California’s real estate market could be about to fall off a cliff.
As The California Post reported, California’s home sales are down 31% relative to the last 18 years.
Normally, that would be good for buyers. But high interest rates are keeping them at bay.
Buyers are having trouble finding affordable financing. And sellers don’t want to swap their existing mortgages, which they took out at record-low interest rates, for new mortgages at much higher rates.
Gavin Newsom, wearing a blue suit and white shirt, speaks into a microphone while sitting in a gray chair at an event for his book “Young Man in a Hurry.” Getty Images But the Fed is not solely to blame.
California’s slowdown is much worse than the national falloff of 6% over the same period of time.
One is the insurance market. California has made it almost impossible for insurance companies to operate, thanks to restrictions on premium increases.
The spate of wildfires in recent years — many of which would have been preventable, with better forest management and fire preparedness — have also pushed insurance costs up for homeowners.
There are also many new real estate taxes coming online, like Measure ULA in Los Angeles, which has slowed down sales at the upper end of the market.
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Since high-end sales drive so much of the profit in residential real estate, that means the whole market has suffered.
Proposition 13, passed in 1978, limited annual increases in property tax. And the Howard Jarvis Taxpayers Association has mobilized to defend Prop. 13, collecting signatures for a new ballot initiative to limit new local real estate taxes.
But ironically, Prop. 13 might make sellers more reluctant to part with their homes, if they have owned them long enough. Selling, and starting over, usually means starting over with a higher basis for taxation.
In other markets, the construction industry helps keep the market healthy by adding new supply.
California Governor Gavin Newsom speaking at a press conference on homelessness and mental health, with a sign reading “TREATMENT NOT TENTS”. AP But construction has slowed in California, thanks to high costs, overzealous local permitting bureaucracies, and environmental rules.
So there is little inventory — and existing homes are losing value.
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It doesn’t help that California leads the nation in unemployment, and jobs and companies are leaving.
Overall, there is a lack of confidence in California’s future.
Moving here, or staying here, means carrying a share of the state’s massive budget deficits, infrastructure backlogs, and pension liabilities.
Real estate is fundamentally about optimism. Two terms of Gavin Newsom have provided the opposite — and his replacement could be worse.
Our stagnant real estate market is a warning sign: We need change. Now.
