What Will California’s Housing Market Look Like in 2016?

California’s real estate market will continue its growth streak into 2016, according to the California Association of Realtors (CAR) 2016 Housing Market Forecast.

Yet that anticipated increase in sales will likely be somewhat hampered by limited inventory and continued high prices for properties.

Last year was a pretty good one for the Golden State, which ended off on a high note with a 9.6% increase in sales of single-family homes from November to December. That’s the biggest month-over-month increase in volume that California has seen in five years.

The average home in California finished 2015 at a median price of $489,310, an increase of 2.6% from November, and a jump of 8% from the end of 2014.

Perhaps the real winner in the California real estate market were condos and townhomes, which experienced a hike in sales of 25.1% from November, and a 10.2% increase from the same time in 2014.

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Sales were healthy in 2015, but what will the California housing market do this year?

Experts anticipate sales volume in the state to pick up over the first few months of 2016 thanks to a healthier job market and a boost in consumer sentiment. Couple that with the recently-introduced TILA/RESPA Integrated Disclosure rule that offers a lot more transparency to borrowers when applying for mortgages.

Things aren’t exactly expected to change significantly, but the changes that do happen will have a direct effect on the housing market and the buyers and sellers who will be dipping their toes in it.

CAR is predicting that California’s existing home sales are on pace to experience an increase of 6.3% in 2016, which translates into 433,000 single-family dwellings.

In a nutshell, the real estate market is still on the up-and-up in California, regardless of what speed the pace is at.

What’s driving strong home sales in California into 2016?

Healthy sales in the state can be attributed to a number of factors. For starters, the US gross domestic product is expected to increase by 3.1% in 2016, and the unemployment rate is anticipated to decline from 6.3% in 2015 to 5.5% this year.

Interest rates also play a role in strong home sales statewide. With the Fed recently announcing an increase in interest rates, mortgage rates will steadily increase in 2016 and into 2017.

Yet while the average 30-year fixed mortgage interest rate is forecasted to increase from 3.9% in 2015 to 4.5% in 2016, the rate is still hovering over historical lows, keeping mortgages affordable for state residents.

californiamarketShortage of inventory continues to plague the market in California

While the above factors are certainly positive signs, one thing that continues to be a thorn in the side is the lack of inventory across the state. Between the summer of 2014 to the same time in 2015, single-family homes in California dropped from 4 months’ worth of inventory to 3.6 months.

The high-demand/low-supply scenario is largely due fewer properties in foreclosure, more investors renting rather than flipping, and a shortage of new home construction.

The matter of housing affordability is causing concern among members of CAR. But hopefully this issue will be short-lived, especially when it seems as though the rate of home price increase is slowing down.

While the median price of a single-family dwelling in the state is expected to increase by 3.2% this year to $491,300, it’s the slowest price increase rate that California has experienced in five years.

It could very well be that we may be seeing a plateau in the price appreciation department in California, making it possible for an increasing number of state residents to jump into the real estate market in the coming months.

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