The California Real Estate CRASH has started. I project home values to decline by 10-30% depending on the city. But homebuyers and real estate investors won’t feel the impacts until later in 2022.
Home Prices across California are at record levels. The typical home in San Jose goes for $1.5 Million. In San Francisco it’s $1.4 Million. And Los Angeles Real Estate averages $850k.
These home values are up nearly 20% over the last year – a clear WARNING signal that California’s Housing Market and Economy could be heading for a CRASH in 2022.
The last two times Home Prices in California surged like this – in 1990 and 2006 – there was a brutal Housing Crash and Economic Crash that followed. Why? Because when California gets too expensive, people tend to leave the state.
Moreover, surging inflation and interest rates are likely to contribute to the California Crash. The sky-high home values in areas like Orange County and San Diego are very mortgage rate sensitive. The higher that rates go, the more priced out locals become and the more downside in the California Real Estate Market.
I believe the area in California which will be most negatively impacted is the San Francisco / Bay Area / Silicon Valley Housing Market. The highest home prices in America, combined the most inventory and a high exposure to the tech sector, signal major risk of a home price crash.
Publicly Traded Companies in San Francisco – which are largely on the NASDAQ and in the technology space – are down nearly 40% over the last year, the highest of any metro area. This decline in the San Francisco Bay Area Stock Market indicates that wealth/net worth in the region has plummeted. And this could make its way into causing Home Value Declines soon.
Ultimately – anyone buying in the California Housing Market today is likely buying at the peak of a Real Estate Cycle. That means a likely decline in home values over the next several years.
However, over the long-run (10+ years) home values in California tend to go up. And go up a lot. So if you can stomach the short-term volatility, then perhaps it is still a good idea to buy in San Diego, Los Angeles, and the Bay Area.
Just make sure you have the money and confidence to stick with it. As always – this does not represent financial advice. Sources for this video came from Zillow, the FHFA, and US Census Bureau.
Zillow Home Value Data: https://www.zillow.com/research/data/
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