Even though we’re only officially a few weeks into fall, it’s never to early to forecast the real estate market outlook for 2017. But to do that we have to look closely at how 2016 has met or missed market expectations.
Barring some drastic unforeseen economic change, now that the peak selling season has passed we have enough hard data to make some definitive statements about this year’s numbers. Sales of existing single-family homes in California are estimated to end the year at 407,300 units moved.
That number is essentially flat compared to expectations and is down from a pace of 408,800 homes sold last year in 2015. Most analysts attribute this dip to tighter than expected supply and lower affordability.
But according to projections in the “2017 California Housing Market Forecast”, which was released last week by the California Association of Realtors, the outlook for 2017 is slightly more rosy. Our home state’s housing market is due for a slight rebound. C.A.R. predicts that overall sales will see an increase in existing home sales of roughly 1.4 percent in 2017. That would result in total sales of 413,000 units moved.
“Next year, California’s housing market will be driven by tight housing supplies and the lowest housing affordability in six years,” said C.A.R. President Pat “Ziggy” Zicarelli. “The market will experience regional differences, with more affordable areas, such as the Inland Empire and Central Valley, outperforming the urban coastal centers, where high home prices and a limited availability of homes on the market will hamper sales. As a result, the Southern California and Central Valley regions will see moderate sales increases, while the San Francisco Bay Area will experience a decline as home buyers migrate to peripheral cities with more affordable options.”
In addition to sales figures for existing single family homes, C.A.R.’s report examines and predicts larger economic indicators like Gross Domestic Product and employment numbers. There they predict growth in American GDP to also rise, up 2.2 percent in 2017 compared to an estimated year end number of only 1.5 percent gain in 2016.
California’s job numbers looks less promising, with nonfarm employment up only 1.6 percent compared to a projected 2.3 percent in 2016. Conversely, the overall unemployment rate is projected to continue to decline to 5.3 percent in 2017 versus 5.5 percent in 2016 and 6.2 percent in 2015.
After much speculative hand wringing over rising federal interest rates in 2015, experts are once again bracing for an interest rate hike in 2017. Though that rise is expected to be slight, from 3.6 percent in 2016 to 4.0 percent in 2017, record high home pricing means that potential buyers could have even less buying power and thus lower affordability. But with such political unrest at home and abroad, it’s possible the Fed will once again delay raising rates. Either way mortgage interest rates will remain at historically low levels.
Now let’s take a further look at affordability and median home prices statewide in California. The median home price is expected to go up by 4.3 percent in 2017 to $525,600. This year the market will most likely end on a 6.2 percent increase to $503,900 in 2016. Though this number would be the slowest rate of price appreciation over the last six years, it may result in a slight increase in affordability and thus boost overall home sales.
“With the California economy continuing to outperform the nation, the demand for housing will remain robust even with supply and affordability constraints still very much in evidence. The net result will be California’s housing market posting a modest increase in 2017,” said C.A.R. Vice President and Chief Economist Leslie Appleton-Young. “The underlying fundamentals continue to support overall home sales growth, but headwinds, such as global economic uncertainty and deteriorating housing affordability, will temper stronger sales activity.”
In other words, let’s wait and see. It’s truly a unique time in America, with a contentious election fast approaching. That unrest is echoed throughout the world politically and economically. It’s a situation that could have great repercussions on the entire economy and real estate landscape. Let’s hope for more stability in the upcoming year.
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