It seems not that long ago that we experienced the real estate collapse in California and other states like Nevada and Arizona where home prices were driven up by the frenzy of never ending profits. Unfortunately, a lot of property owners learned the hard way that real estate is cyclical, especially in California. Depending on when you buy or sell you can achieve killer profits or end up under water with your mortgage holding an asset not easily liquidated.
Where are we today you ask? Poised for further growth or doomed to repeat the history of 2006-2008 with another hard correction? No one has a crystal ball to predict the future. However one can analyze economic factors to get a strong read on the predictors for short and medium term valuations of real estate.
The first thing to note, real estate is regional. What’s happening in Southern California is different than San Francisco and different than Butte County. While their trends can affect our market, other market and economic factors should be weighed more heavily.
While real estate valuations in San Francisco are 40% higher than their all-time high, the rest of California is still 10-20% below their all-time highs. That means that houses in Chico on the market today are still not selling for as much as they did back in 2005, twelve years later.
Supply and demand are other key factors. Inventories have been low for several years and the trend is continuing lower. What does this mean for California? Currently we are 1,000,000 units shy of where we should be to meet the needs of Californians. We continue to see sales down and prices up. Put simply there are fewer homes to purchase and buyers are paying more.
Affordability is notable. It is measured by the amount of people who qualify for a median priced home. The average for California in Q317 was 29% could afford a home, down from 51% in 2012. Butte County is closer to 40% who can afford to buy an average priced home. Unfortunately the trend is down and affordability will become harder for more buyers. On a positive note it is still not as low as it was at the peak of the market.
In Summary, no one knows for sure where prices are headed. Given the current tight supply of homes to purchase it is likely that sales will be flat to down and prices rising. With the economy improving, wages increasing and tax relief for middle income families this should be a positive affect on affordability. With property prices still not at the highs witnessed in 2006 and inventory levels so low there appears to be room to grow or at least stay steady in the near future.
As always, I welcome your input or questions. Please tell me what you think by emailing me at email@example.com. Like our Facebook page for new listings and market data.
Buyer Hint: Not all lenders are equal. Buyers with the best pre-qualification stats will have a competitive advantage. Some lenders can pre-approve you prior to your offer being submitted shortening your time to close escrow and uncertainties for the sellers.
Butte county median home price increased on average 10% in 2017
Housing affordability in 2012 was 51% and has now dropped to 29% in 2017 and estimated to go to 26% in 2018