Looking Ahead: How Will The 2016 California Real Estate Market Impact Residential Rehab?

It’s that time of the year, when we look back on what we’ve done, tallying up triumphs and failures, thinking about opportunities taken, and evaluating what we’ve done to provide lessons for next year, either of emulation or avoidance. After all, the most important part of looking back is being able to look forward at the same time. 2015 was a year of huge ups and downs in the California real estate market- the rebound of the economy was tempered by the growing reality of a generational drought.

2016 is going to bring some interesting developments in the market as well. In some ways, it will be perfect for professionals who specialize in residential rehab, fix-and-flip, and buy-and-hold. These are of course predictions, and not guarantees, but we can be reasonably certain about long-term, big-picture trends, which can help you prepare what to do with your hard money loan from Socotra. Here are a few ways that the 2016 California real estate market will act next year.

A Slower Improvement

As Benjamin Disraeli famously said, you can deceive people with “lies, damn lies, and statistics.” To be clear, I never really understood the difference between the first two, but the third is pretty clear. Although numbers themselves are impartial, you can use them to fit nearly any sort of narrative. To wit, the California housing market. It is easy to find headlines that say “Market Continues to Improve”, as well as “Market Slowing Down”. Both are accurate. What is happening is that the incredible rebound from the depths of 2007-2009 have been slowing down, but the real estate market continues to improve. It’s like sprinting upstairs. By the time you get to the 10th story, you’re probably walking a lot slower, but you’re still moving upwards.

That’s what will be happening to the California real estate market. According to the California Association of Realtors, there is expected to be a 6.3% growth in the number of houses sold over 2015, from around 407,000 to around 433,000. The year-over-year jump from 2014 to 2015 has also been 6.3% (though obviously all numbers aren’t in yet). The difference is that prices will slow to a 3% increase, as opposed to 6% from 2014-2015.

There are of course a few competing factors here. One is that the job market continues to improve, and California is expected to hit 5% unemployment (right around the national average) this year. The global slowdown has impacted California, but so far it has not been as rough as people expected. However, what the slowdown, and the lower price increase, might impact is new construction, which is expected to decline. This can lead to an even tighter housing market, especially in areas around San Francisco and Silicon Valley.

What This Means For Residential Rehab Professionals

So that’s the market in a nutshell. The go-go days might be over, but in a way that’s a good thing. It seems to show that we’ve fully rebounded from the worst days of the crisis, and are stabling out. After all, running up all those stairs is impressive, but if you started in a sub-sub-sub basement all the exertion could just have been to get to ground level. It seems that we are a little past that now, and really beginning to build.

So, what will 2016 bring for you? The most important factor here is a more crowded market combined with smaller profits for new construction. A construction slowdown, and understandable reaction to a slow and tight market, means less new houses for sale. This is especially crucial in a place like Silicon Valley, where plenty of people want houses that are sustainable, tech-enabled, and still affordable.

That means there will be a lot of room for a dedicated residential rehab professional to be successful. A housing market where prices have temporarily slowed down but where houses are still difficult to come by is perfect for someone who knows how to identify the right neighborhoods to buy in and how to renovate a home for the right kind of buyer. In 2016, you can take advantage of both trends: slower growth means that buying a home to rehab won’t break the bank, especially for a well-rehabbed home, but growth still means you can make a profit as prices continue to rise.

When you have found the right house, Socotra Capital, California’s leading hard money lender, is here to help. Our equity-based loans allow you to do all the renovating you need to sell the right property at the right price. Contact us today to get started on 2016

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