The latest UCLA Anderson Forecast of California’s economic and housing market reports that housing will continue to cool into the year 2020 despite current job growth and strong economy. The economists attribute the weakening to falling home prices in major markets and decreased demand.
Economists anticipate the demand for housing will decrease in California’s major markets even though recent trends indicate the state’s overall economic strength, including improvements in the job market.
According to a report by CNBC, California’s average unemployment rate is expected to rise to an average of 4.5 percent this year and then decrease to 4.3 percent in 2020 and 2021. Also, the state has added the highest number of construction jobs, amounting to 28,500, in the past year.
At the same time, falling home prices in markets have been “widespread and substantial”, states Jerry Nickelsburg, Director of UCLA’s Anderson School of Management forecast. This includes areas other than San Francisco, Los Angeles and Silicon Valley. Even the Central Valley of California has been impacted by the cooling housing market as home sales have declined by more than 10 percent.
In Southern California and the San Francisco Bay Area, CoreLogic reports that home sales fell to an 11-year low in January 2019. Sales have been falling on a year-over-year basis for the past eight months in the Bay Area and for the last six months in Southern California.
The problem of declining home sales is compounded by the state’s housing shortage and decrease in housing starts. “Home prices are falling in California as is the level of building,” writes Nickelsburg forecast. One possible reason for this is that “higher mortgage interest rates are depressing prices but not the underlying demand.”
California’s housing market slowdown will likely affect Governor Gavin Newson’s plan to build 3.5 million new housing units in the state by the year 2025, which would require 500,000 homes to be built per year. The current rate at which new housing, with 120,000 homes built in 2018, is only a fraction of this goal.
Overall, these current trends are signs of weaker economic growth in the near future. Read the full forecast report here.