Despite having a double-digit decline in the first half of the year, California home sales only dipped slightly in 2019 as low interest rates boosted the market in the last six months of the year. With the average 30-year fixed-rate mortgage (FRM) dipping more than 100 basis points from the prior year for three consecutive months at the year-end, buyers became more motivated to get back in the market and lifted sales up. December sales were up strong from 2018 with a jump of 7.4 percent, the largest increase since November 2016. For the year as a whole, there were 397,910 existing single-family homes sold in California in 2019, a drop of 1.2 percent from 402,640 units in 2018.
Home prices also ended the year strong as costs of borrowing remain low. California had its first double-digit increase in price in more than 5 ½ years. The statewide median price increased 10.3 percent from December 2018, and the increase was the largest since May 2014. For the year 2019, California recorded a median price of $592,450, an annual increase of 4 percent from 2018. With low rates making mortgage payment more affordable, buyers have more room to offer a higher bid in a market that has become more competitive in recent months.
So, what should we expect in 2020? In the next few months, the market momentum from last year will likely be carried forward to 2020, with both sales and prices continuing to grow. The upward trend in pending sales at the end of 2019 suggests that the California market will kick off 2020 with a strong start, while elevated price levels on properties listed for sale indicate that moderate price growth on closed sales will continue. With the Federal Reserve policy on cruise control and the economy growing at a mild but steady pace, mortgage rates will stay near a historical low as the market continues to search for its direction. The average 30-year FRM will likely stay below 4 percent for most of 2020.
Just like any other year, there are risks and uncertainties to the market. Supply remains one of the biggest issues in California. With active listings dropping more than 20 percent at the end of last year, inventory fell to the lowest level since December 2017. Supply will likely tighten up further in 2020 and could stifle sales growth and create affordability issues as market competition remains heated. Macroeconomic factors also create downside risks to the outlook. Stock market fluctuations and the economic impact of coronavirus are two unknowns that could have negative effects on the market. Political uncertainties – such as the geopolitical tension between the U.S. and Iran, as well as the Presidential election – could also impact the housing market on the downside.
All things considered; market conditions look better in 2020.