Jerry Nickelsburg, director of the UCLA Anderson Forecast, put it this way: “When you have increases in employment, you have increases in household formation, and that increases demand for housing. That’s what we’ve been seeing.”

To get a grip on the year ahead, we highlighted five topics: Prices, sales, mortgage rates, number of homes for sale and rent.

The picture that emerges shows a market that still has more room to grow.

Ultimately, we ask the question on the minds of those still seeking to buy a home but are worried they missed their chance: How long will this crazy, runaway train of a market last? Is it too late to buy a home?

Here’s what we learned.

Home prices still rising

Synopsis:

• Southern California home prices are expected to rise at about the same pace as California: 4.2 percent, according to the California Association of Realtors. That would put next November’s median price of an existing house at about $525,000.
• Orange County home prices are projected to rise 5 percent to 6 percent, according to forecasts by Chapman University and Cal State Fullerton. Metrostudy, a market intelligence and research firm, foresees a 3.2 percent gain in Orange County home prices. By comparison, Orange County house prices were up 6.9 percent in the year ending in November, according to CAR.
• Los Angeles County home prices will rise 3.1 percent, according to Metrostudy. UC Riverside’s Center for Economic Forecasting and Development has a more optimistic forecast, predicting gains of 5 percent to 10 percent. CAR reported L.A. County house prices up 9 percent in the year ending in November.
• Inland Empire home prices will rise 3.9 percent, Metrostudy predicted. UC Riverside forecast a price gain of 8.9 percent in Riverside County and 7.3 percent in San Bernardino County, with prices possibly getting back to record levels set before the 2007 housing crash. By comparison, Riverside County prices rose 8.7 percent in the year ending in November, and San Bernardino County prices rose 12 percent.

Home price gains will continue in the year ahead, just not as fast as in 2017, economists said.

On the one hand, rising demand and a shortage of homes for sale create upward price pressure. On the other, those are offset by an expected increase in mortgage rates and fewer buyers who can afford today’s home prices (called “low affordability” by economists).

“It’s slowing down,” economist and former Chapman University President Jim Doti said of price appreciation. “The main reason is (low) affordability.”

Some also worry the new tax overhaul will slow home sales and sap prices.

A county-by-county analysis by Moody’s Analytics shows home prices in Orange, Riverside and San Bernardino counties will be at least 3.6 percent lower than where they would have been in 2019 without the tax law. In Los Angeles County, prices will be nearly 5 percent lower than previously expected growth rates. The National Association of Realtors projected the tax law will curtail California home price growth by nearly 1 percent.

Sales flattening out

Synopsis:

• Southern California home sales rose 2 percent to 208,250 transactions through October 2017, according to CoreLogic. But 2018 sales likely will only rise about 1 percent in California and the region, Realtor forecasters said.
• Orange County sales are projected to increase 2.7 percent this year, according to Chapman.
• Sales forecasts were unavailable for Los Angeles, Riverside and San Bernardino counties.

Sales have plateaued across the state and region, said California Association of Realtors Chief Economist Leslie Appleton-Young.

Which is a bit of a mystery, given the state’s robust job growth and still-low mortgage rates in 2017.

“You have to wonder why aren’t we seeing more sales activity,” said Robert Kleinhenz, executive director of research at the UC Riverside Center for Economic Forecasting and Development. “The population is much bigger, and all else being equal, you would expect to see a larger number of sales.”

The answer to that riddle, said CAR’s Appleton-Young, is a lack of inventory and prices starting to get out of reach for some.

“The lack of inventory and affordability are really … keeping a lid on the California housing market,” Appleton-Young said. “We have fewer transactions … today than when we had 10 million fewer people living in California.”

The nation also has become less mobile, said Richard Green, director of USC’s Lusk Center for Real Estate.

“That’s depressing sales,” he said. “I don’t expect sales to go down. I don’t expect them to go up either.”

Headwinds from rising mortgage rates

Synopsis:

• Interest for the benchmark, 30-year fixed-rate mortgage will average between 4.3 percent to 4.6 percent in the year ahead, according to CAR, Chapman and CoreLogic.

Mortgage rates have averaged 3.8 percent over the past three years, with just two brief periods when rates got above 4 percent.

Now, economists say, rates are heading up again, and likely will stay above 4 percent for the coming year.

Federal Reserve hikes in short-term interest rates will directly impact adjustable-rate mortgages and home equity lines of credit, CoreLogic said. They also will drive up long-term rates, to which fixed mortgages are tied.

Combined with higher prices, that translates to a 15 percent increase in monthly principal and interest payments for first-time homebuyers, said CoreLogic Chief Economist Frank Nothaft.

Buyers will have too few homes to choose from

Synopsis:

• With just 27,550 Southern California homes for sale, 2018 started with the lowest for-sale inventory in five years.

The lack of homes for sale that has plagued the region and the nation for the past five years will continue in the year ahead. Southern California’s for-sale listings fell to 27,550 in December, the lowest number since the spring of 2013, according to ReportsOnHousing.com.

Why are there so few homes?

People are staying put longer between sales — 11 years, twice the 2009 average, according to CAR. Homeowners also are reluctant to sell because they can’t find another home in which to move.

Homeowners also stay put to avoid capital gains taxes or higher property taxes on a new home. Those who got mortgages when 30-year rates averaged 3.5 percent also are “locked in” because they don’t want to give up their lower house payments.

Because of the newly passed tax legislation, homeowners with home loans greater than $750,000 will stay put to keep their mortgage interest tax deductions.

“For-sale inventory will stay lean because homeowners are not going to move, (and) that’s going to limit the inventory that’s for sale,” CoreLogic’s Nothaft said.

Renters to pay more, too

Synopsis:

• Orange County rents are projected to rise 3 percent to 3.6 percent in 2018, according to apartment data firm RealPage and the USC Casden Multifamily Forecast.
• Los Angeles County apartment rent will rise 3 percent, both forecasts show.
• Inland Empire apartment rents will rise faster: Up 4.1 percent to 4.4 percent, according to the two forecasts.
• Most Southern California apartments will be full. Vacancy rates in the region will be around 3.5 to 3.6 percent, according to RealPage.

Low vacancy rates will keep apartment rents high, economists said.

“As long as the buildings are full and the new development fills up, that’s going to allow rent growth to continue,” said Greg Willett, RealPage chief economist.

Rent hikes will continue so long as vacancy rates stay at 4 percent or lower, added USC’s Green.

“Most places, usually at 5 percent is when rent flattens out,” he said.

When will rent go down?

“We don’t have that in the near-term forecast in the Southern California market,” Willett said. “Usually, you’re talking about a recession and big job cuts for rents to go down.”

Should you buy a home?

Synopsis:

• Yes, but only if you plan to live there awhile to ride out any potential downturns.

After almost six years of home-price gains, people are asking how much longer will this trend last? Is it too late to buy a home?

Southern California single-family home prices have risen $239,000 or 91 percent over the past 69 months, according to CAR.

How much longer can this go on? How soon will prices start falling? Is it safe to buy a home today?

Most economists say this bull market still has some legs, lasting a year or two more at least, if not five.

“It’s debatable whether we’re in a bubble,” said Chapman economist Doti. “(But) is it a bubble that’s about to burst? No.”

First, economists note the last crash was preceded by a buildup of homes sitting on the market without selling. Currently, few homes stay on the market long, and as mentioned earlier, Southern California listings are at a five-year low.

Demographics also could keep the housing market afloat since millennials are expected start reaching first-time homebuying ages over the next five years, CoreLogic’s Nothaft said.

“We have a demographic tailwind going forward,” he said.

So, is it a good time to buy a home?

“Yeah,” Doti said. “The sooner the better. Get it while interest rates are low. If you can afford a home, now is a good time to buy.”

But there are some precautions you should take first, added USC’s Green.

“If you like the house, if you could afford it, and would live there five years, yes. Otherwise, no,” he said. “In the long run, you’re fine. But if you have to sell (in the short term), you could be in trouble.”

SOURCE: Jeff Collins, Orange County Register