With the new year starting, it’s an ideal time to look at the economic factors that will affect our housing market in 2020. Yesterday, I had the amazing opportunity to hear Jordon Levine, the Deputy Chief Economist for the California Association of Realtors, give his outlook for the economy and the 2020 California housing market. Here are some of the biggest takeaways from his predictions.
First off, the big picture. Overall we’re in good shape thanks primarily to consumers. Statewide, our GDP growth is at 2.1%, Unemployment is at 3.5%, Job growth is 1.4% and Consumption growth is at 2.9%. Consumer confidence remains high, people are buying cars, going out to eat and spending, keeping these numbers positive. So big picture, independent of other geopolitical issues, our California economy looks strong and stable.
In Silicon Valley, the biggest housing market driver is our local labor market. When unemployment is low, companies must compete for employees and top talent, therefore driving up salaries and subsequently home buying demand. Our current unemployment is at a 55 year low. The next biggest driver to our housing market is mortgage interest rates. Interest rates are currently at 3.72% which is also a near historic low. In contrast, this time last year, interest rates were 4.9%. We’re in a better place than last year for buyers and sellers who benefit from this increased purchasing power. Remember, buying a home is a leveraged investment, you only put down a fraction of the total cost, but get 100% of any potential gains in the future sales price. As a long term investment, the returns may be significant. In 2009 the average home price for a single family home was $480K, today that price is $1.25M. This is a phenomenal time to use someone else’s money to buy a home.
Levine hears a lot of what he calls “brother-in-law” stories. “My brother in law says the market is going to come down and you shouldn’t buy anything now”, etc. etc. I’m sure we all hear these stories from someone we know who is advising others to time the market. As I’ve written before, the only way to know when the bottom of the market happened, is to look in the rear view mirror 6 months later. Jordon states that we’re seeing indicators now that show the market has leveled off and that a key statistic, called Market Velocity, has started to pick up. Market Velocity is the rate at which homes go under contract vs. the amount of new homes coming on the market. Market Velocity goes up when are we selling more units than are coming on the market, using up our inventory. Over the last 4 months we’ve consistently seen our Market Velocity increasing which indicates that inventory will be constrained and that pricing will remain consistent with last year.
So overall, we have historic low unemployment, low interest rates and we are starting to see more homes being sold than homes coming on the market. Market Velocity is the highest its been in a couple of years and a tighter market means more competition for buyers. Levin suggests that all of these factors support a trend of similar home prices compared to last year. Adding to this low interest rates, and a stable economy, Levine predicts that our housing market will be strong for 2020.
If you want to talk more about this, or any other aspects of our market, feel free to give me a call. As always, if you or someone you know is looking to make a change, please don’t hesitate to reach out. I’m happy to help!