This fall, there is only good news for buy and hold investors in California. Home prices are still on the rise, and the California Association of Realtors predicts that the numbers will continue to go up at least through 2016 (and likely well beyond). Rent prices are also still on the rise across the state as home affordability falls and vacancy rates dwindle to practically nothing. Here are our top three predictions for the California housing market this fall and a quick look at how these trends will affect buy and hold real estate investing.
- Construction will fail to keep up with demand.
This isn’t a new problem, but it’s certainly a persistent one. Housing experts believe that 150,000 new housing units need to be built every year in California in order to keep up with current demand. Right now, only about 100,000 units are being built per year, and most of those are rental units. As more and more people move to beautiful and sunny California, there simply aren’t enough places for them to live. As a result, vacancy rates are incredibly low, which is driving rent prices up.
This is good news for buy and hold investors who, of course, earn monthly income off of their rental units. Whether you rent a single family home to a single tenant or have to fill twenty apartment units, it’s unlikely that any of your rental units will stay empty for long in the current marketplace.
- Home prices will keep ticking up, pushing affordability down.
As the recent California Association of Realtors report attests, home prices are predicted to go up by 5.3% this year compared to last year. The total number of home sales is also up, which will keep prices moving upward through the next few years.
But fewer and fewer Californians will be able to afford to buy as this trend continues. Housing affordability is currently at 31% across the state, and it’s just 22% in Orange County and a measly 10% in San Francisco. Buying is simply out of the question for a lot of people which, again, means low vacancy and high rents.
- Sustainable growth will be the name of the day.
Housing experts are in virtually total agreement that the current California housing market, as difficult as it is for many low-income residents, is stable and sustainable. We are not on track for another crash, and the improvements we are seeing should continue at their slow and steady rates. This means that buy and hold investors can trust their property investments to pay out over the long term while they collect ample income from their tenants in the interim.
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