Home prices are important to the California economy for a number of reasons. In the short and medium terms, home price increases often drive construction activity, which in turn spurs employment growth in a wide range of sectors. In the longer term, chronically high housing costs have hurt the state’s business climate and been a key reason California loses residents to other states on net in most years.
May 2020 data indicate that the typical home in both California and the nation at large has appreciated 4.3 percent since May 2019. Home prices in California were nearly flat for much of 2018 and 2019, but picked up at the end of 2019 and surpassed the national growth rate in March.
The slower home price growth that prevailed in 2018 and 2019 made a minor dent in the affordability gap between the state and the rest of the country. Housing in California has always been relatively expensive, and the gap has widened considerably since 2012. Previous recessions have had disparate effects on home prices: they were largely unaffected by the collapse of the dot-com bubble in 2001, while in the late 2000s the collapse of the housing bubble was the single biggest factor that led to the financial crisis. It is too soon to tell how the current recession will impact home prices, although the early evidence suggests a slowing.
The graph below shows appreciation over the past 12 months for the state’s 15 largest counties. The San Francisco Bay Area has some of the most expensive housing in the nation, but the five Bay Area counties among this group (Alameda, Contra Costa, San Francisco, San Mateo, and Santa Clara) have all seen recent appreciation below the national average rate and Contra Costa has in fact seen a decline.