How should you go about investing in the California housing market in 2019?
When it comes to the Golden State, buyers immediately think expensive, expensive, and expensive. But California real estate investors should know that the housing market is cooling down and things aren’t looking as expensive as they once were. When it comes to analyzing locations (whether it be state, city, or neighborhood), studying the market trends can go a long way in making the right investment decision. Today, we’ve studied the California housing market 2019 for you.
Here are a couple of tips for real estate investors in the California real estate market.
Tip #1: Check Out the Southern California Housing Market
As mentioned, one of the most notable California real estate market trends is the fact that the state is experiencing a cooldown. With markets softening statewide, it’s becoming more and more realistic to find affordable cities in California. While the state’s economy and employment levels are still going strong, the California housing market is expected to continue its cool-down into 2020.
Real estate experts noted that the Southern California real estate market experienced its first annual decrease in median home price (since 2012) in March of this year. Orange County was the first of the counties to witness a slight drop in median prices. This, paired with the market’s prices being $18,500 off their June peak in 2018, indicates a possible sustained price decline for the coming months.
The local housing markets aren’t as hot anymore because inventory levels are picking up- and that’s great news for property buyers as an increase in supply relieves some pressure off prices. Keep in mind however that houses are staying on the market longer, but inventory remains relatively tight. Still, according to Zillow, Los Angeles County had an increase in homes for sale by 24 percent compared to the same time last year. If you like that, you’ll be even more impressed by the 40 percent increase in Orange County listings.
Related: 4 Affordable Neighborhoods in the Los Angeles Real Estate Market
Tip #2: Invest in High Job Growth Markets
The best places to invest in real estate are cities with high employment and job opportunities. According to an analysis of the California housing market 2019 by Forbes, there are certain markets that experienced higher levels of employment than others.
As we said, the state’s overall job market is just as strong as ever, with average unemployment expected to remain at 4.5 percent for 2019 due to slowing national economic growth. This rate is predicted to go down to 4.3 percent in 2020 and 2021.
Now regardless of high property prices, the California housing market has remained in so many investors’ portfolios because it is backed by a strong economy- the strongest in the nation. For example, California had the highest increase in construction jobs nationally, adding 28,500 jobs between January of 2018 and 2019.
If you want a California investment property in a high job growth market, these are the cities you need to consider according to Forbes:
- Riverside-San Bernardino: 3 percent growth
- Stockton: 3.3 percent growth
- Fresno: 2.2 percent growth
Related: The 5 Best Markets to Invest in Real Estate for High Growth
Tip #3: Take Advantage of Low Mortgage Rates
This is something else to consider with your California real estate investment in 2019. Buyers have been more motivated to enter the market as mortgage rates dropped from a record-high of 5 percent in November 2018 to around 4 percent this year.
Mortgage rates in the California housing market can vary by 1.25 percent. The lowest rate was 3.25 percent whereas the highest it’s ever reached was 5.13 percent. According to ValuePenguin, the current rates are as such:
- 30 year fixed average rate: 4.08 percent
- 15 year fixed average rate: 3.57 percent
- 5/1 ARM: 3.62 percent
It’s very important for real estate investors to keep track of interest rate fluctuations as it could make a substantial difference in the final interest paid. This difference can go up to around $129,000. That’s a lot of extra money which you can avoid investing by hitting the California housing market at the right time to take advantage of better rates.
Mortgage rates also differ from one bank to another. So when trying to get good real estate deals on California investment properties for sale, check out different lenders.
Tip #4: Avoid the San Francisco Real Estate Market
San Francisco isn’t really one of the best places to buy rental property right now for the average real estate investor. That’s the case for a number of reasons. The most notable thing about the San Francisco real estate market is its very over-priced properties. Experts are worried about a market bubble and bust seeing as SF prices are 14 percent higher than they were last year. Rental property investors can take their chances if they have the budget for it and plan on holding onto the investment property for years to come for positive cash flow. However, there are better investments for 2019. The good news is the California housing market is full of other investment opportunities.
Property investors looking to generate some high rental income should stick to areas with high rental demand. So even if you’re investing in a high job growth market like Stockton, don’t price your rental too high. Demand is found in properties that have rental rates near the local average and up to 25 percent higher.
Tip #5: Watch Out for Airbnb Regulations
If you’re looking to invest in short term rentals in the California housing market this year, brush up on any regulation changes. Here are a couple of updates to know for 2019.
Pacific Grove
In Pacific Grove, licensing and following Airbnb law is taken very seriously. Any short term rental owners with expired licenses must deactivate or cancel their listings. Violators will be fined with some serious penalties. The city imposes fines equal to 100 percent of the violator’s total revenue earned in the illegal hosting period. In addition to the heavy fines, illegally operating hosts are barred from getting another license for at least two years. Legally operated Airbnb rentals will face no issue as long as their owners collect the city’s transient occupancy tax from guests. Airbnb does this on behalf of its hosts, but if you’re hosting using a different platform, you are responsible for this.
Redwood City
Redwood City also passed a new law last year which took effect in May of this year. This law now requires short term rental operators to:
- Register with the city, get a business license, and collect transient occupancy tax from guests
- Provide sufficient on-site parking for guests
- Have a designated local contact person responsible for handling complaints while the host is absent
- Non-owner occupied rentals are illegal. Operators must be using the property as a primary residence.
- Special events like weddings and other parties cannot take place in a short term rental
So going through any Airbnb regulation changes first hand is important. It turns out some areas like Redwood City and Los Angeles have banned investor-owned short term rentals. It’s important to know these things so you can set an investment strategy accordingly.
Related: Your Real Estate Investment Guide to Airbnb Rental Properties: Where Is Airbnb Legal?
Do you want to start your property search in the California housing market 2019? Use our Property Finder to find lucrative investment properties that match your criteria in a matter of minutes!