This article was posted on Monday, Feb 01, 2016

The best way to look forward to 2016 is to look back at 2015. In January 2015, these important charts were flashing “price boom” signals in the single-family residential market.

Foreclosures steadily declined, returning to a small percentage of all properties sold. In the past, this ratio of foreclosures to sales enabled sellers to establish their asking price and prices steadily rose. 

In most areas, affordability was still high. For the state of California, we hovered around 30% affordability for most of 2015. Historically, when you are at 30% affordability and affordability is headed lower, you have a strong likelihood of aggressive price gains.

In the past, I haven’t gotten concerned about a price peak until we get below 20% affordability. More specifically, until we reach 17%. At 17% annualized affordability for California – which we reached in 1980, 1989, and 2005 – I would have rather have been a seller than think prices would continue to rise. At 30% affordability, with declining foreclosures, 2015 had the possibility of aggressive price movement upwards.

The unemployment chart improved gradually with California getting closer and closer to the national unemployment number. This usually bodes well for California real estate as we begin to get migration back to our state. With the improvement of employment usually comes a building boom of single-family homes.

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The last category that looked surely to be a positive was the overall sales of homes. With declining foreclosures, high affordability, and low unemployment, it should be off to the races with sales volume becoming very strong.

Here’s a good question: How many times have you had declining and low unemployment, declining and low foreclosure rates, and high affordability not producing significant price increases? The answer is NEVER! Until 2015, that is.

In 2015, unless you were in the rarified air of an area like San Francisco, prices movement was pretty tame.

Looking at the charts at the end of 2015, I see numbers more positive than they were in January this year. We have lower unemployment, lower foreclosure rates, and still historically, great affordability. If I had not experienced the blah year of 2015, I would say 2016 would be an explosive year in California for both price gains and sales volume.

However, blah 2015 did happen, and the charts mean something is different this time around. The charts that I usually rely on are painting an incomplete picture. What is different this time?

I’ll mention four things that are different that are having a detrimental impact on California real estate despite the great set of charts. 

  1. Lending policies are still restricting sales volume and discouraging existing owners from moving up and new buyers from trying to get approved.
  2. Household formation is lagging due to the Great Recession and the millennial generation having a pattern of staying single longer, staying in school longer, and not working full time.
  3. One of the key engines of the California employment picture is still in depression mode; the building of single-family homes. Yes, it’s improved from the depths of 2009, but we still haven’t built this few new homes anytime in the last five decades. There’s still a lack of confidence that the creation of building lots will produce a profit.
  4. The high cost of health care. As a company owner, I have to pick the health insurance plan for the company. There’s been a continual cutting of benefits and a continual expansion of out-of-pocket costs. Deductibles and potential out-of-pocket expenses now represent a much higher percentage of what a family makes. I think this is a game changer and could be detrimental to the level of debt someone wanting to own a home can take on. 

Having said all of this as groundwork, I see 2016 as very similar to how 2015 played out. I don’t see anything that leads me to believe we’ll have a crash and nothing to me indicates a boom.

Bruce Norris is an active investor, hard-money lender and real estate educator. A talk show host in his hometown of Riverside, Calif., Norris is a frequently quoted in financial publications and a speaker at investor club meetings throughout California. His latest study, The California Comeback 2, was released in July 2013 and provides the statistics that substantiate his predictions. More information about Bruce Norris, his research and his investment seminars are available at