Austin is expected to be the nation’s hottest housing market this year and the Bay Area the coolest, according to a survey of more than 100 economists and real estate experts for real estate website Zillow.
On average, the panelists said they expect U.S. home prices to grow by 2.8% in 2020.
Of the 25 large market included in the survey, Austin earned the top score: 83% expect it to outperform the national average vs. 7% who think it will underperform, for a net score of 76. The hottest markets after Austin were Charlotte, Atlanta and Nashville, with scores of 59, 51 and 49, respectively, Zillow said.
The San Francisco Bay Area earned the lowest score of negative 40; only 24% said it will outperform versus 64% who think it will underperform. The next coolest markets were San Jose (minus 38) Los Angeles (minus 35), Cincinnati (minus 33) and Sacramento (minus 31).
Ken Rosen, Chairman of the Fisher Center for Real Estate and Urban Economics at UC Berkeley, agreed that the Bay Area will lag the nation this year.
After three years of huge appreciation, prices in the Bay Area were down or flat in 2019, depending on location, he said. Rosen expects a further correction this year, especially in Silicon Valley. San Francisco and its inner suburbs will be flat or up slightly, and outer suburbs will be flat to slightly down. Overall, he expects the median Bay Area home price will be flat to up or down 2%.
He pointed out that mortgage rates have risen about a quarter- to half-percentage point from their lows in August-September.
Also, the tax law changes that took effect in 2018 have increased the after-tax cost of owning a home. The law capped the previously unlimited itemized deduction for all state and local income, property and sales taxes to $10,000 combined. “Your property tax, even though constrained by Proposition 13, for many people are not fully deductible. A lot of people felt good because they were protected (from large property tax increases) by Prop. 13. Even with Prop 13 still in place, many people have tax bills twice as big) as $10,000.
The tax law also limited the mortgage interest deduction to interest on $750,000 in debt, down from $1 million previously.
He added that the trend of people moving outside California to cheaper states “is going to get bigger in the next five states,” because of higher taxes, higher home prices and growing congestion.
The survey was conducted by research firm Pulsenomics.
Kathleen Pender is a San Francisco Chronicle columnist. Email: [email protected] Twitter: @kathpender
