SoCal Housing Market Lags Behind the Nation

The Southern California housing market is doing fine. However, relative to housing activity in the rest of the country, Southern California is proving to be the weaker region. Ivy Zelman, CEO, Zelman & Associates, spoke on the topic at the UCLA Anderson Forecast June 2020 Economic Outlook, hosted by both UCLA Anderson and the UCLA Ziman Center.

“It is a mixed bag,” said Zelman when asked about the Southern California housing market recovery. “Everything on a relative basis is weaker than other parts of the country. We are more concerned that home prices will be more muted compared to other parts of the country,” she said, adding that some parts of the country, like Florida, the Carolinas and Texas, are reporting strong pricing increases and buying activity. “We couldn’t talk about California in those terms.”

Outside of California, the rest of the Western region is also a mixed bag. Phoenix housing activity is strong, along with Colorado and Utah. Nevada, and more specifically the Las Vegas market, however, is weaker on a relative basis, and more in line with Southern California.

Stepping back to a more national perspective, however, and the housing market looks oddly strong, considering high unemployment and GDP loss. “We are actually looking at single-family starts to be up 1% in 2020 with continued growth in 2021 and 2022. So, we won’t have a decline in single-family in our opinion.” In addition, a survey conducted by her firm with 15% of the new home market and several hundred builders found a 31% increase in home sales during the month of May. The West region, however, was flat. “There is no question that the West and California specifically was much more restrictive to reopen, it is lagging. It is also lagging because the market typically has so many foreign buyers, especially in Southern California. That is another reason why it is not performing as well as other parts of the country.”

This is an improved forecast compared to Zelman’s initial forecast at the start of the pandemic. “We had initially forecasted a pretty significant decline in Q2 with continued weakness for the back half of 2020 and into the first quarter of 2021. Given the changes in the market that we are seeing, we since revised our single-family housing start forecast to a much more muted slope in terms of the decline, and in fact, the activity in the second half of April and into June has been frankly remarkable and shockingly strong.”

Multifamily is another story. Zelman had forecasted a decline in multifamily start pre-pandemic. Now, she is predicting a double-digit decline in multifamily starts and continued declines in 2021 and 2022. “That is really due to what we think is a necessary normalization from levels that were not sustainable, financing drying up and changing dramatically due to the pandemic and a lot of uncertainty around price discovery,” she said.