Rising home prices in California are weakening housing demand in the state, recent data shows, which could spell more trouble for residents already in the midst of an affordability crisis.
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While demand for home mortgage applications in California grew during the early months of 2018, beginning in May there was a pullback through the end of the year – with the sharpest declines occurring during the final two months, according to new data from the Mortgage Bankers Association (MBA).
Applications for home purchase loans fell nearly 20 percent in November and December – after purchase activity experienced gains of more than 20 percent last February.
MBA attributes the drop in demand to affordability challenges – as home prices continued to appreciate between 7 percent and 9 percent – and weakening demand for higher-priced homes. The growth of home prices has outpriced wage gains in the state. However, larger economic trends – including stock market volatility and concerns regarding future economic growth – likely contributed to downward pressure across many U.S. markets.
According to a recent poll conducted by Quinnipiac University, 43 percent of residents said they can’t afford to live in California – a trend that was even more pronounced among younger inhabitants (61 percent).
The problem is specifically prominent in some regions – like the Bay Area – where it would take a family earning median income 22 years to save up for a 20 percent down payment (the median home price in Silicon Valley is $1.2 million).
Home values in San Francisco have skyrocketed, according to real estate site Zillow, jumping nearly 253 percent between 1998 and 2018. In San Jose, California, that rate is nearly 300 percent, while in Los Angeles it was more than 244 percent.
California wasn’t the only large state that saw a precipitous drop in home purchase applications – Florida and Texas also experienced similar – though less pronounced – trends.
However, the news isn’t all bad for California homebuyers. Home prices appear to be moderating in the state – a sign inventory could be increasing. According to recent data from CoreLogic, home prices in California in December were up between 3 percent and 6 percent, compared with 9 percent or more in neighboring Nevada. In San Diego, prices rose 3.5 percent, while they rose 3.3 percent in San Francisco and 4.5 percent in Los Angeles – all below the national average.
Overall, home prices in December increased 4.7 percent year over year, but just 0.1 percent when compared with the month prior.
Meanwhile, fixed mortgages fell to a 10-month low this week – with the 30-year fixed rate dropping to its lowest level since April – over concerns about the state of the U.S. economy.