“Crystal Ball” is an innovative tool that assists in interpreting various forecasts regarding the future fluctuations of the economy.
Buzz: California’s housing market might experience another tumultuous phase as one forecast predicts a reversal of price dips with a gain of 7.3% over the next 12 months.
Source: I analyzed CoreLogic’s home-price indexes June report using my reliable spreadsheet. The report examines the changes in home values across 12 major markets and provides insights into future trends. Unlike other yardsticks that only track median sales prices, this “paired sales” index analyzes price changes specific to individual transactions.
The Trend
In the year ending in June, California’s home prices witnessed a 2.2% decline, with all but one of the twelve markets experiencing losses. This dip follows a significant statewide price surge of 35.5% in the previous 24 months.
This turnaround can largely be attributed to reduced affordability due to the Federal Reserve’s rate hikes. The central bank transformed from boosting home prices with historically low interest rates to dampening the economy by rapidly raising interest rates in early 2022.
Despite the decline, the limited supply of homes for sale has supported and maintained property values throughout mid-2023.
Considering the supply shortage, CoreLogic predicts a substantial increase in California home prices through June 2024, with all twelve markets projected to experience growth.
The Dissection
Let’s analyze the forecasted gains among the state’s major housing markets, ranked by the size of the projected increases:
Orange County: A predicted 9.5% gain over the next 12 months, compared to a 0.5% increase in the past year.
San Rafael: An anticipated 8% gain over the next 12 months, contrasting with a 6.9% decrease in the past year.
Inland Empire: Expected to see a 7.8% gain in the next 12 months, after a 1.3% decrease in the past year.
Ventura County: Predicted to experience a 7.4% gain over the next 12 months, following a 1.8% decrease in the past year.
Oakland: Projected to have a 7.4% gain over the next 12 months, compared to a 7.3% decrease in the past year.
Salinas: Expected to see a 6.8% gain in the next 12 months, after a 3.4% decrease in the past year.
Napa: Anticipated to experience a 6.5% gain over the next 12 months, contrasted with an 8.6% decrease in the past year.
Los Angeles: Predicted to have a 6.4% gain over the next 12 months, following a 2.4% decrease in the past year.
Santa Maria-Santa Barbara: Expected to see a 6.3% gain in the next 12 months, after a 1.4% decrease in the past year.
San Francisco: Projected to experience a 6% gain over the next 12 months, compared to a 7.2% decrease in the past year.
San Jose: Anticipated to have a 3.8% gain over the next 12 months, following a 4.3% decrease in the past year.
San Diego: Predicted to see a 3.5% gain in the next 12 months, after a 0.9% decrease in the past year.
Quote
According to Selma Hepp, CoreLogic’s chief economist, “California remains one of the most undersupplied housing markets in the country. Existing homeowners are holding onto their low mortgage rates, and new construction is lagging. As a result, there is renewed pressure on home prices, and growth rates over the next year are likely to exceed the national trend.”
Plausibility
CoreLogic reports that California’s median home value in June was $720,000.
At that time, mortgage rates were at 6.7%, and statewide unemployment was at a low 4.6%. Homebuying affordability was near or at its lowest levels, according to various indicators.
Considering CoreLogic’s prediction of a $50,000 increase in home prices in the span of a year, several factors need to align for this forecast to realize. Firstly, a stable job market is crucial. Unemployment has already risen from the record-low of 3.8% in the summer of 2022 due to the Federal Reserve’s economic policies.
Secondly, assuming California incomes increase by 4% in the next 12 months, mortgage rates would need to decrease to 6.4% to maintain the current affordability levels. Presently, rates are nearly 7%, making this a highly ambitious forecast.
Jonathan Lansner is the business columnist for the Southern California News Group. You can reach him at [email protected].
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