Pete Gallagher, Princeton Mortgage Wholesale
It appears not everyone can enjoy the Golden Coast. When people think of California, they think sunshine, relaxing and laid-back attitudes in an American paradise. It’s been one of the most desirable states for transplants since the 1980’s, with large increases in the early 90’s and then again just after 2000. But the largest state on the west coast may have reached its affordability tipping point.
Home sales this past September were the lowest since September of 2007, which was the start of the 07-10 subprime mortgage crisis. The average increase of home prices in California rose 4.1% this year, which was the smallest price increase in the past two years. If you combine that with higher interest rates, and customers become unable or unwilling to buy.
The concern is home prices are not increasing as aggressively as before, but the housing inventory is still rising at a steady pace (hence the tipping point). Sales in the Bay Area have decreased by 18.9 percent while price has increased by 9.3 percent (the smallest gain in 15 months), while the six counties that make up Southern California have seen decreases of around 17.7 percent while prices rose a mere 3.6 percent (the smallest increase in over three years). For reference, the median homes for the Bay Area and Southern California are $523,000 and $500,000 respectively.
One expert from Mortgage News Daily says this housing slowdown isn’t due to falling demand, considering California’s economic and demographic trends, but to a lack of affordability and a shift in buyer psychology. Inventory – specifically more affordable inventory – remains tight in some markets but there is a slow transition from a sellers’ market in California to a neutral market. If this trend continues, we could see California become a buyers’ market relatively soon.
With all that being said, I don’t anticipate another episode like we had in 2008. While California is generally a harbinger of national housing trends, the economy and underwriting standards are much different than they were in 2007. As long as our housing market isn’t propped-up by subprime mortgages once again, the market in California should experience a gradual decrease in sales paired with price appreciation, rather than another crisis.
If your dream has always been to relax on the beaches of Santa Monica or to enjoy scenic landscape in Northern California full-time, keep that dream alive! More reasonably priced housing should be on its way.
Until next week,