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Where are prices right now in terms of the California real estate market cycle?

  • Headed up. (59%, 116 Votes)
  • At their peak. (34%, 66 Votes)
  • Headed down. (8%, 15 Votes)
  • At bottom. (0%, 0 Votes)

Total Voters: 197

This poll will close on April 18, 2016.

 

San Diego suffered a 30.2% drop in home inventory from January 2015 to January 2016, according to an inventory report released recently by Zillow. The city’s home inventory took a steep dive from 8,051 homes available in 2015 to 5,617 homes available in 2016.

Only three California cities have lower home inventory than San Diego, even after the 30.2% drop. According to Zillow, cities with the lowest inventory include:

  • Sacramento, at 4,750 homes;
  • San Francisco, at 4,169 homes; and
  • San Jose, at 1,788 homes.

Inventory and demand for urban living

Low inventory typically (but not always) means home prices will be higher. San Francisco and its tech industry boom is a classic example of this in our urban centers. Without adequate supply to support demand for urban homes, California’s aspiring city dwellers are left to settle in the suburbs due to astronomical prices they cannot fund on an average income.

The inverse relationship of available housing to insatiable demand creates an untenable situation for the vast majority of San Franciscans (and aspiring San Franciscans:  currently, only 11% of the city’s residents are able to maintain the cost of living in the average home price range for the city). The lucky few who can pay are paying about $5,200 more for their monthly housing payments than the national average.

(For reference, the 11% is only a scant few percentage points from the peak 8% affordability status of 2007 — just before the housing crash.)

If San Diego’s inventory continues to rapidly decline, the city is destined for the same fate. Low- and moderate-income earners will no longer be able to make up for the supply/demand gap and will be forced into neighboring counties, much like the exodus of schoolteachers from San Francisco.

Zoning and construction: hindrances to inventory

Although residential vacancies in homeownership have stabilized since the crash, rental vacancies have steadily declined in recent years, reaching a minimal 4.1% in 2015 — the lowest level since 2006. Construction of new rental units fails to keep pace with the ever-growing demand for urban accommodation, causing the aforementioned spike in the cost of urban living.

Zoning limitations and thoughtless temporary fixes, such as moratoriums, further hinder urban development and stifle the growth of supply needed to fix the inventory and in turn the shelter problem. Additionally, urban residents who have managed to find housing are unwilling to give up their posts, limiting turnover rates in both ownership and rental accommodations needed to sustain a viable community of brokers and builders.

Initially, zoning limitations need modification to encourage construction and expand available housing for urban residents of all income tiers. Otherwise, urban markets will stagnate, straining real estate agents’ ability to live and work in particular cities and businesses’ ability to find adequate numbers of employees. Exclusion of low- and moderate-income buyers and stubbornly stable current residents mean agents will have fewer and fewer options for clients, and will be forced to re-establish their business elsewhere.

Agents can familiarize themselves with outlying neighborhoods, and direct homebuyers who are determined to own toward suburbs in areas neighboring these cities. However, if the suburbs aren’t suitable for buyers, they need only wait until urban home prices get so high that home sales volume drops — likely in 2017. Once sales volume dips, construction will have a chance to catch up, creating a brief rise in inventory going into 2018.

Despite the anticipated respite from scarce inventory, California’s urban markets still need attention. Want to get involved? Check out California’s leading rezoning advocates for ways to participate. Participation in zoning and development regulation in the community not only helps solve these issues, it also benefits an agent’s real estate business through civic engagement.