California home sales set to turn negative

The rising cost of buying a single-family home in California is about to snap the state’s sales trend.

Sales are projected to be 410,460 in 2018, 3.2% lower than last year and the first year-over-year decline in 4 years. For 2019, California Association of Realtors is forecasting that sales will decline further to 396,800 units, down 3.3% from 2018’s forecast.

"While home prices are predicted to temper next year, interest rates will likely rise and compound housing affordability issues," said C.A.R. President Steve White. "Would-be buyers who are concerned that home prices may have peaked will wait on the sidelines until they have more clarity on where the housing market is headed. This could hold back housing demand and hamper home sales in 2019."

Economy to slow

The association is forecasting a slower pace of economic growth too with US GDP slipping to 2.4% in 2019 from 3.0% in 2018, and the state’s non-farm job growth to ease to 1.4% from a projected 2%.

Meanwhile, mortgage rates are expected to rise to an average 5.2% for a 30-year loan in 2019, from 4.7% in 2018 and 4% in 2017.

The rate of home price appreciation is expected to fall sharply.

The California median home price is forecast to increase 3.1% to $593,450 in 2019, following a projected 7.0% increase in 2018 to $575,800.

"The surge in home prices over the past few years due to the housing supply shortage has finally taken a toll on the market," said C.A.R. Senior Vice President and Chief Economist Leslie Appleton-Young. "Despite an improvement in supply conditions, there is a high level of uncertainty about the direction of the market that is affecting homebuying decisions. This psychological effect is creating a mismatch in price expectations between buyers and sellers and will limit price growth in the upcoming year."

2019 CALIFORNIA HOUSING FORECAST

p = projected
f = forecast
* = % of households who can afford median-priced home