As California goes, so goes the nation?

It has been said that when it comes to housing, the West leads the way. California has been ahead of the recent years’ real estate market run-up, and has garnered international attention for its jaw-dropping home prices. The Golden State enjoys the trifecta of being the most populated state in the nation, one of the most affluent with robust growth industries, and having the unique climate and geographical advantages that continue to make the state appealing to potential homeowners.

Housing in California has also become so heated that despite its broad appeal, the state is experiencing net loss in migration, with its high home prices often cited as the key driver. According to Zillow, the top three most expensive housing regions in the country are Los Angeles-Orange County, San Jose and San Francisco. In fact, homeowners in Los Angeles-Orange County spent an average 43% of their median household income on their monthly mortgage payment in the fourth quarter of 2016. According to the Federal Reserve Bank, California also leads the nation in debt per capita, and delinquency debt per capita.

All these records and figures are moot if Californians feel confident about the real estate market’s meteoric rise and plan to keep buying. So, do they? In the latest ValueInsured Modern Homebuyer Survey, conducted in April 2017, California homeowners and buyers seem to express apprehension and caution concerning the housing market:

  • 78% of all Californian adults surveyed say owning a home is an important part of their personal American Dream, while 85% of non-homeowners say they would like to buy a home; however, their housing sentiments are not all rosy…

  • More than 7 in 10 California homebuyers and homeowners (73%) say homes in their area are over-valued, and that current prices are not sustainable; this contrasts sharply with 47% of rest of Americans who believe the same about home prices in their local area
  • Nearly half (47%) of Californians surveyed believe there will be a housing price bubble and correction in their area in the next 2 years
  • 56% are not confident the 2008 housing crisis will not happen again in their lifetime; while 56% also say the 2008 housing crisis has made them worried about the risks of buying a home
  • 55% say they have noticed more people over-leveraging themselves to buy homes they cannot really afford

Furthermore, the latest quarterly survey also points to growing concerns among California homebuyers that their local market could be topping out, and that prices could come down after they buy in the near future. Perhaps surprisingly, potential home sellers appear to agree with homebuyers:

  • Only 53% potential homebuyers in California are confident that if they were to buy a home today, it would be worth more next year in 2018; while 53% is more than half, it does not signal a strong vote of confidence
  • A whopping 82% potential home sellers believe now is a good time to sell a home, while only 59% (-23 percent points) say 6 months from now will be an even better time to sell a home, again indicating at least a portion of the market believe home prices could correct in the next 6 months
  • 59% of all potential homebuyers agree they are concerned with timing the real estate market, and want to make sure they are “not buying at the top before home pries come back down”

The above figures cover a multitude of consumer housing sentiments that suggest Californians feel particularly jittery about their local market. It makes sense, given their high stakes with higher home prices relative to most of the country. Compared to California homebuyers, only 38% Americans in the rest of the nation expect a housing correction in their local area in the next 2 years. But are they perhaps just lagging behind the hyper sensitive housing intuition of California homebuyers, who often lead the way? Only time will tell.