Economic uncertainty and high housing prices will put a damper on home sales next year, but low mortgage rates will offset that, pushing house prices to all-time highs in 2020, the California Association of Realtors forecast.
The association's annual economic outlook predicted sales will be flat, increasing a mere 0.8% from projected 2019 levels to 393,500 existing single-family home transactions. While that would be an increase from this year's sales volume, it still would be 2% less than in 2018 and 7% less than in 2017.
House prices, nonetheless, will keep rising, according to the forecast, with California's single-family home median hitting an all-time high of $607,900. If that occurs, median home prices (or prices at the midpoint of all sales) will be up 2.5% from this year's projected median of $593,200.
"The bottom line of this housing forecast is we don't really see a big improvement in housing affordability, and I think everything kind of flows from there," CAR Deputy Chief Economist Jordan Levine said. "Low (mortgage rates) do help a little bit. ... We're much less pessimistic than we were nine months ago" when rates were higher.
The 2020 outlook is dramatically different from what economists were expecting a year ago when CAR economists forecast 30-year mortgage rates would rise 5.2% in 2019. Instead, rates averaged about 3.9% this year, CAR reported, and are projected to average 3.7% next year.
Many economists who once expected a recession to start in 2020 are backing off such talk.
CAR's outlook projects the U.S. economy will expand 1.6% in 2020, and other economists also are saying a recession is unlikely next year.
"I'm pretty optimistic about the strength of the economy," Redfin Chief Economist Daryl Fairweather said Wednesday at CAR's annual conference in downtown Los Angeles. "If you look at the fundamental economic indicators like unemployment (and) wage growth, they all look pretty strong."
Still, uncertainty over everything from political fighting in Washington to the trade war with China and Brexit are undermining business and consumer confidence, said CAR's Chief Economist Leslie Appleton-Young.
"People are worried about everything, and you kind of wake up and wonder who's tweeting what now?" Appleton-Young said. "There's not really a clear economic policy coming from the White House, so there's just a lot to feel anxious about. ... People are getting a little bit worried, and it shows up in how people view the housing market."
For example, a recent Google consumer survey found that a little over a fifth of Californian consumers think now is a good time to buy a home and fewer than half think it's a good time to sell — even with the big drop in mortgage rates and a strong economy, Appleton-Young said.
Additionally, those who want to buy a home are stymied by home prices in a state where housing costs in the most affordable counties are above the national average.
Other impediments include low inventory and high down payments for first-time homebuyers. CAR's latest Housing Market survey found 32% of homes were purchased by first-time buyers earlier this year, compared with a long-time average of 37%.
"We have very high prices," Appleton-Young said, "so there's only so much lower (mortgage) rates can do."
Other predictions in CAR's forecast: California's unemployment rate will tick up to 4.5%, although that's still near all-time lows. Job growth will be 1%, down from a projected 1.5% this year, the forecast said. And about 32% of California households will be able to afford a median-priced home, unchanged from this year, but up slightly from the previous four years.
But home prices that are roughly double the national average are causing many residents to move out of state, particularly first-time buyers, Appleton-Young said.
Nearly a third of sellers who plan to buy another home said they intend to buy out of state, according to the association's latest State of the Housing Market study. That's the most since 2005.
"With California's job and population growth rates tapering, the state's affordability crisis is having a negative impact on the state economically," Appleton-Young said. The state, she said, is losing "the workers we need most, such as service and construction workers and teachers."
