Year-Over-Year California shows growth in home prices that is stronger than 90% of the country while still staying relatively far below its peak value.
When you take a look at the numbers in CoreLogic’s January Housing Price Index Report you can see that California is on the strong side of two very telling metrics when compared to the numbers nationwide.
Continued Growth in CA Housing Prices is Likely, at Slower Pace
The year-over-year change from January 2014 was 5.7% for the National index. California was on the stronger side of that, posting a 7.3% year-over-year change. Even that can be considered strong growth. That number will likely continue to decline over the next year.
The National HPI is currently 12.7% less than its all-time peak reached in April of 2006, just before the market crashed. In California the market is even further away from its peak value than the National HPI. The current HPI in CA is 14.4% less than its May 2006 peak. Even though prices may be on the high side compared to incomes they’re not as high as they were and more importantly, the increases in prices are slowing.
This recent slowing of price increases means that incomes are having an effect on housing prices and that is a key distinction of the pre-bubble days.
Now that the National market is approaching previous all-time highs (some state markets already have reached their previous peaks), price increases have been regularly slowing down for the past year. Home values have rebounded out of the crash and are trying to align with incomes. This is an important stage because home prices cannot continue to shoot up the way they have over the past two years without another bubble bursting.
Sitting on the strong side of these two metrics positions California real estate to continue to show valuable increases over the next year. At 14.4% below its peak, the CA market would need about 3 years at 5% increase per year to reach that previous peak. The goal then, is for incomes to match pace with housing so that California homebuyers will actually be able to afford home prices. This way, when the housing price index reaches that previous peak price it will be because California incomes have increased as well. As opposed to lenders approving buyers for loans they can’t actually afford (that’s what happened last time).
Do Your Research – Conditions Vary by Market
These numbers or conditions aren’t necessarily present in all California neighborhoods, however. Many places in CA have reached their previous peaks and some are even seeing declines. We highly recommend Zillow’s Home Prices pages. The data allows you to get a solid understanding of what has been happening and what could be happening with prices in a specific area. Define regions by County, City, Metro-Area, Neighborhood, or Zip Code. Compare the data and trends in three different parts of California and see where they fall in relation to the state averages.
What Do You Think is Next for California Home Prices
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John LaRosa, PHA Realty Director of Marketing