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California Home Prices and Sales Predicted to Keep Rising in 2018

Strong demand tempered by lack of supply and limited access to affordable housing will be a challenge for the market, report says

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The median price of an existing house in California is predicted to rise 4.2% to $561,000 next year.

Getty Images
The median price of an existing house in California is predicted to rise 4.2% to $561,000 next year.
Getty Images

Home sales and median prices in California will continue to increase in 2018 but at a slower pace, according to a forecast by the California Association of Realtors released Thursday.

The median price of an existing house is predicted to rise 4.2% to $561,000 next year, less than the projected increase of 7.2% in 2017. Sales are expected to rise 1% to 426,200 transactions in 2018, somewhat weaker than the 1.3% gain projected for this year.

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"Solid job growth and favorable interest rates will drive a strong demand for housing next year," said Geoff McIntosh, the president of the California Association of Realtors, in the report.

"However, a persistent shortage of homes for sale and increasing home prices will dictate the market as housing affordability diminishes for buyers struggling to get into the market."

U.S. national home prices increased, on average, 6.9% year-over-year in August to a peak level last seen in April 2006, according to a separate house price report by CoreLogic earlier this month. And California outperformed the national average, with home prices rising 7.1%.

The shortage of available homes for sale and affordability constraints will be a challenge for California next year.

According to the California Association of Realtors, the lack of inventory has constrained the lower-end house market while the upper-end market is less constrained by the inventory. The forecast says this trend is likely to continue into 2018 as active listings have declined across all price ranges for the past two years, but is most obvious at the lower end.

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Data from the association shows the current number of active listings below $200,000 are down 29% compared to last year. Meanwhile, active listings in the $1 million to $2.99 million range are only down 10% and the number of listings $3 million and up are actually up by 1.9%.

"With tight inventory being the new ‘norm' for the past few years and at least the upcoming year, we'll continue to see fierce competition driving up prices, leading to lower affordability and weaker sales growth," Leslie Appleton-Young, senior vice president and chief economist at the California Association of Realtors said in the report.