California Real Estate Forecast for 2020

As you may have heard, I recently became a Broker Associate with Compass in Los Gatos (the former Alain Pinel REALTORS). There are a lot of benefits to working with a large, upscale brokerage – one of them being that you can get access to valuable information before the competition.

Yesterday, our office had the first meeting of the year and it featured a feature presentation by Jordan Levine, the Deputy Chief Economist for the California Association of REALTORS. I have also seen many presentations by Jordan’s boss, Leslie Appleton-Young, and I even had her as a guest on an episode of the Bay to Bay Podcast. Jordan, by the way, is also a podcaster as he is the co-host of California Association of REALTORS Housing Matters podcast.

Video of California Real Estate Forecast for 2020

The presentation was about 40 minutes long, as there was a lot to digest in there. The bottom line is that the 2020 real estate market is expected to look a lot like the 2019 real estate market: tight inventory, low interest rates, poor affordability, but with slightly more sales at somewhat higher prices (statewide, but the greater Bay Area should be an exception).

Key Points for California’s 2020 Real Estate Forecast

Housing prices may be up, but actual mortgage payments are down
Lowest Unemployment in 50 Years
Prices at the very high end softening, lower priced homes rising in price.
Higher-end homes taking longer to sell
U.S. 2020 GDP Projected @ 1.6% (down from 2.2% in 2019)
U.S. Inflation Projected @ 2.0% (unchanged from 2019)
0.8% increase in home sales in 2020 vs. 2019
2.5% increase in home prices statewide in 2020 vs. 2019
30 Year Fixed Rate Mortgage to average 3.7% in 2020

Download a PDF of the California Real Estate Market Forecast for 2020 here: California Real Estate Forecast 2020

Forecasting in an Uncertain Future

It’s very difficult to make accurate predictions about the future, because the future is uncertain. It seems the future is even more uncertain than usual for 2020, with a number of factors that could dramatically affect the direction of the greater San Francisco Bay Area real estate market. Most of these factors, though, are downside risks compared to upside potential:

A slowing economy
War with Iran
Trade War with China
Impeachment
November 2020 Election
Environmental Catastrophe

However, there have rarely been long stretches of time when there were no dark clouds on the horizon. In fact, despite the many threats and challenges that the California real estate market has faced over the years, it’s remarkable how little the pattern has changed over time: the economy grows, incomes increase, and home prices just keep rising.

This may be less true in 2020 than in other years, but real estate is best seen as a long term investment. Over the long term, it’s reasonable to expect that California will continue to be a smart place to own real estate.

Recession in 2020

One thing is for sure: a recession is coming. What’s not sure at all is when the recession will arrive, how deep it will be, or how long it will last. Economists have been forecasting a recession “soon” for several years now, but recession fears have abated when it comes to 2020. In fact, noted economist Robert Shiller (of the famed Case-Shiller Home Price Index) now says he believes a recession in the U.S. may be several years away.

As it now seems the likelihood of a recession in 2020 is diminished, the San Francisco Bay Area real estate market appears to be set for a flat year, both in terms of homes sold and home prices. But what will that look like for you, a potential home seller, or home buyer, of greater Bay Area real estate in 2020?

What 2020 Will Look Like in the Trenches

The Bay Area real estate market will walk a very fine line in 2020. There will still bidding wars for well-priced and well-presented homes. Homes which are over-priced by even a tiny amount, though, will linger on the market for weeks or even months.

Buyers will feel less pressure to compete for homes, and will prefer homes that are either significantly discounted or will want them to be updated and move-in ready. Buyers are much more likely to offer less than asking price for homes, and when there are multiple offers on a home, it will be increasingly less likely that the sale price will be wildly over asking price.

Pricing will be even more crucial in 2020 than in years past. The old tactic of listing a home far below what it’s likely to sell for may backfire, as buyers will be gun shy about paying huge premiums over asking price. Yet setting a high price to “test the market” will result in the home sitting on the market and missing that brief 2-3 week window when 80% of active buyers for any given home will see it. And it’s a fact that the longer your home stays on the market, the less money you’ll get for it.

The Bottom Line for Bay Area Real Estate in 2020

If you’re wondering if you should buy a home in the San Francisco or Monterey Bay areas, I will share an old saying with you: don’t wait to buy real estate – buy real estate and wait. When is the best time to buy a house? It’s always 20 years ago, but the second best time to buy is today. Yes, there is uncertainty in the market – always has been. While buying a home is expensive, it’s nowhere near as costly as renting over the long term.

Will 2020 be a good year for sellers? It won’t be as good a year as, say, 2017 – that was a pretty hot year from start to finish. Even though inventory will be lower, buyers are not as fevered, and there are fewer of them who will pay the very highest price possible. But that’s largely because prices in 2020 will in fact be higher than they were in 2017 – so while expensive Bay Area homes are taking longer to sell in 2020 than in the recent past, sellers will likely still fetch very premium prices for their homes.