As 2018 comes to a close, we are starting to see the housing market slow down in California.

The statewide sales-to-list price ratio (sales price / list price) hit the lowest level in 20 months and was down from a year ago: 98.5 percent in September 2018 compared with 99.1 percent in September 2017. We are also beginning to see inventory rise as homes stay on the market longer.

Can we expect the market to heat up again in the warmer months of 2019, or has it begun a new trajectory? What does this mean for our buyers and sellers of Santa Cruz Real Estate?

2019 Projection

“While home prices are predicted to temper next year, interest rates will likely rise and compound housing affordability issues. Would-be buyers who are concerned that home prices may have peaked will wait on the sidelines until they have more clarity on where the housing market is headed. This could hold back housing demand and hamper home sales in 2019.”

-California Association of Realtors President, Steve White

According the California Association of Realtors, a combination of historically high home prices and eroding affordability will likely result in weaker demand in the 2019 CA Housing Market. Home prices are predicted to continue to rise, though at a slower rate than in previous years.

A Reduction in Demand: Affordability, Buyer-Psychology, and Out Migration Contribute to Market-Softening

Interest rates are expected to keep rising, making it more expensive to buy a home. It is projected that the average for 30-year, fixed mortgage interest rates will rise to 5.2 percent in 2019, up from 4.7 percent in 2018 and 4.0 percent in 2017, but will still remain low by historical standards. Higher interest rates, in combination with historically high home-prices, will make affordability a major issue in the 2019 market.

Even as the market softens, it is doing so in the wake of a long period of high home prices. Take a look at the Home Price Index for California and Santa Cruz County respectively:

This past-period will likely impact the psychology of present day buyers, making them more hesitant to buy for fear of buying at the “top” of the market. As the market softens, some buyers will warm up to buying a home, but others will likely wait to see if prices continue to decline.

Unfortunately, years of eroding affordability has resulted in an increasing percentage of homebuyers leaving their communities in search of more affordable housing. In the Bay Area, 35 percent of homebuyers are moving out because of affordability constraints. The California Association of Realtors predicts that, with rising interest rates, out migration will continue to be a problem in 2019 so long as housing prices remain at these high levels.

While this may all sound like an equation for falling housing prices, don’t forget that Santa Cruz county and the Bay Area are some of the most desirable places to live in California and the country. The impact will likely not be dramatic in our local market.

What Does this Mean For Home Prices and Sales?

What does all of this mean for housing prices? They will likely continue to rise, but at a slower-pace. The California Association of Realtors predicts that housing prices will see a 3.1 percent increase year over year. This is down from the projected 7.0 percent increase of 2018.

Regarding home sales, predicts that home sales will be down 2%. However, with inventory expected to remain limited in most markets, if you price your home competitively you can still walk away with a profit. However, you may not see the price-jumps and lightening speed sales that have been the norm in the past few years.

What Does This Mean For Buyers?

As interest rates rise, it will become increasingly more expensive to buy a home. If you are considering buying, we do not suggest that you wait for housing prices to soften. They are not predicted to decrease, and will likely increase, though at a slower rate. It is most likely in your best interest to buy earlier in the  year to lock in lower interest rates.

Discuss your Options

If you are considering buying or selling real estate in Santa Cruz or the Bay Area, please contact us. We would be happy to assess your current situation, and help you discover your best options for buying or selling real estate in 2019.

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