Loading ...Amidst the optimism of the early spring rebound in the Pleasanton and Tri-Valley markets there remains some powerful economic factors that are problematic. Perhaps the biggest long term factor is affordability. The fact remains that California is the least affordable state in the nation, and some of the statistics are sobering. Take for instance
* Only 25% of the California population can afford an entry level home (vs. 61% nationally)
* First time homebuyers paid a median price of $477,400 in California, which is 2 1/2 times the median home price nationally.
* 18 of the 20 least affordable metro areas are in California
This is leading to some mixed outlooks for the state’s real estate markets.
Forecasters don’t expect an outright plunge in California prices. With those palm trees and the Pacific Ocean beckoning, the Golden State appears sure to retain gilt-edged home values.
But if there’s a floor under home prices in the nation’s most populous state, there is also a ceiling.
“Home prices have gotten out of balance with incomes,” says Mark Milner, a real estate analyst at PMI Mortgage Insurance in Walnut Creek, Calif. “Over time, those have to come back in balance.”
Many analysts say the market here, and nationally, will stabilize this year. The economy remains generally healthy, they say, and builders have slowed down to avoid a pileup of unsold homes.
“There is reason to believe that [price] appreciation will be coming back soon,” says Luke Tilley, a Philadelphia economist at Global Insight, who follows the California market.
Another camp of forecasters says California prices probably have further to fall. They note that housing downturns often take several years to hit bottom, and that high prices have sidelined many would-be buyers.
“We’re expecting … a sharper and deeper contraction,” says Celia Chen, a housing economist at Moody’s Economy.com in West Chester, Pa. She says the state’s price run-up went beyond what could be justified by income or population growth.
The firm has predicted that several California cities will see prices drop further – some by 10 percent or more – and won’t hit bottom until sometime next year.
It is important to keep in mind that job growth, especially in the East Bay, is strong and shows no signs of slowing. And California, and the East Bay in particular, is always in demand. People are willing to pay for the quality of life, for the weather, and for the innovative climate that offers immense opportunities for those who want to advance their careers or grow a business. So California will always be more expensive than other parts of the country. We will likely see an increase in higher density and mixed use type of residential developments which can be built near transportation hubs and are usually more affordable. I’ll bet on California every time.
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California Still the Place to Be (and it will cost you)