California Home Price Forecast for 2017: Stable Growth Ahead?

Home prices in California rose rapidly during 2014 and 2015, followed by a slowdown in many cities during 2016. Now, a California home price forecast for 2017 issued by the state’s Realtor association suggests that house values could rise even slower in the months ahead. And that might be a good thing.

California Home Price Forecast for 2017

In a September 29th press release, the California Association of Realtors (C.A.R.) issued the following forecast:

“The California median home price is forecast to increase 4.3 percent to $525,600 in 2017, following a projected 6.2 percent increase in 2016 to $503,900, representing the slowest rate of price appreciation in six years.”

In addition to the statewide outlook above, the group offered forecasts for several regions across the state:

• Home prices in Southern California are predicted to rise by 3.2% during 2017, following a projected gain of 5.4% in 2016.
• Home values in the San Francisco Bay Area are expected to climb by 6.4% next year, roughly the same as this year’s projected increase. (Though prices in the city of San Francisco itself could actually decline over the next year.)
• In the Central Valley, C.A.R. has forecast a gain of 4.1% in 2017, compared to 6.6% during the current year.

Most of these real estate markets experienced double-digit gains in 2014. So these home price forecasts suggest a continued cooling trend for California’s housing markets.

Market slowdowns are not always a bad thing. In fact, one could make the case that this is a positive trend that signals a return to normalcy and sustainability.

A Return to Sustainable Growth?

C.A.R.’s price forecast for 2017 brings good news, in the sense that it suggests a slowdown in home-value appreciation. When house values rise too fast, outpacing wage growth and other economic metrics, we get into “bubble” situations. History has shown that bubbles are bad for the housing market, and bad for the economy as a whole.

So it’s heartening to hear this 2017 California home price forecast. A cooling trend in the housing market would give wage growth a chance to catch up, and should help normalize a market that has been overheated in the past. Most economists agree that steady, sustainable growth is better in the long run than booms and bubbles.

A slowdown could also help ease some of the affordability issues that have troubled would-be buyers across the state. And speaking of affordability, that’s a major factor in the recent home price forecast for California.

Lack of Affordability Cooling the Market?

So why are California home prices forecast to rise more slowly in 2017? There are several factors driving this outlook. Affordability is one of them. Due to the significant home price gains of the last few years, buying a home in California has become cost-prohibitive for a lot of folks. This has softened demand for housing, and slowed price growth as a result.

Leslie Appleton-Young, Chief Economist for C.A.R., said as much in the aforementioned press release: “The underlying fundamentals continue to support overall home sales growth [in California], but headwinds, such as global economic uncertainty and deteriorating housing affordability, will temper stronger sales activity.”

Nationwide, roughly 57% of households can afford to purchase a median-price home within the town and cities where they live. In California, the housing affordability index is closer to 30%, according to C.A.R. This is one of the reasons home values are predicted to rise more slowly in 2017.

Home Price Trends Vary by City

The overall home price forecast for California in 2017 calls for an increase of 4.2%. But that’s the statewide outlook. At the local level, pricing trends vary quite a bit.

For instance, the economic research team at Zillow expects house values in Oakland to rise by around 3.3% over the next year, while they’re predicting a slight decline in values for San Francisco during the same period. Different markets, different outlooks.

Related: Bay Area price forecasts for 2017

Disclaimer: This article includes home price predictions and forecasts for the state of California in 2017. Such statements were provided by third parties not associated with our company. We have compiled and presented them here as an educational service for our readers.