California Real Estate Market Trends & Analysis

The California real estate market has done everything it can to set itself apart from the rest of the country. Median home prices have increased exponentially from the depths of the latest recession, equity has returned where it was once thought gone forever, and yet, demand still remains in tact. Perhaps even more importantly, economic indicators suggest more people are willing and able to buy homes today. For all intents and purposes, CA real estate market trends are cause for optimism, and savvy real estate investors at the forefront of what is expected to happen could find themselves with a significant advantage.

The Top California Real Estate Markets

Here are some of California’s most popular real estate markets, and even places you may want to consider investing in next:

California Real Estate Fees & Regulations

Real Estate

Closing Method: Escrow
Closing Conducted by: Title Company, Escrow Company, Lenders
Conveyance: Grant Deed

Foreclosure Procedure

Primary Foreclosure Method: Non-Judicial
Process Period: 3 - 5 months
Notice of Sale: Trustee
Redemption Period: Varies

Taxes

Income Tax: 1.0% - 13.3%
Corporate Tax: 8.84%
Sales Tax: 7.50%
Estate Tax: 40% on Assets over $5.34 million
Inheritance Tax: No
Median Property Tax: 0.74%
Property Taxes by County: http://www.tax-rates.org/california/property-tax#Counties

Average Transactional Costs

Closing Cost: $2,542
Transfer Fee: 0.11%
Origination Fee: $1,880

Overview

Real estate market trends in California have elevated the state to a level few others could ever hope to achieve. Nearly every economic and fundamental indicator, for that matter, is better off today than even a few short years ago. The California housing market is a byproduct of several fundamental indicators, not the least of which include:
  • Median Home Value: $537,315
  • 1-Year Appreciation Rate: 9%
  • Median Home Value (1-Year Forecast): +5%
  • Median Rent Price: $2,675
  • Average Days On Market: 63
  • Percent With Negative Equity:6.7%
  • Unemployment Rate: 4.3%
  • Year/Year Unemployment Rate Change: -0.7
  • Year/Year Jobs Added: +321,000
  • Population: 39,536,653
  • Median Household Income: $67,739
  • Year/Year Change In Household Income: +3.71%
  • Percent With Negative Equity: 6.7%
  • Foreclosure Discount: 14.1%

Median Home Prices In California

Home prices in California have found themselves to be the beneficiary of what many are calling a “perfect storm.” Thanks, in large part, to the unique combination of historically high demand and an inherent lack of inventory, the market has tilted heavily in favor of sellers and increased prices by as much as 9% over the last 12 months. As a result, the median home value in California now sits at an impressive $537,315, according to Zillow. It is worth noting, however, that recent appreciation rates are not the result of a brief fad, but rather a continuing trend. If for nothing else, housing prices look to be gaining sustainable momentum, at least for the foreseeable future. In the next year alone, Zillow predicts median home values will increase an additional 5%. By this time next year, Californians could easily be staring at a median home value upwards of $564,000. Median home prices in California have come a long way since the depths of the latest recession. 2012 saw the average home value in California bottom out at approximately $300,000 — that means home values have increased, on average, $264,000 over the course of about six years. Homeowners fortunate enough to have purchased at the right time are reaping the benefits of what can only be described as historical gains in equity. Buyers, on the other hand, have seen prices increase for the better part of a decade. There’s no doubt about it: California is absolutely a seller’s market. Homes are selling faster and for more money with each passing year, and should continue to do so until more inventory is introduced into the market. For what it’s worth, most markets in California are already unaffordable for the average buyer. According to the California Association of Realtors, the “unaffordability” rate is resting comfortably somewhere in the neighborhood of 75%. On top of that, 24/7 Wall Street suggests that 16 out of 25 least-affordable counties are located within California’s borders. Those interested in investing in California real estate should take note of today’s expensive trends, and familiarize themselves with an important concept: it is possible to invest in any market, regardless of whether it’s up or down. While those on the outside looking in may assume home prices in California are too steep to produce any sort of attractive profit margins, they just need to look at things from an alternative perspective. Yes, the higher prices in California make it harder to find viable spreads, but the key is to alter your exit strategy in accordance with what the market suggests. When prices are high, as they are in the California real estate market at the moment, investors should pay special considerations to buy and hold strategies. Instead of trying to rehab and flip a property immediately, consider buying a property and renting it out. That way, you may offset today’s higher prices with the rent collected on a monthly basis. With rent prices as high as they are, a carefully thought out buy and hold strategy could pay huge dividends over the course of several years. What’s more, you could choose to rehab and sell the property later down the road if the market deems as much.

Median Rent Prices In California

California’s home prices share a distinct correlation with every single housing indicator, and rent prices are certainly no exception. You can very easily attribute California’s higher rental prices to the state’s above average home values. If for nothing else, higher home values are preventing a large population of prospective buyers from actually committing to a purchase, if not pricing them out of the market altogether. In other words, there’s a large contingent of people that want to buy, but can’t, which lends itself to another issue: the same supply and demand crisis facing would-be buyers. Since more people are priced out of the buying market, we are seeing more renters than average competing over fewer available properties. As a result, landlords have found themselves in a position of power in California and increased their asking rates. According to Zillow, the median rent price in California is $2,675. Conversely, the national average rent price is $1,600. The difference is noticeable, and data suggests the discrepancy will only grow for the foreseeable future. According to ApartmentList, only one state has seen rental rates surpass that of California: Nevada. Whereas Nevada saw rents increase at a rate of 4.6% from the first quarter of 2017 to the first quarter of 2018, California rent rates jumped 3.5% in the same period. California rents, not unlike its home values, jumped because of a lack of inventory. According to The Mercury News, “the statewide rental vacancies equaled 4.3 percent of all units in 2017. That was the sixth-tightest among the states … a mild improvement from a 3.6 percent vacancy rate in 2016, when California ranked No. 1 among for rental tightness.” High rents in California are the direct result of the state’s current level of supply and demand. An October report out of the University of Southern California suggests rents could be subjected to triple-digit rate increases for the next two years. As I already alluded to, there are more people forced to rent because they can’t afford to buy, but there are also very few units to rent on the market. Therefore, landlords are in a position of power and can request higher rates. California real estate investors should take note. As it turns out, now is a great time to consider buy and hold exit strategies. While it makes it more difficult to acquire properties, it’s more than likely that you’ll be able to rent out an asset to recoup some of the money lost on the acquisition.

California Foreclosure Trends & Statistics

Due, in large part, to the high price tag that has become synonymous with the California real estate market, real estate investors have typically favored more affordable locales, and rightfully so: it grows increasingly difficult to locate a subject property with attractive profit margins in a state as high priced as California. It is worth noting, however, that while real estate in California is more than twice as expensive as the national average, that there are still deals to be found. More specifically, foreclosures offer savvy California real estate investors the the opportunity to secure a property at a favorable price. The California real estate market has seen foreclosure filings decrease over the course of last year. And while the number of houses that have received a notice of default have increased 31% in the last month, foreclosure filings are down 16% from this time last year, according to RealtyTrac. Nonetheless, the state still has its fare share of foreclosures, and savvy entrepreneurs interested in investing in California real estate should be able to find distressed properties in just about every county. That said, there are select counties where foreclosures are more pronounced. The following counties represent the areas with the highest foreclosure rates in all of California, according to RealtyTrac:
  • Kern County (1 in every 746)
  • Yuba County (1 in every 792)
  • Kings County (1 in every 849)
  • Shasta County (1 in every 945)
  • Glenn County (1 in every 984)
In addition to location, foreclosure distribution can be broken down even further into status. California foreclosures can be classified as one of three unique types of distressed properties: pre-foreclosure, auction and bank-owned. As it turns out, half of California’s foreclosures are pre-foreclosures, meaning the property owners have received a notice of default, but the loan originators have yet to take action on the foreclosure process. In other words, 50% of the foreclosures in California are at risk of entering into the foreclosure process. Perhaps even more importantly, each of the properties in a state of pre-foreclosure are made public knowledge. Local courthouses in each county (not unlike those five I listed above) should have the paperwork on each pre-foreclosure property within its jurisdiction. California real estate investors that are able to identify and find foreclosures will quickly learn that real estate in California can still be had at a discount. If for nothing else, distressed properties can be acquired for less than their non-distressed counterparts. According to RealtyTrac, distressed properties can typically be purchased for about 14.1% less than non-distressed properties, a savings that translates roughly to an average of $60,000 per property.

Tax Lien Investing

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Real Estate Investing In California

California real estate investing has separated itself from almost every other state across the country. Home prices in The Golden State are so high that they have altered the very exit strategy most investors sought solace in over the course of the latest recovery. Where rehabbing and wholesaling once prevailed, California now boasts a market more favorable to buy and hold investors. That’s not to say there aren’t opportunities to execute a profitable flip, but, instead, that buy and hold strategies are more in line with today’s market metrics. Homes are simply too expensive up and down the California real estate market, and profit margins are getting thinner and thinner as home values appreciate. Buy and hold rental properties offer investors the ability to offset today’s high prices with equally impressive rental rates. Given the right property with a proper cash flow, there’s no reason to avoid the high prices that have become synonymous with real estate in California. In as little as a few year’s time, rent checks could easily make the acquisition well worth the price; just be sure to pay special considerations to the real estate market trends in California and to adjust your strategy accordingly.

California Housing Market Predictions

Predicting the housing market without any degree of error is a fool’s errand, even in a state as “predictable” as California; there’s always going to be at least a slight margin of error. Some of today’s educated guesses look more sustainable than others, though. Having said that, here are some of the California housing market predictions I feel are more likely to pan out:
  • Home value appreciation will continue to outpace the national average: Over the last year, median home values in California have appreciated at a rate faster than the national average, 9% and 8% respectively. Over the next 12 months, however, it shouldn’t surprise anyone to see California home values appreciate upwards of 5%, while the national average trails slightly behind.
  • Supply and demand will continue to shape the real estate landscape: Supply has yet to satiate the demand for real estate in California, and it doesn’t look like it will anytime soon. Sure, builders are doing their best to introduce new properties to the market, but they won’t be ready for a while. Until new inventory hits the market, expect demand and prices to rise simultaneously.
  • Despite being a seller’s market, homeowners will remain content and not pursue a sale: California homeowners know full-well that they could sell their homes for a nice profit, but I am willing to be few will consider doing so. Despite the amount of equity most homeowners are working with, most appear more interested in keeping their homes than in joining the ranks of competitive buyers. They know that if they sell that they too will face the same supply and demand issues troubling everyone else.
  • If homeowners decide to sell, they’ll look to buy in another state: I remain convinced most California homeowners won’t sell, but I am growing more intrigued by the idea of a California exodus. As I already alluded to, the California real estate market is too expensive and competitive. It makes perfect sense that those who do sell decide to look for a home in another state, preferably one with fewer taxes, less competition and lower prices.
California housing market projections are anything but set in stone, but they can give great insight into what may transpire. At the very least, they are a good tool to use for minding due diligence. Only those that can anticipate where the market is heading will stand a better chance at realizing success.

California Real Estate Market Summary

Real estate in California has stood atop a pedestal for quite some time, but the recovery from the latest recession has solidified The Golden State as one of the country’s hottest housing markets. At the very least, real estate in California is firing on all cylinders; at its pinnacle, it's the healthiest housing market in the country. If you are entertaining the idea of breaking into the real estate industry, you could do a lot worse than California. Better yet, California real estate trends could work considerably in your favor if you choose to listen to the right ones. Have you been considering investing in California real estate? Are you just looking for a reason to start investing in one of the hottest markets in the country? Please feel free to let us know your thoughts on the matter in the comments below.

Sources:

https://www.zillow.com/ca/home-values/
https://data.bls.gov/timeseries/LASST060000000000003?amp%253bdata_tool=XGtable&output_view=data&include_graphs=true
https://www.bls.gov/news.release/laus.nr0.htm
https://www.deptofnumbers.com/employment/california/
https://www.census.gov/quickfacts/CA
https://www.deptofnumbers.com/income/california/
https://www.realtytrac.com/statsandtrends/ca