Thinking about buying a home in California this year? Looking to sell property? Maybe you’re thinking about getting started with real estate investing through buying a single family home. Or investing in multifamily properties. Perhaps even building an accessory dwelling unit (ADU). Whatever the case, it’s vital that you keep an eye on California real estate trends.
California Real Estate Today
For almost all of California real estate, the trend is a long, steady rise. According to MarketWatch, the median sale price for a home in California was more than double that of the rest of the country at the beginning of June 2018. That upward surge is great news for those able to cash out right now. But it’s bad news for those looking to buy a home of their own, which is exactly why so many people are leaving the state.
According to US News and World Report, the unaffordability rate for property in California is at 75%, and the state is home to 16 of the 25 least affordable counties in the nation.
California Population Growth Has Slowed
While the Golden State continues to attract new residents in droves (including US citizens, international travelers, and immigrants), more people are leaving the state. In fact, over 1 million more people left California between 2006 and 2016 than moved in. Now a million people doesn’t really make a huge dent in California’s population or the state’s real estate market. However, it’s an important trend to understand, as it shows every sign that it’s accelerating.
Beyond the Exodus
While California has never enjoyed higher home prices, and real estate investing professionals have never seen better returns on their investments, it’s important to understand some of the reasons behind that increase.
California is not Building Enough New Homes
One of the most significant contributing factors to the ongoing housing crisis in California is the lack of new homes being built statewide. From 2008 to 2017, only 24.7 new homes were built per 100 new residents moving to the state. In comparison, the national average is 43.1 homes per 100 new residents.
That issue is nothing new, according to Professor Richard Green of the University of Southern California. In an interview with US News and World Report, he explained that the state has always struggled to keep up with the demand for new housing. He points out that the current pace of 80,000 new homes constructed per year is actually 100,000 homes per year too few to meet demand.
With just half the new home construction as other states in the country, California is rapidly on its way toward experiencing perhaps the most severe housing shortage in the nation’s history. In fact, by 2025, it’s predicted that the state will be 3 million homes short of what is needed.
Rates are Rising
Another factor here is the increasing upward trajectory of home mortgage prices. Currently, California’s homeowners pay 21.9% of their income toward their mortgage, which is the second highest in the country. It’s even more when it comes to renting – 32.8% of a renter’s income goes toward paying rent. Again, this makes it more difficult for would-be homebuyers to afford a home and is making it more and more common for renters to have multiple roommates just so they can make ends meet.
It’s a Sellers’ Market
California’s paucity of available single family homes means one thing – it’s a sellers’ market despite sky-high home prices. Yes, more and more people are leaving the state. However, most of those are low wage earners, with an annual average income of $30,000 or less. The state continues to attract those in technology positions who have the financial wherewithal to purchase the homes that are available, but competition for the few properties on the market mean that sellers can virtually name their own price.
What the Trends Mean for Current Homeowners and for Real Estate Investing
It’s easy to see that the ongoing housing shortage will have negative impacts on the influx of people coming to California. The fewer houses available, the fewer people can move to the state. However, that shortage is actually a huge boon for those who already own their own homes, and for those getting involved in real estate investing.
For Owners: The single most important takeaway is this – you cannot lose money on your home if you manage to remain in it long enough to build up at least some equity. Between the increasing value of existing homes and the skyrocketing demand for single-family homes in the state, a homeowner will have a hard time losing money if they decide to sell their property.
For Real Estate Investors: The most important takeaway is that there is a great deal of money to be made in California real estate. However, the immense cost makes it more and more difficult for the average investor to even get into the market. Unless you have immensely deep pockets, or other real estate that can be leveraged to provide investing capital, it can be as challenging for investors to get in on the action as it can for new residents to find a home they can afford.
But there is a light at the end of the tunnel, particularly for investors and homeowners. Fractional ownership investing, backed by blockchain technology, allows an average investor to put their money to work on their own behalf combined with the money of other investors. As property values continue to climb, the return on that initial investment also grows.
For homeowners, fractional investment provides a means to tap into the equity they’ve built in the home without having to go deeper into debt, such as with a HELOC. With interest rates already high and only going to climb higher, that’s an important benefit to consider.