California home prices could jump 7%. Where might biggest gains occur?

“Crystal Ball” helps decipher numerous forecasts that ponder the future ups and downs of the economy.

Buzz: It could be another rollercoaster ride for California home values as one forecast calls for price dips reversing to a 7.3% gain over the next 12 months.

Source: My trusty spreadsheet reviewed the June report for CoreLogic’s home-price indexes, looking at what happened to values in 12 big markets and what might come next. This “paired sales” index is based on a study of price changes tied to individual transactions compared with other yardsticks that only track median sales prices.

The trend

California’s home prices fell 2.2% in the year ended in June with losses found in all but one of a dozen markets tracked. The dip follows statewide prices soaring 35.5% in the previous 24 months.

This turnabout can be largely tied to plummeting affordability on the heels of Federal Reserve rate hikes. The central bank morphed in early 2022 from a home-price pumper – using historically cheap money to revive a coronavirus-chilled economy – to a party pooper, rapidly raising interest rates to cool an overheated economy.

So while mid-2023’s pricey mortgages slashed the homebuying pace to unfathomable lows, a limited supply of homes for sale has propped up values.

That supply shortfall prompted CoreLogic to forecast a significant California price gain through June 2024, with increases projected for all 12 markets.

The dissection

Here’s how the forecast breaks down projected gain among the state’s big housing markets, ranked by the size of forecasted increases …

Orange County: 9.5% gain next 12 months vs. the past year’s 0.5% increase.

San Rafael: 8% gain next 12 months vs. the past year’s 6.9% decrease.

Inland Empire: 7.8% gain next 12 months vs. the past year’s 1.3% decrease.

Ventura County: 7.4% gain next 12 months vs. the past year’s 1.8% decrease.

Oakland: 7.4% gain next 12 months vs. the past year’s 7.3% decrease.

Salinas: 6.8% gain next 12 months vs. the past year’s 3.4% decrease.

Napa: 6.5% gain next 12 months vs. the past year’s 8.6% decrease.

Los Angeles: 6.4% gain next 12 months vs. the past year’s 2.4% decrease.

Santa Maria-Santa Barbara: 6.3% gain next 12 months vs. the past year’s 1.4% decrease.

San Francisco: 6% gain next 12 months vs. the past year’s 7.2% decrease.

San Jose: 3.8% gain next 12 months vs. the past year’s 4.3% decrease.

San Diego: 3.5% gain next 12 months vs. the past year’s 0.9% decrease.

Quote

“The state remains one of the most undersupplied housing markets in the country as existing homeowners are staying locked in their low mortgage rates and new construction is lagging,” said Selma Hepp, CoreLogic’s chief economist. “As a result, there is a renewed pressure on home prices and growth rates over the next year are likely to exceed the national trend.”

Plausibility

California’s median home value, according to CoreLogic, was $720,000 in June.

At the time, mortgage rates were 6.7% and statewide unemployment ran a mild 4.6%. And by any measure, homebuying affordability was at, or near, long-term bottoms.

So, CoreLogic thinks prices will jump by $50,000 in a year. Is that realistic?

First, you have to assume the job market remains healthy. Unemployment is already up from summer 2022’s record-low 3.8% thanks to the Fed’s economic throttling.

Then let’s guesstimate that California incomes will increase 4% in the next 12 months. To keep the current rock-bottom affordability levels stable, mortgage rates would have to dip to 6.4%. They run nearly 7% today.

This is a very aggressive forecast.

Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com