5 California Housing Market Predictions for 2020

The California housing market kicked off 2019 with a weak start, but it’s been improving throughout the year according to the California Association of Realtors (C.A.R). And with mortgage interest rates trending downward, the California housing market predictions for the rest of 2019 are brighter than what most had initially anticipated. However, as US housing market predictions 2020 point towards a slowdown, the same is also starting to appear in the state’s housing market. Experts predict that several economic factors might cool California’s booming real estate market even further going into 2020.

What does this mean for you as a real estate investor? In this post, we present the top 5 California housing market forecasts 2020 from industry experts including NAR, C.A.R, Zillow, and more. We cover key market data and recent California real estate trends including home prices, home sales, and more. Reading about these factors will help you find the answers to where the California housing market is heading next year and if investing in California real estate 2020 is a smart move. Let’s get started.

1- California Home Prices Will Drop  

It’s well-known that house prices in the California real estate market have been following an upward trajectory since 2012. According to the California Association of Realtor’s chief economist and senior VP, Leslie Appleton-Young, the continuous shortage of homes for sale in California is what caused the rise in house prices over the last few years.

However, in the latest housing market forecast from C.A.R, Appleton-Young states that this trend has finally begun to take a toll on the California real estate market and price growth has been slow to modest in 2019. The chart below shows Zillow’s home value index for California and their house price forecast for 2020:

You can see how house prices barely saw any growth since the start of 2019. Furthermore, California housing market predictions suggest that house prices and values are going to continue to drop throughout 2020. This is expected to happen in several major markets in the state like Los Angeles and San Diego.

Experts have pointed out a number of reasons as to why they are forecasting a drop in California home prices. According to Appleton-Young, prices are likely to fall due to the continuous decline in home sales in many parts of the state. The director of the latest UCLA Anderson Forecast, Jerry Nickelsburg, notes that another possible explanation is that “higher mortgage interest rates are depressing prices”.

2- California Affordability Issue Will Remain

While home prices are predicted to drop, this doesn’t mean that California homes for sale are going to be affordable any time soon. In his California housing market forecast, Nickelsburg notes that despite sliding home prices, the affordability issue is still driving people out of the real estate market. C.A.R also reported that so far in 2019, only 32% of Californians were able to afford to buy a median-priced house. Though the desire for homeownership is strong, the homeownership rate in California is still lower than the US rate. And with Millennial first-time buyers facing affordability obstacles, many of them are either renting or making the difficult choice to leave to cheaper housing markets.

Nickelsburg suggests that this affordability issue will result in a cooldown that could stretch into 2020. For those investing in California real estate, these California housing market predictions 2020 suggest you’ll enjoy high rental occupancy rates and even a rising return on investment – if you invest in rental properties in the right locations. Of course, California is a large state and real estate market conditions can vary from one city to another. If you’re thinking of buying a house in California for real estate investment, use Mashvisor to start looking for and analyzing the best investment properties in your city and neighborhood of choice.

3- California Home Inventory Will Improve

As mentioned, over the past few years, there hasn’t been enough inventory of homes for sale to satisfy the demand in many parts across California – and across the US housing market as well. But the California housing market predictions 2020 suggest that we can expect inventory to improve in the coming year. This is largely due to the increase in active listings in all regions as homes are staying longer on the market. As C.A.R reported, the Unsold Inventory Index (UII), which measures the number of months it would take to sell the supply of homes on the market at the current sales rate, was 3.4 months in June 2019 (up from 3.0 months in June 2018).

While still relatively tight from a historical perspective, improving inventory indicates that the California real estate market is getting back toward more balance between supply and demand. This is good news for those thinking of buying a house in California in 2020 as there are more options to choose from.

One thing worth mentioning, however, is the level of supply is expected to improve in all but the lowest price segment. A lot of new inventory is coming in the form of luxury homes and condos as builders are looking to get top price for California properties. As such, rising supply is seen mainly in the most expensive metros, particularly in major cities in the Southern California housing market including San Jose and Los Angeles, according to real estate market data from C.A.R.

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4- California Home Sales Will Drop

As Appleton-Young explains in her California housing market predictions report, house prices are likely to drop due to declining home sales in the state. In fact, while the level of inventory and listings is currently growing, home sales have already faltered. But why are homes sales declining despite the lower prices? As you can expect, it all goes back to the continuous affordability issue in the California real estate market. Based on Zillow’s chart above, the median price for a California home for sale is now in the $500k range. In major metros, it’s much, much higher and the average home buyer simply can’t afford to buy.

As a result, many would-be buyers are priced out of the California housing market or fed up after years of price growth. But as prices have stabled and are predicted to drop, potential buyers are choosing to wait on the sidelines. Consequently, this is going to dampen home sales in the California housing market 2020. Of course, this will affect home sellers this coming year – to make real estate deals go through, sellers would have to cut their asking prices. And real estate experts predict that price reductions will become a more common California housing market trend in 2020. Does this mean that buying a house in California for real estate investing is a wise move? Before we answer this, let’s cover the final aspect of our California real estate market forecast.

5- California Rental Rates Will Rise

Unlike many real estate markets in the US, it seems that Californians have answered the question “buy vs rent?” – renting is the winning answer. This doesn’t come as a surprise given the ultra-high house prices. First-time buyers simply can’t come up with the down payment or manage the hefty mortgage payments and, hence they choose to keep renting. However, despite the fact that mortgage interest rates are lower and home prices are beginning to fall, California housing market predictions 2020 from Zillow suggest that rent prices will rise. This California real estate trend is different from markets like Chicago, Denver, Phoenix, and Las Vegas, for example, where lower home prices and mortgage rates make buying a house a smarter choice than renting.

So, what’s the reason behind rising rental rates in California? According to ManageCasa, the rising average per capita income is not keeping up with the rising house prices. Also, while the state wants to boost new housing construction, housing developers aren’t coming to the rescue with permits dwindling. Add to this the lack of land available, booming economy and threat of inflation, rising wages and buyer expectations, and the increasing numbers of millennials wanting to buy. All these factors contribute to the record high rental rates for California homes and apartments. Experts forecast rent prices will rise especially in major cities of the Southern California housing market including Los Angeles, San Diego, San Jose, and San Francisco.

Will California Be a Seller’s or Buyer’s Market?

In our US housing market predictions blog, we explained how winds are beginning to shift to favor buyers and we could see a more balanced market on the national level in 2020. Is this the same for the California real estate market forecast? Well, while it’s not yet a buyer’s market, the aforementioned California housing market trends are pointing in that direction. There are more houses for sale in California, price growth is slow, homes are sitting on the market longer, and price cuts are expected to become common. These are trends or signs of a buyer’s market.

Nonetheless, C.A.R reports that buyers are purchasing more expensive properties, likely due to the fact that there are more available on the market. In addition, stats from C.A.R show that the affordability issue still prevents many Californians from entering the buyer’s market. As a result, real estate experts advise those thinking of buying a house in California in 2020 to pause for reflection. The truth is, now might not be a good time to buy in some cities across the state. This begs the following question:

California Housing Market 2020: A Good Place to Invest?

California real estate investors want to know: will 2020 be a good time to buy a house in the Golden State for investment? Or should declining house prices give you a reason to hesitate? Of course, property investors know that buying a house in a market where prices are falling is rarely a wise real estate investment as it means you’re buying a depreciating asset. However, home prices in California were rising unusually fast for a while. According to experts, that was part of a “market correction” following the housing market crash and Great Recession. You can call this a return to normalcy. Therefore, it’s only natural to see a slowdown in price growth as one of the California housing market predictions 2020.

Furthermore, while some economic factors are causing a cooldown in the California housing market 2020, the Golden State still has one of the world’s largest economies. Wages are rising, a record of 18.7 million Californians are employed, and they’re ready to buy. However, the issue is with their buying power. Due to expensive prices and affordability issues, there just aren’t as many enthusiastic buyers as there were a few years ago – which also explains why inventory is piling up. As a result, people will continue to choose to rent over buying a house in California.

With the California rental market hot in 2020, this might be the right time to start investing in California real estate. Many even choose to start rental property management businesses there. Plus, with mortgage rates trending downward, financing a California investment property is feasible. 

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Where to Buy a House in California for Investment

While our California housing market predictions 2020 tell us that the coming year is a good time to invest in the Golden State, real estate investors should not forget about “location, location, location.” As mentioned, California is a large state and not every housing market will make for a good place for real estate investing. So where exactly should you consider buying rental property here? According to research and real estate data from Mashvisor, the following are the best cities to buy a house in California to rent out in 2020:

1) Hawthorne

• Median Property Price: $844,685
• Price/Square Foot: $495
• Price-to-Rent Ratio: 17
• Monthly Rental Income: $4,081

2) Oakland

• Median Property Price: $770,186
• Price/Square Foot: $495
• Price-to-Rent Ratio: 22
• Monthly Rental Income: $2,859

3) Sacramento

• Median Property Price: $413,177
• Price/Square Foot: $266
• Price-to-Rent Ratio: 22
• Monthly Rental Income: $1,585

4) Riverside

• Median Property Price: $481,070
• Price/Square Foot: $254
• Price-to-Rent Ratio: 19
• Monthly Rental Income: $2,116

5) San Bernardino

• Median Property Price: $338,253
• Price/Square Foot: $235
• Price-to-Rent Ratio: 16
• Monthly Rental Income: $1,813

To find profitable rental properties for sale in California, click here to start searching for and analyzing properties in your city and neighborhood of choice!