Real Estate

California Real Estate Bubble: Is One Coming in 2016?

The California Association of Realtors has predicted that 2016 will be a good year for the state’s always tendentious housing market. A general shortage in the amount of inventory on the market – and continued high prices – are the only real clouds on the horizon.

The sales of all those homes again expected to hit some 6.3% roughly the same as the increase of last year over previous. But as prices remain, basically, California High, the number of existing homes sold will be a lot fewer than they might have been. And that’s with what the CAR calls the lowest price appreciation in many years. Mortgages will remain historically, the lowest they’ve ever been.

But when people talk about a housing bubble, in 2016, they are really talking about San Francisco, where prices have exceeded prices at the height of the last bubble. How long this is going to continue is anyone’s guess, and now is not the time for home buyers in the San Francisco market.

California Real Estate Bubble

This kind of fevered market push is fueled in some large measure by investment groups and by foreign capital pouring and flooding out local buyers.

Job growth in the state is expected to continue the demand for options in most parts of California. That doesn’t mean that anywhere is necessarily affordable, but things are not as bad as San Francisco, anyway. Sales are expected to continue the push inland away from the coast.  

There are people who will describe both San Francisco and Los Angeles as Bubbles, even now, and prices will deflate at some point. Whether that happens in 2016 is anyone’s guess. How much damage the situation will do is anyone’s guess too.

But there are still plenty of opportunities to avoid the really boiling city markets and to enjoy steady if more modest growth. We concentrate on a few markets in the East Bay and in the Palm Springs areas, in part because they are spared some of the instability of the real metro centers.

Multiple affordable housing projects, in Oakland and Berkley especially, are expected to benefit residents across the East Bay. And with market conditions actually pushing buyers out of the market with too-high prices, the rental market is expected to remain the choice – if not entirely in the East Bay, then certainly the strong growth in rentals will hold steady, as even renting becomes unaffordable on the other side of the Bay.  

In the broader Coachella Valley, prices have held steady and even declined in some cases. As a result, sales are brisker and things plod on a little more dependable, and with far lower variations in all the numbers. For a lot of investors we speak with, that’s the far more attractive market.

Confidence remains high in both the State and in the USA more generally. All of that confidence is tempered by a fair degree of understandable caution. Non-farm jobs will slow only the slightest amount. Taxable sales are expected to climb by some 6% across the state.

The State of California is also in terrific shape to weather storms as they come up, even despite the ongoing drought emergency and while many parts of the state have fully recovered from the last great recession, progress will continue to be upheld by only a few hindrances and among these is the shortage of affordable housing and more generally, housing inventory as a whole.

Some seventy percent of jobs in California were added in healthcare and social assistance, hospitality, administrative, professional, scientific and technical services. Construction continued to add the most jobs, but together, all of these jobs made California into one of the country’s true rising star economies. It’s still a great place to invest.

Of the 15.5 million jobs created in 2014, 12.3 million of them were concentrated in California’s eight biggest metro areas. Numbers for 2015 are going to be very similar. And California’s technology and aerospace industries are expected to continue leading the pack.

This is nearly a fair compensation for the billions lost, primarily in agriculture, to the drought conditions. And this will continue to affect all residents of California, even as we learn to better manage water resources.

Like the drought, other global factors will affect the state’s economy and housing markets in the coming year. Global trade will likely decline as a result of the slump in oil prices and a few other factors, from China to continued political instability.

That said, the foreseeable future in California is by no means glum. On the contrary, there are terrific opportunities even despite a few overly hot housing market situations. It’s up to us in the rest of the state to ride these out, and we believe we will.  

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