever-rising home values, and slowly climbing mortgage rates.
To make matters worse, the federal government instituted sweeping changes to the tax law, wiping out significant tax benefits to homeowners in high-cost states (for example, ours), adding insult to injury for the already wearied would-be homebuyer population. As expected, sales dropped markedly and home values virtually flatlined, which characterized the California housing market in 2019.
The market was further battered by geopolitical crises, a trade war with China, a volatile stock market, and fears of a recession to boot. The saving grace to the real estate market was the Fed’s decision to lower interest rates, which fueled what little buyer momentum existed and kept sales steady.
2019 on the whole represented a softer market, giving homebuyers more negotiation power than they’ve seen in several years.
Mark this last November as the month that things began to turn around. CoreLogic’s chief economist Frank Nothaft writes, “the latest U.S. index shows that the slowdown in home prices we saw in early 2019 ended by late summer. Growth in the U.S. index quickened in November and posted the largest 12-month gain since February.”
While encouraging to hear, Californians would do well to keep in mind that our state remains in a housing crisis, and the affordability issue continues to force many of its residents out of the state. A recent poll by Quinnipiac University found that 53 percent of Californians don’t believe they can afford to live in the golden state.
True, in response to the housing shortage, we’re seeing many new housing developments show up on the Central Coast. But the vast majority are not affordable, entry-level homes, which both California and the Central Coast are sorely in need of.
2020: Forecast
If you read the predictions for 2020 that were being offered mid-2019, you wouldn’t have found much optimism. There were a lot of uncertainties due to the trade war, stock market volatility, etc. Today is a different story though.
In his 2020 forecast, founding partner of Beacon Economics, Christopher Thornberg, reported that despite the turmoil our country has been through in 2019, “one item that will not make the year’s ‘list of negatives’ is the health of the nation’s economy—and that isn’t changing any time soon.”
Consumer spending is pacing with GDP growth, unemployment remains at historic lows—particularly in California, where job growth surpassed the nation’s average between October 2018 and October 2019—and as a result, there has been a significant jump in worker earnings.
CNN recently reported that the housing market appears to be the brightest spot of the economy. A healthy job market and rising earnings along with dropping mortgage rates will continue to fuel the housing market, and thereby the economy too in 2020.
While California home sellers will continue to benefit from tight inventory, we won’t see record gains like we saw in 2018. California cities won’t make the list of the hottest markets in 2020, but we will see a relative heating in the market again.
Curbed Los Angeles reported that the real estate market in LA is off to a strong start, with several brokers reporting unusually higher buyer activity for this time of year.
Our neighbors to the south give us ample reason to expect that on the Central Coast, homebuyer activity will be strong too.
CoreLogic along with RTi Research conducted a survey mid-2019 (mind you, during the height of the 2019 economic theatrics), revealing that a significant number of older Millennials (30 to 38) were strongly considering moving within the next 12 months. Realtor.com also stated that Millennials will make up over 50 percent of purchase applications.
Given strong consumer confidence, expect the 2020 real estate market on the Central Coast to chug along in each price category, but with particular interest in entry-level properties and the more affordable areas of the County.