The following are five things you need to know when purchasing a home in California in 2018.
1. Orange County, California home prices are slowing down, but still rising
Home price appreciation throughout Southern California has increased annually for almost six straight years, with houses changing ownership in a short time span, generally at or above the list price. Orange County’s median home prices have surpassed the record highs established during the housing bubble of 2007.
In fact, the Bay area counties of San Francisco, Marin, San Mateo and Santa Clara in Silicon Valley have similar stories. What has helped offset high home prices tremendously are low mortgage interest rates, which have averaged under 4 percent on a 30-year fixed.
Industry experts are predicting home prices will continue to increase by 4 percent to 5 percent in 2018. Some real estate analysts have forecasted that with the exception of surprising events, home prices may continue climbing for several more years. Prior to the last housing crash, prices constantly went up for 10 years.
2. Loan limits have risen
The conforming loan limits for a large majority of counties in California were increased for 2018. In 2018, the conforming loan limit will go up to $453,100 for most counties in California and for high-cost counties like Orange, Los Angeles and coastal counties the limit will be as high as $679,650. FHA loan limits will range from $294,515 to $679,650, based on the county where the property is located.
Keep in mind that home buyers with adequate income can get larger loan amounts than these count limits. When that is the case, the buyer will be applying for a jumbo loan.
3. Mortgage rates are also likely to go up
Economists are forecasting a progressive rise in mortgage rates in 2018, yet the average 30-year fixed home loan rate is not predicted to go above 5% for quite a while.
The government service enterprise Freddie Mac adjusted its long-term prediction for the U.S. housing market. They expect 30-year mortgage rates to finish at 4.4% through 2018 and to average 4.7% in 2019. Many other industry professionals and economists share this same view too.
4. The down payment can be less than 20-percent
The notion that a home buyer needs to put down a minimum of 20% when buying a home is a myth. In 2017, real estate industry groups conducted a survey that shows many home buyers believe the opposite.
In today’s housing market and even since the early 2000s, there are home conventional loan programs which allow for down payments of only 3%. FHA requires 3.5% and the VA loan offers a zero down program for eligible borrowers.
5. Housing inventory is remains low in most cities
The supply-and-demand dilemma in California’s housing markets has been disproportionate since 2010. The demand from buyers is robust, but there simply is not enough inventory to choose from which has helped raise home prices. This has triggered bidding wars among buyers which results in paying over the asking price and/or paying for the portion of closing costs the seller normally pays.
And these trends will probably remain in 2018, to some degree. New home construction in Southern California has increased over the last few years, but that has not stabilized home prices or demand for real estate.