Economic uncertainty and high prices are muting the housing market in the nation’s most populous state, according to the California Association of Realtors.
The median home price in California likely will increase by 2.5% to $607,900 in 2020, slowing from a projected 4.1% annual gain in 2019, CAR said in a forecast Thursday. Sales of existing single-family homes probably will gain 0.8% in 2020 to reach 393,500, following a 3.1% drop this year from 2018’s level, the group said.
Low mortgage rates are making it easier for buyers to afford homes, but that’s being offset by the Trump administration’s trade wars that have increased the chances of an economic contraction, said Jared Martin, president of CAR.
“Buyers have more purchasing power than in years past, but they may be reluctant to get off the sidelines because of economic and market uncertainties,” Martin said. “Additionally, an affordability crunch will cut into demand in some regions such as the Bay Area, where affordability is significantly below state and national levels. These factors together will subdue sales growth next year.”
Economic growth probably will slow to 1.6% in 2020, slowing from 2.2% this year, according to the forecast. The state’s unemployment rate likely will tick up to 4.5% in 2020 from 4.3% this year, the group said.
The average rate for a 30-year fixed mortgage probably will be 3.7% in 2020, down from 3.9% this year and 4.5%, according to CAR.
“California’s housing market will be challenged by changing migration patterns as buyers search for more affordable housing markets, particularly by first-time buyers, who are the hardest hit, moving out of state,” said CAR Chief Economist Leslie Appleton-Young. “With California’s job and population growth rates tapering, the state’s affordability crisis is having a negative impact on the state economically as we lose the workers we need most such as service and construction workers, and teachers.”