California Real Estate in 2027: Trends, Challenges & Opportunities with Oscar Wei – Part 1 #971
In Part 1 of Joey Romero’s conversation with Oscar Wei, Deputy Chief Economist of the California Association of REALTORS® (C.A.R.), they explore the 2027 housing market forecast and the economic factors shaping the future of real estate. Oscar shares insights into inflation, Federal Reserve interest rate expectations, mortgage rate projections, and the challenges affecting housing affordability. He also explains how artificial intelligence is helping improve economic research, data analysis, and forecasting while highlighting concerns about employment trends, consumer sentiment, and financial market uncertainty.
The conversation also examines California’s housing market, including mortgage rate lock-in and why homeowners may hesitate to sell properties with historically low interest rates. Oscar discusses how inflation and wage growth affect household budgets, how employment trends and AI-related job displacement influence economic confidence, and what could happen to mortgage rates throughout 2027. They also explore the potential for smaller homes, higher-density development, and policy changes to improve housing affordability and create more opportunities for homebuyers.
Beyond the market forecast, Oscar shares insights from his experience at C.A.R., where he has worked since 2003 and co-manages the Research and Economics Department, overseeing data analytics and survey research. Drawing on his expertise in economic and policy analysis, housing market forecasting, and consumer research, he explains how economic indicators, housing supply, and public policy help shape the outlook for California real estate. The discussion offers real estate professionals, investors, and prospective homebuyers a clearer understanding of the challenges and opportunities that may define the housing market in 2027.
In this episode:
C.A.R.’s 2027 housing market forecast and the economic factors shaping its projections.
How artificial intelligence is transforming economic research, data analysis, and forecasting.
Federal Reserve interest rate expectations and their potential impact on mortgage rates.
Inflation, wage growth, consumer spending, and the effects on household budgets.
Employment trends, AI-related job displacement, and economic uncertainty.
Mortgage rate lock-in and why homeowners may hesitate to sell their properties.
California’s housing affordability challenges and the potential benefits of smaller homes and higher-density development.
How stabilizing mortgage rates, increased housing inventory, and policy changes could help improve homeownership opportunities.
Episode:
Narrator
Welcome to the Norris Group Real Estate Podcast, a show committed to bringing you insights from thought leaders shaping the real estate industry. In each episode, we'll dive into conversations with industry experts and local insiders, all aimed at helping you thrive in an ever changing real estate market, continuing the legacy that Bruce Norris created, sharing valuable knowledge, and empowering you on your real estate journey. Whether you're a seasoned pro or a newcomer, this is your go to source for insider tips, market trends and success strategies.
All right, welcome everybody to the Norris Group Real Estate Podcast. We are joined by a friend of the pod and a friend of the Norris Group, Oscar Way, Deputy Chief Economist of the California Association of Realtors. Hey, Oscar, how you doing? Hey, good.
Hey, Joey. I'm glad that you're actually inviting me because we just finished our forecast not too long ago and I have a lot to share. All right, we're going to get into it for sure.
But let's talk a little bit about you. Where are you originally from? Well, first, I've been with CR for almost, well, it's actually more than 23 years now. I was originally from Hong Kong and then I came here when I was 13, 14.
And then I always want to understand economics a little bit more. Now, housing market, I have to be honest, housing market at first was not something that I was planning to go into. And you might have read my bio that before CR, I was with a toy company.
And being with a toy company was actually very satisfying. But at the same time, I always want to get back into economics. And that's why when I got the opportunities at CR, I jumped for it.
But you were still studying trends in the toy industry. So what trends were those? Consumer? Well, it was interesting stuff because I think at that time in 2003, that's when I joined. It was not so much on gaming at the time, but the internet boomed at the time.
And I was playing with those gadgets. I think they call it Tamagotchi at the same time. Those things that grow eggs, right? On a digital thing.
You probably remember that. So I was playing with those. And of course, I was assigned or I was with a company called Mattel, you probably know.
And Mattel produced a lot of dolls and I was assigned to the girls division. So I had to actually look at dolls and look at all these toys. And it was very fascinating.
It was very interesting because you get to see not only toys within a company, but you get to see other companies' toys. Which if you have seen some of your listeners might have seen the movie Big, that's exactly what it is. You go and play with some toys and then we report it to the marketing team.
I remember the time it was probably the beginning of Harry Potter. And so I had to actually dress up as a wizard and talk about some of the trends. So it was interesting.
So are we going to expect to see you as a Harry Potter wizard for Halloween this year? I'm not sure about that. Well, there are a lot of interesting characters that appeared since then. Maybe another character from some of the other movies, maybe Toy Story.
Yeah. I don't know how old you are, but I'm 52. So I'm more of the Transformers, G.I. Joe kid.
That's what was the most popular when I was growing up. I grew up in a similar era. But of course, over the years, I pay attention to toys because I had been involved with the toy industry for a while.
So I'd like to take a look at some of the toys. But at the same time, I also have to say, I haven't been as involved with some of the gaming industries as much. So I probably have been missing out some toy stuff.
But hey, it is what it is. So how did you actually end up at CART? Well, so after maybe about two, two and a half years or so, I continue to look for something that I want to do in economics because my background is in economics. I got my degree in economics.
I got my master in economics. So I wanted to look and see if there's anything. And then an opportunity came up.
You probably remember back then it was Leslie Appleton Young was the chief economist. She was a guest of ours at both I Survive Real Estate. I think one of the original guests at I Survive Real Estate as you have been.
So yeah, we definitely do remember her. Yeah. So I, you know, she interviewed me along with Robert Kleinhans.
You may also remember Robert Kleinhans. And so they interviewed me and I think maybe my aspiration to become an economist in the housing industry might have given me a chance to get into the housing market. And I do find, I found out, you know, as I continue to work on what I do as an analyst, as an economist, I realized there is definitely a lot of things that you can actually do at CER that actually allow me the opportunity to analyze the housing market as well as the economy.
So that's why I've been here for 23 years now. Wow. That's amazing.
Now, you did mention that you guys just released the 2027 forecast. Now that was, it actually says Jordan Levine on there. So he's the other economist at CAR.
So how do you and Jordan Levine divide the work and what different perspectives do each of you bring to CAR's forecast? Yeah, he's our chief economist. He's really smart. And we talk a lot, you know, on what's going on with the housing market, what's going on with industry.
We both go out and we share our insights with members, with realtors, and of course with the public. There are definitely some differences that we always see differently in terms of housing market and economics. But we reached different people, but we also interact with different people.
Now, he primarily work a lot with or interact with a lot of the executive leaders, leadership team at CAR. And I co-manage, you know, the research and economics team and at work, I manage the staff. So we, from time to time, we bring our perspective together from, you know, what the management or leadership gathered from when they are in the field.
And I also talk to our staff and kind of exchange some ideas with Jordan. So we kind of try to cover as much as we could, looking at, you know, from what the policy side is, and then of course, from what member side says. And so when we put all those together, it worked really well.
As I mentioned, you know, from time to time, we do have differences, but I think so far, we've been able to hash out those differences and we were able to get our, hopefully, all the differences in place and produce some really good insights. Now, AI is showing up all over the world, in the economy, in everyday lives. So it's going to show up in this interview a couple of times.
So let's talk about how is AI changing how your team does research and builds these forecasts, and how much of it do you still trust? Well, we know that there are some benefits, you know, for using AI, and there are things that we need to be a little bit more careful, right? And AI have always been a question that pops up. Actually, AI have been questions that pop up all the time in either our research and our outreaches. And we actually did a couple, we actually had a couple of questions in our surveys this year on the consumer side, and on the agents and realtors side.
Now, before we talk about, you know, what the impact AI has on consumers and realtors, for research and economics, we constantly, not just our department, but you know, all over CAR, we always try to figure out, you know, what AI's actually have brought, you know, to the team and to other teams at CAR. And for me personally, I actually have been doing a lot of analysis by, of course, I always look at some of the things that we publish on data and things like that. But at the same time, it's always good to have AI actually summarize some of the findings and give me a summary before I go into and dig deeper into it.
I think AI provides us the ability to have a quick look at some of the huge studies or data sets that we could actually take a quick look at, and then we hone into the specifics. We also use AI for programming purposes. We deal with, you probably already know, the entire states, we have a lot of data.
We're fortunate enough to gather all the data from many different MLSs. And so we need some programming and AI help us to actually clean up some of those programming. And believe it or not, next year, we'll probably, we'll have, we could possibly have some sort of re-benchmarking and we'll probably, we'll help use AI to help us deal with those a little bit.
That's interesting. Let's move to the Fed inflation and rates. So the Fed raised rates in September.
Markets are split on whether or not they're going to actually listen to your podcast with Jordan. And you guys were kind of like saying, well, it's like 90% that we're going to get at least one, but there's a possibility that we can get two more before the end of the year. So your deck shows the Fed fund rate at 4.25 through 2027.
Then the Fed right now is 3.75 to 4. Does your forecast actually assume another hike or no cuts until 2028? We do expect another 25 basis point increase before the end of the year. Now the question is whether it is going to be in October, which is the one that will be coming up in about a month. It is going to be a rate hike at the end of the year, which is somewhere in December.
I think it's the first week of December. We already have one in September and we expect another one partly because inflation hasn't really come down that much and it's kind of stabilized. I shouldn't say stabilized.
It's actually came down, went up, but at the same time we expected that to be the case. Of course, it was 4.2%. Inflation was 4.2% and that started coming back down a little bit, but we knew that there will be some pass through. So those pass through are actually showing up right now from the CPI numbers.
But at the same time, we also noticed that we continue to see some improvement in employment and job growth. That actually allows some leeway for the Federal Reserve. Yeah, that kind of throws a monkey wrench in there because that's their dual mandate, right? Yes, it is.
Definitely. The good thing is the employment actually hasn't gone back down to a negative number. It's moderated.
The latest report shows some moderations, but it's still growing at a 25,000 to 30,000 job growth on a monthly basis, but inflation definitely flares up. So that makes it a little difficult for them to make some decisions, but they also required some additional observation points. So I have a feeling, this is just based on what I believe, they're not going to make any changes or make any height in October.
I have a feeling that they probably won't raise rate until December, but after that, it really depends on a few things. Now, if you look at the dot plot, if you look at what the Federal Reserve forecast based on all the members, they believe 2027 is going to be pretty flat. They're not going to make any changes.
But of course, that assumes a couple of things. I think inflation hopefully will not flare up, but a big part of it has to do with, of course, whether we are going to see an additional conflict in the Middle East. So far, we haven't had that settled.
I was just going to call it Black Swan. Yeah, absolutely. So I mean, we don't know exactly when that is going to go away.
We're hoping that maybe before the end of the year. My gut feeling is it is probably going to go away before the next home buying season. So the first quarter, we may still see a little bit of a volatility in interest rates or mortgage rates.
But hopefully from that point on, we'll probably see some slowdown. But maybe even further, maybe even earlier than that. But that is a requirement for inflation to come down.
Yeah. And I won't ask you to comment on this because everybody's different. But another one of those things that could change that is how the election goes.
So that could affect the economy also. I think it definitely will have an impact. And we do not have a complete clarity of what's going to happen with midterm elections.
Now, what I can comment on is based on some historical numbers that we have seen in the past, midterm elections in a midterm election year, we typically have more volatility in the housing and the financial market. But things usually start calming down after October, November, December. Those two months, things started calming down a little bit.
Are we going to see a similar trance in the financial market? If we started seeing some calming down in the financial market, does that actually imply that maybe the economy is going to kind of ease through the rest of the year? But again, the wildcard is whether we are going to continue to have those conflict in the Middle East. Sure. And it all has to do with energy, right? Exactly.
Exactly. So now for 2027, you're forecasting 6.6 average mortgage rates again. What has to happen with treasury yields and mortgage spreads to make that number hold? Now, if you look at our prediction, we predict this year to average 6.6 and then next year to average 6.6. It might look like that while they're taking the easy way out, they're just going to say, hey, it's going to be flat.
But we don't usually show our monthly number. But when we look at our monthly number, you can get a better sense. So let me kind of talk through what the trajectory is by monthly basis before we get to your question.
So right now, for 30-year fixed rate, we're at somewhere around 7.4-ish or so, 7.3-ish or so. It actually went up to somewhere around 7.5 before coming back down in the last couple of weeks or so, last 10 days or last few days or so. We expect the 30-year fixed rates to probably start the year of 2027 at around 7.2. And then from that point on, it should be like yelling at you guys, hey, you said 6.6. Well, for the average for the year, it is going to be 6.6. So 7.2 and then it's going to gradually come down, hopefully by our home buying season, it will get to below 7. And then at the end of the year, we hope that it's going to end with a 30-year fixed rate of 6.4. Now, I have to be very clear, that doesn't necessarily mean that people should actually hold and not buy until later in the year, because there will be some fluctuations.
And I always tell people in my outreaches, at a time when you actually have a higher rate, sellers may be more willing to actually negotiate a price. And so you lock in at a lower price. And then at the end of the year, if you have a better rate, you can refinance.
Now, so what do we need to do? What do we have to have Treasury yields at and also spreads at in order to get to those points? Now, when you actually average the year end and the beginning, it's around 6.6. So how do we get there? Now, here's the thing. Again, assuming that we should have inflation start coming down a little bit, no more conflict, then the Treasury yield, I think we could actually get down to about 4.4 percent-ish or so. Now, 4.4 compared to where we're at right now, we're currently at around 5.15-ish or so.
It does sound like, well, that's a long way to go. But if you look back before the war, we were actually below that point. So a 4.4 is somewhat doable.
And I'm expecting the spread to be holding at around average for the last few years, which is around 200 basis point. So if you add the 200 basis point to the 4.4, that's about 6.4 for the end of the year. So throughout the year, we're going to see some fluctuation, but we're hoping that the Treasury yields will get to about 4.4 and then the spread will maintain at a decent level.
Right now, the spread is probably around 230 basis point. And the reason why it is kind of high is because, of course, there is a lot of economic uncertainty. Nobody knows exactly what's going to happen to the midterm elections and also to the war and whether prices are going to come down for diesel or for some energy prices.
So it's a lot of things to consider, but that's our expectation. Inflation has run about 3.4. The numbers came up a little bit above that now. Disposable income hasn't grown much.
So how does the inflation part actually squeeze household budgets in your forecast? Well, so here are a couple of things. You're right. When we look at inflation, inflation remains at a high level.
When we look at wage growth, some of the numbers from some of the job reports suggest that wage growth actually are not growing fast enough as compared to inflation. So yes, consumers are being squeezed. But at the same time, if you look at some of the other reports on whether consumers continue to spend, it looks like they continue to spend.
Now, here are a couple of things. Consumers could be spending maybe because they realize, well, I cannot buy a home anymore because it's too high. I might as well just spend the money.
Now, those are people who actually have some money to spend, right? And they were hoping to buy a home, but they couldn't do it anymore. But some of those, the consumer continues to spend also could be because of a couple of things. One, you might have heard about the K-shaped economy.
Maybe people who have higher income and also benefit from the stock market, they are the ones spending. They might be the ones spending a bit more. Now, I do believe that at the very beginning, that could be the case.
But we started seeing more people actually spending even for middle income, middle household income levels. And so I have a feeling that in addition to people spending because of the wealth effect or the stock market effect, they also could be putting their spending on their credit cards. So that's why you're seeing more people actually are relying on credit cards.
And when we come to the holiday season, there probably will be, there are expectations that there will be an increase of maybe three or four percent, healthy increase of three or four percent. So people will be putting their money on their credit cards. Now, it is OK when the economy is doing well, when we still have healthy job growth, even though, of course, we started seeing some pullback, but we still expect a a positive growth rate in employment.
If we started seeing some pullback in, let's say, stock market as well as the economy, that could be concerning. But right now we're expecting small growth in employment and hopefully the economy will continue to grow. And even though, of course, people are being squeezed for now, I think it could affect sentiment more so than the actual spending.
But if that prolongs, if inflation continue to stay at a high level, that could be concerning. Well, I think part of the concern, too, is as real estate professionals is that, yes, they're spending. You're right.
You know, because every time I go to the mall or I was just up in Big Bear, it was packed, you know, so people are choosing experiences because they're not spending it on housing, which is what we want. You know, we want, you know, home purchases. We want all those types of things.
So hopefully that title turned on that also. Now, to talk about employment a little bit, I heard you and Jordan talking about it in your recent podcast. The growth is slow, but there is a ton of available jobs in America, like an absolute ton, like something to the tune of seven million unfilled jobs.
How real is that unemployment number because of that? Well, you hear numbers that might be somewhat inconsistent with, let's say, a low fire, low hire phrase, right? And we actually do see, you know, job growth, as I mentioned. It's just going to be slow job growth. But there are also things that actually could be a little concerning, especially for some of the younger generations.
People might be graduating very soon because of what happened with AI. Now, even though there might be some jobs available, there could be some displacement. And we have heard, you know, some of the displacement, especially in a tech company.
So it also comes down to where the jobs are. A lot of a lot of jobs in the past maybe 12 months or maybe 24 months or so in the health care industry and the tourism industry, not so much, even though, of course, we just had a World Cup. The impact was not as big as what we thought it could be.
So the tourism industry is suffering a little bit. Health care continued to grow, but actually it moderated a little bit. I think the of the year we were seeing quite a bit more.
And I said, you know, there might be there was a pullback in the latest month, but we actually saw some fluctuation in the last few months. So next month we could actually see an increase as well. I think the bottom line is we're still seeing some job growth, but there are concerns.
There are things that people are concerned about, for example, you know, whether AI is going to take over more jobs in the upcoming year or so, even though we get a reassurance from many people and from some tech companies. But these are uncertainties that I think people are concerned about. And that's why when you look at those consumer sentiment, they're worried.
Who knows whether they will be displaced? But I do think that, you know, we'll continue to see job growth. This is, again, based on the assumption that we're not going to we're going to see the war kind of ease, the conflict is going to go away. But the other big part of it is, which I haven't alluded to earlier, is, of course, we do have financial market fluctuations.
I do not expect the financial market to pull back significantly. We do have like one or two percent fluctuations every every now and then. But I'm hoping that, you know, we will not see a significant pullback in the financial market.
But those are the things that if I actually can predict that I probably will not be talking to you in an interview right now. Right. Yeah, absolutely.
Now that so for places like Florida, which we do a lot of building in, you talked about both of their industries, it's health care and tourism. So like one suffering and the other one's booming, you know, because people are still moving down there. Your forecast shows that 61 percent of California mortgages are below 4 percent.
Right. Sellers are holding on to them for about 15 years. How much of that lock in can ease without substantial lower rates? Right.
So, yes, you know, we we have that slide and we have 61 percent on it. But if you look through the slides, if you look through what happened in the last few years or going back to 2020, we did have a much higher percentage who locked down with a 4 percent or more. That's because at that time we had 3 percent interest rates.
Right. Yeah. So that number actually continued to decline, believe it or not.
But even though it's declined, it is still at a very high level. Now, in the last few years, we actually have it's been three or four years now before since since the 3 percent interest rate. So since then, we have actually seen a lot of rates go up to 7 or 8 percent.
A lot of people actually purchased home in between 2021 and 2026. So we do have a share of a bigger share of number above 4 percent. The question is, of course, whether people are going to get used to the high rates or not.
Now, Joe, you you've been in the industry probably for a while and you know that way back, you know, we have interest rates at one point like 15, 16, 17 or 18 percent. Bruce famously talks about how he he refinanced his house to become a real estate investor at 18 percent. Right.
So, you know, the 3 percent is definitely not the norm. But I think people started may not necessarily realize that until recently. But to be honest, in the last 10 years or so, the average is probably somewhere around 5 percent or so, maybe four and a half.
So people may not have seen six and a half, but they started realizing many, many, many people started realizing that, OK, well, maybe interest rates could actually stay at around six below six. That would be great, but it's not going to go back down to three. And life goes on.
Many people need to either get married, they need to expand their family. And so they realize that they will have to either buy or sell. I think that realization is what people need.
Now, I think we started seeing some improvement in inventory in 2024 and 2025. But then we have the war that actually throw a wrench to the housing market. So I think what is going to happen is we don't need we don't necessarily need rates go back down to three.
You know, if it's just stabilizing, going back down to the the close to 6 percent or 6.25, like what we had earlier this year, and people realize, OK, well, that's going to actually stabilize at that level. I think that's good enough for many people. But the other part is, of course, we need to have some certainty about what's going to happen with inflation.
We started seeing the inflation stabilize also. I think we could actually see sales, see price started going back up. But I know it's some wishful thinking, but hopefully it will happen in the next six months or 12 months.
Well, it's hard just because we're at, you know, the barrier to entry in California is tough. John Burns just this this week, just his article said America needs smaller homes, you know, and so smaller homes would be smaller prices. Right.
And so that might be something that's going to be the form. I know in Florida we're building a 1515 model and it's just right around 300. So that's more of an affordable model here.
We have the old mansions are still around and it's hard for young families or young young folks to get into that without, you know, a ton of disposable income. Well, believe it or not, if you look at if you believe some of the survey studies that we have done, the size of home is right around 1650 to 1700. It has actually has been has not changed over the last maybe 10 years or 15 years or so.
It stays at around that same level. But you're right. You know, if we actually started seeing smaller homes and that could also mean, you know, higher density.
And I think in California we're not used to higher density, unlike New York. Right. Yeah.
If we have a higher density, we have more public transportation. Potentially we could have more affordable homes and that could actually lead to more people being able to become homeowners. But at the same time, I think it's easier said than done.
It's it takes more than just people want to buy smaller homes. I think it takes regulations, policies, people, lawmakers to actually make those things to come true. All right, everyone, that's going to do it for part one of our interview with Oscar Way, deputy chief economist of the California Association of Realtors.
Be sure to tune in next week for part two. For more information on hard money loans, trusteed investing and upcoming events with the Norris Group, check out thenorrisgroup.com. For more information on passive investing through the DBL Capital Real Estate Investment Fund, please visit dblcapital.com. The Norris Group originates and services loans in California and Florida under the California DRE License 01219911, Florida Mortgage Lender License 1577
