2020 Envision Forum: CAR® Chief Economist Market Predictions
We were privileged to have Leslie Appleton-Young, the Senior Vice President and Chief Economist for the California Association of REALTORS®, as a keynote speaker at the Side 2020 Envision forum. During her presentation, Appleton-Young offered her 2020 real estate market predictions for California. Below, we share her key takeaways.
2019 Recap: Stable Economy, Stable Market
Appleton-Young kicked off her keynote by providing an overview of 2019’s national economic trends. Most notably, the country experienced minimal inflation, strong consumer spending, increased disposable income, a historically low unemployment rate, and job growth only constrained by a mismatch between what companies are hiring for and what specific skills candidates are bringing to the table. Combine that with low interest rates, and we ended 2019 with a strong market and a record year.
Despite all of this good news, there were still some consumer concerns in 2019. Appleton-Young explains, “[Consumer confidence has] been a little jittery from a long-term perspective. We remain at historic highs in terms of how people say they're feeling—but the volatility is there. Part of that is tied to the stock market and concerns about the trade war.”
Regardless, consumer confidence still hovered near an all-time high as we closed out the year. That helps explain why Appleton-Young concludes, “The major takeaway is in 12 months, we've gone from kind of doom and gloom to this isn't gonna be so bad after all.”
2019 California Market At-a-Glance
While market statistics seem to ping-pong between improvements and challenges, the broad strokes point toward a relatively neutral market with a slight positive lean. As an example, the end of the longest sales declines since 2014, illustrated in the graphic below, gives us a solid reason to be optimistic as we head into 2020.
Here are some additional California market trends we saw in 2019:
- - In November, median home prices fell to under $600k statewide for the first time in 7 months, and we saw a 6.4% YTY gain, the largest in 16 months.
- - Active listings dropped 22.5% over the last year, marking the most significant yearly decline in over six years.
- - Thanks to the aforementioned reduced inventory, sale-to-list price ratios went up.
- - 40% of listings ended up with reduced prices, which indicates inaccurate listing prices when homes first come to market.
- - Throughout the state, condo, and townhome median prices went up, but price per square foot remained flat across the board.
- - State-wide, time on market sat at about 25 days, except for in the Bay Area, where it was closer to 17 days.
- - One of the most significant changes affected the luxury home market, where price growth slowed and days on market increased. That said, by April, high-value home prices were consistently seeing positive growth.
So what’s had the biggest impact on market performance? The entire state was positively impacted by lower interest rates. Appleton-Young says, “In the second half of the year, the market finally started to respond in a pretty robust way to the low rate environment. If you recall, a year ago, the consensus projection for rates in 2019 was over 5%, and here we are at 3.8%”.
2019 Regional Analysis; So Cal Dominates Sales, SF Inventory Remains Tight
Here’s how various parts of the state fared in November of 2019.
As you can see, Southern California dominated the home sales department, while San Francisco continued to suffer from a decline in sales thanks to ongoing super-tight inventory. The strong demand for homes in this area, plus limited options, drove the Bay Area’s median home price up to $1.6 million in November 2019. Appleton-Young says, “The national median home price is $270,000—just reality check.”
In LA County, the median home price was up 7.4%, showing an acceleration in price appreciation. Inventory is only at a 2.9 months supply, which is one month tighter than it was a year ago, and days on market is 22. All these numbers reflect a renewed interest in getting into the market.
People Staying Put is Causing Statewide Inventory Issues
What’s behind the ever-tightening inventory? In large part, it’s simply that people are staying in their homes longer. Appleton-Young says, “When I first started at CAR in the early 80s, they told me in California, people move every seven years. You know what it is today? Close to 20. People aren’t moving.”
“Up until 2012,” Appleton-Young explains, “California typically had a six- to seven-month housing inventory. However, structural changes occurred due to non-existent new construction, massive job growth, and rising populations and household sizes —and now three to four months of inventory is the norm across the state.” While the increase is partly cyclical, it’s also due to renewed consumer optimism about the market overall.
Also worth noting; “The Bay Area has been between one and two months for most of the last couple of years.” Appleton-Young emphasizes that inventory levels are a key indicator of where the market is heading. The concern about lack of supply in major metros areas, particularly for entry-level homes, is easy to understand. Unfortunately, it's not an easy issue to solve.
Baby boomers and their impact on inventory levels have been a particularly hot topic of interest lately, as 52% of them are planning to ‘age in place,’ tying up a ton of inventory nationwide. In fact, The Wall Street Journal recently posted an article on this topic, titled "OK Boomer, Who’s Going to Buy Your 21 Million Homes.”
The post reveals that it’s anticipated baby boomers will sell a quarter of America’s homes over the next two decades. On the surface, this seems like it could be great for the entry-level home market, because older homeowners often downsize and move into more affordable homes as they prepare to retire. The problem is, many of these properties are located in popular retirement towns and communities that younger people don’t want to live in, effectively putting a damper the idea of inventory-boosting starter homes re-entering the market.
What to Expect From Federal Interest Rates in 2020
The Fed has implemented nine interest rate increases since December of 2014, four of which occurred in 2018. In September 2019, it cut rates by a quarter of a percent. As we move into 2020, economists are torn on whether rates will remain the same or will continue to decline, but none expect them to rise. Why?
“We see a continuation of a very attractive rate environment in 2020 because the economy isn't growing that fast,” says Appleton-Young. “The inflationary pressures aren't there, so there is really no reason for the Fed to tighten. There may not be a reason for them to loosen either.”
Key Takeaways for 2020 - Sales Up, Agent Value Up
Appleton-Young says, “We're expecting to see sales up, probably about 1%, and we're expecting to see price appreciation up at least 2.5%. Affordability will continue to be a challenge, and the mortgage rate environment will be really positive.”
When it comes to the value of agents in 2020, she says, “People want to own homes. Owning a home is the number one way that households without inherited wealth gain wealth. People are never better off renting because they don't save the money and invest it. The [importance] of the Realtor® in the transaction is as strong today as it was ten, 20, 30, 40 years ago. That's a testament to the value that [agents bring] to the table.”
Appleton-Young shared some parting wisdom. She encourages agents to be active listeners, to value relationships, and to remember this; “Your competition is you yesterday, and anybody working harder than you. So keep doing what you're doing.” We were delighted when she shared some kudos for Side, too. “You've grown so quickly. From an industry veteran perspective, it's really exciting to see a new model take hold. You really have a good thing going.”