Top 5 Tips for Investing in the California Housing Market
When it comes to the Golden State, consumers automatically think expensive, expensive, and expensive. But California real estate investors should know that the housing market is slowing down and things aren’t looking as expensive as they once were. Studying market trends can go a long way in making the right investment decision when it comes to analyzing locations (whether they are state, city, or neighborhood).
Here are a couple of tips on the California real estate market for real estate investors.
Invest in High Job Growth Markets
Cities with high employment and career prospects are the best places to invest in real estate. There are some markets that have seen higher levels of jobs than others according to Forbes' 2019 California housing market study.
The overall labor market in the state is as high as ever, with the average unemployment forecast to stay at 4.5 percent in 2019 due to declining domestic economic growth. In 2020 and 2021, this rate is expected to go down to 4.3 percent.
Now, amid high property prices, the California housing market has remained in the portfolios of so many investors because it is supported by a strong economy, the strongest in the world. For instance, between January 2018 and 2019, California had the highest increase in construction jobs nationally, adding 28,500 jobs.
Check Out the Southern California Housing Market
As stated, the fact that the state is experiencing a cooldown is one of the most prominent California real estate market trends. With markets softening statewide, seeking affordable cities in California is becoming more and more practical. Although the state's economy and employment levels are still high, it is expected that the California housing market will begin to cool down by 2020.
Real estate specialists noted that in March of this year, the Southern California real estate market experienced its first annual drop in the median home price (since 2012). The first of the counties to see a small decline in median prices was Orange County. This, combined with the market's prices being $18,500 off their 2018 June high, suggests a likely sustained price downturn for the coming months.
Since inventory levels are picking up the local housing markets are no longer as strong, and that is great news for home buyers as a rise in supply relieves some price pressure. However, bear in mind that houses stay longer on the market, but inventory remains reasonably tight. Still, Los Angeles County saw a rise in homes for sale by 24 percent compared to the same time last year according to Zillow. If you like that, the 40 percent rise in Orange County listings will inspire you even more.
Avoid the San Francisco Real Estate Market
San Francisco is not exactly one of the best places to purchase rental property right now for the average real estate investor. This is the case for a number of reasons. The most noteworthy thing about the San Francisco real estate market is its rather overpriced homes. Experts are concerned about the market boom and bust seeing that SF prices are 14 percent higher than they were last year. Rental property owners will take their chances if they have a budget and expect to keep a healthy cash flow to the investment property for years to come. There are, however, better investments for 2019. The good news is that the California housing market is full of other investment opportunities.
Land investors looking to produce some high rental income should stick to high rental demand areas. But even if you're investing in a job-growth market like Stockton, don't price your rent too high. Demand is seen in properties with rental rates similar to the local average and up to 25% higher.
Take Advantage of Low Mortgage Rates
This is something else to remember for your investment in real estate in California in 2019. Buyers were more motivated to enter the market as mortgage rates fell from a record 5 per cent in November 2018 to about 4 per cent this year.
It’s very important for real estate investors to keep track of interest rate volatility as it could make a significant difference in the final interest charged. This gap can go up to about $129,000. That's a lot of extra money you can stop saving by entering the California housing market at the right time to take advantage of better prices.
Watch Out for Airbnb Regulations
If you're looking to invest in short-term rentals in the California housing market this year, take a look at any improvements to the regulations. Here are a few things you need to know for 2019.
Licensing and following Airbnb legislation was taken very seriously in Pacific Grove. Any owners of short term rentals with expired licenses must deactivate or cancel their listings. Violators will be fined some severe fines. The city imposes fines equal to 100% of the total profits received by the rapist during the unlawful hosting time. In addition to heavy fines, unauthorized hosts are forbidden from receiving another license for at least two years. Legally run Airbnb rentals will face no issues as long as their owners collect the city's temporary occupancy tax from the guests. Airbnb does this on behalf of its hosts, but you are responsible for this if you are hosting on a different site.
Redwood City also passed a new law last year which came into force in May of this year. This legislation now allows short-term rental operators to:
- Register with the city, get a business license, and collect temporary occupancy tax from the visitors.
- Provide ample on-site parking for visitors.
- Have a designated local contact person responsible for handling complaints while the host is away
- Non-proprietary occupied rentals are illegal. Operators must use the property as their primary residence.
- Special occasions such as weddings and other activities cannot take place in a short-term rental.