Housing market poised for steady gains

San Diego County’s housing market should see stable price gains and increased demand as the economy continues to grow in 2015, according to a pair of real-estate forecasts released this week. 

The forecasts, by Realtor.com and Trulia, indicate the days of investor-led fixing and flipping that led to double digit annual price gains during the recovery from the Great Recession are over and won’t return. Instead, wage growth, employment, supply and demand will continue to push the market forward, with annual gains in prices at about 4 percent, about double inflation, said Jonathan Smoke, chief economist for Realtor.com. A lack of affordability will remain an issue despite some wage increases, Smoke said, in part because he expects interest rates to rise about 0.5 percent. 

“San Diego falls into a short list of markets where I would say demonstrably already that demand outpaces supply,” Smoke said. “That very tight supply condition puts it in a market that has next to zero chance of seeing prices decline.”

Jed Kolko, the chief economist for Trulia, noted that people expected interest rates to rise last year, and that never happened. He listed San Diego as one of the nation’s 10 markets to watch next year, with Fresno the only other California metropolitan area to make the list. Others making the positive list are Boston, Dallas, Nashville and New York.

“They have strong fundamentals for the housing market without the risk that prices look overvalued,” Kolko said. “These are the markets who are in that sweet spot where the conditions are ripe for a strong year, without much downside risk.”

Smoke said demand will increase as the millennial generation, of 19-to-35 year olds, continues to get older and moved toward starting a family. He said San Diego should see 5 percent household formation growth over the next five years, with construction activity increasing to help with some supply. Kolko said he also sees millennials moving out of their parents’ homes for the first time, but most are going to rent. Still, there’s not enough housing supply to match demand, with inventory in San Diego running a little more than two months, about half of what economists would like to see. 

Smoke and Kolko said higher lending standards and saving for a 20 percent downpayment are challenges facing millennials who want to buy. 

In October, the median price for a home sold in the county was $440,000, up 6.6 percent from a year earlier, CoreLogic DataQuick reports. The annual rate of appreciation on homes in the county has declined since peaking at 24.1 percent in June 2013, when foreclosure resales and fix-and-flip activity paced the market.