Real Estate 2020

California Unbooming Real Estate Market

It’s no secret that California’s economy is large – so large that its $2.7 trillion financial system ranks fifth in the world, championing the United States' national economy.

But as the U.S. continues to grapple with an oncoming economic slowdown, the UCLA Anderson Forecast, which examines signals of weaker economic growth, shows there are several economic factors that might weaken California’s booming housing market within the next year.

The housing market in the U.S. could enter a recession in under five years, with online real estate company Zillow predicting that it will happen in 2020. In a research report in which Zillow polled 100 real estate experts and economists about their predictions for the housing market, it disclosed that nearly half of all survey respondents said the next recession will commence in 2020, with the first quarter of the year cited the most as to when the recession will start. The main culprit for the housing recession: monetary policy.

"As we close in on the longest economic expansion this country has ever seen, meaningfully higher interest rates should eventually slow the frenetic pace of home value appreciation that we have seen over the past few years, a welcome respite for would-be buyers," said Zillow senior economist Aaron Terrazas in the research report. "Housing affordability is a critical issue in nearly every market across the country, and while much remains unknown about the precise path of the U.S. economy in the years ahead, another housing market crisis is unlikely to be a central protagonist in the next nationwide downturn."

An Alternative Point of View

Freddie now predicts GDP growth will reach 1.2% in the first quarter of 2019, rising to 2.0% for the remainder of the year. Unfortunately, the entity expects the rate to eventually edge down to 1.8% by 2020.

And when it comes to the U.S. labor market, the forecast indicates unemployment will drop to 3.8% in 2019 before eventually increasing to 3.9%.

That being said, Freddie does believe rates on the 30-year fixed-rate mortgage will average 4.5% this year, eventually rising to 4.8% in 2020.

This could bring the housing market some much-needed momentum.

“The real estate market is thawing in response to the sustained decline in mortgage rates and rebound in consumer confidence – two of the most important drivers of home sales,” Freddie Mac Chief Economist Sam Khater said. “Rising sales demand coupled with more inventory than previous spring seasons suggests that the housing market is in the early stages of regaining momentum.”