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California Home Price Forecast Through Summer 2018: A Return to Normalcy?

We are past the midpoint of 2017, so many California home buyers are now looking ahead to 2018. And a lot of them share the same questions:

What will California home prices do in 2018? Will values continue to rise, as they did in 2017? Or will they level off to some degree?

A recent forecast for California home prices, extending into summer of 2018, suggests that house values in the state will continue to rise over the coming months. But we could see a bit of a cooling trend, in terms of year-over-year appreciation.

The key take away here is that home buyers who postpone their purchases until later in 2017 or 2018 could encounter higher housing costs.

Updated California Home-Price Forecast: 2017 – 2018

In July, the real estate research team at Zillow issued an updated home-price forecast for California, stretching into the summer of 2018. By their estimation, the median home value for the state will rise by around 2.6% over the next year.

According to the California Association of Realtors (CAR), the statewide median home price rose to $550,200 in May 2017. That marked an increase of 5.8% from the same month last year. The state’s Realtor group has also predicted that home prices in California would continue rising between now and 2018.

So the general consensus is that house values in California will continue to move upward over the coming months, though the rate of appreciation could slow down as we move into 2018.

Related: Should I buy now or in 2018?

A Dearth of Housing Inventory

Housing inventory has a lot to do with these forecasts and predictions for California home prices. In many parts of the state, the available supply of homes is not enough to satisfy demand. This is fueling stiff competition among buyers and driving prices north.

For example, CAR reported that in May 42 of the state’s 51 counties experienced a drop in unsold real estate inventory, compared to a year ago. Counties with the lowest inventory included Alameda, San Mateo, Santa Clara, all of which had a 1.7-month supply of homes.

The San Francisco Bay Area as a whole is experiencing a low level of inventory in 2017, which is influencing home price forecasts for 2018.

Read: Leaving the pricey Bay Area for Sacramento

Despite these low inventory levels, home prices could begin to slow down over the coming months. This is not due to a lack of demand. On the contrary, housing demand continues to surpass supply in many parts of the state. Rather, the forecasts that predict home price cooling are the result of housing markets reaching peak affordability.

Over the last couple of years, home prices in many California cities have increased faster than wages and income. This leads to affordability problems, as we have seen in countless headlines over the last few months.

So perhaps what we are seeing is a kind of “self correction” in California’s real estate markets. Home prices are rising more slowly, in part, because fewer people can afford to buy a house in the state. This softens demand, even though there is currently a supply-and-demand imbalance that would normally drive prices north. It’s an interesting time for tracking real estate trends!

Getting Back to Normal?

From an economic standpoint, a cooling trend would actually be a good thing at this stage. The double-digit price gains that occurred in many California cities during 2015 and 2016 are generally not sustainable over the long term. So it’s no surprise to see home values slowing down a bit during 2017, with similar forecasts for 2018.

Slower, more sustainable appreciation would give incomes and wages a chance to catch up, thereby alleviating the affordability issues that have been developing across the state.

Translation: The 2018 forecasts for smaller home-price gains in California could be viewed as a positive indicator, from an economic perspective — and good for residents over the long run.

To recap: California home values are expected to continue moving upward through the end of 2017 and into 2008 – though possibly at a slower pace than what we’ve seen in the past. That appears to be the general consensus among housing analysts and economists.

Disclaimer: This article includes forecasts and projections relating to California home prices in 2017 2018. Data and predictions were provided by third parties not associated with our company. We have presented them here as an educational service to our readers.

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Mike Trejo

Mike Trejo is a Bay Area mortgage broker with 20+ years of knowledge and experience.

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