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3 reasons why California housing is about to grind slower

Realtors report selling homes fast, for now

Homes sales in California increased again in May above 400,000 for the third straight month, according to information the California Association of Realtors collected from more than 90 local Realtor associations and MLSs statewide.

Closed escrow sales of existing, single-family detached homes in California came in at a seasonally adjusted rate of 410,090 units in May, according to CAR. This figure represents the total number of homes that would be sold in 2016 if the sales maintained their current pace. It is adjusted to account for seasonal factors that typically influence sales.

In May, the figure increased slightly from April’s 407,560, an increase of 0.6%, but decreased 3.2% annually from last year’s 423,700. This represents the first back-to-back sales decline since November 2014.

"While May home sales edged up slightly, we are seeing a moderation, driven by tight housing inventory and reduced affordability," CAR President Pat Zicarelli said.

On the other hand, so far this year, sales total almost 156,000, down 3.8% from the same time period in 2015, and about the same as in 2014, according to PropertyRadar. In fact, year to date sales in 2014 and 2016 were at their lowest since 2008.

Housing prices continue to rise due to a change in the mix of sales and a continued mismatch between supply and demand. The median price of an existing single-family detached California home rose 1.8% in May to $518,760 from $509,590 in April. This was an increase of 6.3% from May 2015’s $487,960.

May marked the second consecutive month where the median home price was above $500,000. This was still below the pre-recession peak of $594,530 in May 2007.

"The California housing market is growing modestly so far this year, with home sales running 2% higher year to date," said Leslie Appleton-Young, CAR vice president and chief economist. "Fundamental drivers, such as household formation and economic growth will continue to move housing demand forward.”

Appleton-Young gives 3 reasons why the California housing market will grind slower for the remainder of the year:

1: Constrained inventory

“After almost a decade of undersupplied housing stock, competition is fierce,” Redfin Chief Economist Nela Richardson said.


2: Low affordability

“Affordability has become a significant issue in many coastal counties throughout the state, particularly in the Bay Area,” said Madeline Schnapp, director of economic research for PropertyRadar.


3: Regional disparities

"Affordable areas, such as the Inland Empire and Central Valley, where housing supply is relatively more abundant, are outperforming the San Francisco Bay Area, where thin housing availability is hampering home sales,” Zicarelli said. “In fact, eight of that region's nine counties experienced a sales decline from the previous year."


These 3 factors "will be a drag on this year's market outlook, which is forecast to see a 1.3% growth in sales and a 5% increase in the median home price," Appleton-Young said.

In fact, even investors from China reported that, "San Francisco’s real estate market is starting to lose steam."

San Francisco’s crazy housing market may have finally peaked in what is surely welcomed news for those living there.

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