Updated California Real Estate Market Forecast: 2018 – 2019

It has been several months since we last published a forecast and outlook for the California real estate market. We shared some third-party home price forecasts last summer, along with a long-range outlook for mortgage rates. But a lot has changed since then.

Here are some updated predictions for the California real estate market in 2018 and into 2019.

California Real Estate Market Forecasts: 2018 – 2019

Let’s start with a look at home prices. House values across California climbed steadily during 2017, and they continue to rise in many areas of the state.

According to the latest data reported by Zillow, the median home value for California rose by 8.1% over the last year (as reported in February 2018). The median was around $524,000 at the start of 2018. That’s for the state as a whole. The median is much higher in some areas, including much of the San Francisco Bay Area and Silicon Valley.

In February, the company’s economists also provided a forecast for the California real estate market through 2018 and into 2019. They predicted that the median house price would climb by 4.1% between now and the first part of 2019. That would be a more “normal” rate of growth, from a historical standpoint.

The double-digit annual gains we’ve seen over the last couple of years are abnormal and unsustainable, from an economic standpoint. So it’s good to see house values cooling to a more sustainable pace in many areas of the state.

When you drill down to the city and metro level, there’s a broader spectrum of home prices. For example:

• The median home value for the San Francisco Bay Area was just over $900,000 when this article was published.
• In Sacramento, it was a much more affordable $314,000.
• In San Jose, the median house price was just over $1 million at the start of 2018.
• And in Palo Alto, California it was a staggering $3 million, according to Zillow.

Prices become much more affordable when you move inland, which is why a lot of California residents are now moving away from the coast in search of affordable housing options. (Here’s a Mercury News story on this subject, and here’s a blog post we did on the same topic last year.)

Homes in Short Supply Across the State

Another key forecast for the California real estate market in 2018 – 2019 has to do with inventory. Or a lack thereof. In many cities across the state, there just aren’t enough homes listed for sale to satisfy the demand from buyers. This is true for the nation as a whole, but it’s more noticeable in major real estate markets across California.

According to Javier Vivas, director of economic research at realtor.com, inventory levels have sunk to a new low. “We are seeing the lowest level of inventory in at least two decades,” Vivas told Forbes magazine. “It really is a shortage of historical proportions.”

A “balanced” real estate market is said to have five to six months worth of supply. That means it would take five to six months to sell all of the homes currently listed for sale, if no other homes came onto the market in the interim. This is also refereed to as the market absorption rate.

As of January 2018, Los Angeles, San Diego, San Francisco and most other big cities across California had less than a two-month supply of homes for sale. In San Jose, there was less than a one-month supply.

While we might see an uptick in new home construction over the coming months,  most forecasts for the California real estate market suggest that inventory will remain tight throughout 2018 — and possibly into 2019. This means that home buyers will need to bring their ‘A’ game when entering the market.

Related: Top 3 mortgage trends for 2018

Disclaimer: This article includes forecasts and projections relating to the California housing scene in 2018. Such statements were made by third parties not associated with our company. We have presented them here as an educational service to our readers.