Norada Real Estate Investments

What Happens to Homeowners if the Housing Market Crashes?

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How Does a Market Crash Affect Homeowners?

If home values fall quickly, purchasers may find themselves with underwater mortgages, which means they must either stay in the house until the market recovers or sell and lose money. Homeowners owe more on their mortgages than their homes were worth and can no longer just flip their way out of their homes if they cannot make the new, higher payments. Instead, they will lose their homes to foreclosure and often file for bankruptcy in the process. The housing crash begins to take its toll on homeowners and the real estate market.

The housing market has encountered significant obstacles over the previous century, but none, with the exception of the Great Depression of 1929, contributed to the decline in home prices that occurred during the Great Recession of 2007. Neither the 20 percent interest rates of the early 1980s nor the devastation of the savings and loan sector in the early 1990s led to a similar drop in property values.

<<<Also Read: Will the Housing Market Crash in 2022 or 2023? >>>

It is also worth remembering that not all economic downturns chill the property market. In reality, throughout the 2001 recession, the housing market and house demand remained strong despite the economic slump. Throughout the course of the last century, the housing market has been subjected to a number of significant obstacles; but, with the exception of 1929's Great Depression, none of these problems have resulted in a decline in home values on par with that of 2007's Great Recession.

The interest rates of 20 percent in the early 1980s and the devastation of the savings and loan business in the early 1990s did not lead to a similar drop in the value of homes. It is also important to note that the housing market is not always affected negatively by recessions. Despite the fact that the economy was in a slump during the recession that began in 2001, the housing market and demand for homes continued to be healthy.

The previous housing bubble in the United States in the mid-2000s was caused in part by another bubble, this time in the technology industry. It was intimately tied to, and some belief was the cause of, the 2007-2008 financial crisis. During the late 1990s dotcom bubble, many new technology companies' stock was purchased quickly. Speculators bought up the market capitalizations of even firms that had yet to create earnings. By 2000, the Nasdaq peaked, and when the tech bubble burst, many high-flying equities plummeted.

After the dotcom bubble bust and stock market crisis, speculators fled to real estate. In response to the technology bust, the U.S. Federal Reserve lowered and maintained interest rates. This rush of money and credit met with government programs to encourage homeownership and financial market developments that improved real estate asset liquidity. More people bought and sold homes as home prices soared.

What Happened to Homeowners When The Housing Market Crashed?

In the next six years, the homeownership craze developed as interest rates fell and lending standards were relaxed. An increase in subprime borrowing began in 1999. Fannie Mae made a determined attempt to make home loans more accessible to borrowers with weaker credit scores and funds than are generally needed by lenders. The intention was to assist everyone in achieving the American dream of homeownership.

Since these customers were deemed high-risk, their mortgages had unconventional terms, such as higher interest rates and variable payments. In 2005 and 2006, 20% of mortgages went to persons who didn't meet regular lending conditions. They were called Subprime borrowers. Subprime lending has a higher risk, given the lower credit rating of borrowers.

75% of subprime loans were adjustable-rate mortgages with low initial rates and a scheduled reset after two to three years. Government promotion of homeownership prompted banks to slash rates and credit criteria, sparking a house-buying frenzy that drove the median home price up 55% from 2000 to 2007. The US homeownership rate had increased to an all-time high of 69.2% in 2004.

During that same period, the stock market began to rebound, and by 2006 interest rates started to tick upward. Due to rising property prices, investors stopped buying homes because the risk premium was too great. Subprime lending was a major contributor to this increase in homeownership rates and in the overall demand for housing, which drove prices higher.

Borrowers who would not be able to make the higher payments once the initial grace period ended, were planning to refinance their mortgages after a year or two of appreciation. As a result of the depreciating housing prices, borrowers’ ability to refinance became more difficult. Borrowers who found themselves unable to escape higher monthly payments by refinancing began to default.

There was an increase in the number of foreclosures and properties available for sale as more borrowers defaulted on their mortgages. A drop in housing prices resulted, in lowering the equity of homeowners even more. Because of the fall in mortgage payments, the value of mortgage-backed securities dropped, which hurt banks' overall value and health. The problem was rooted in this self-perpetuating cycle.

By September 2008, average US property prices had fallen by more than 20% since their peak in mid-2006. Because of the significant and unexpected drop in house values, many borrowers now have zero or negative equity in their houses, which means their properties are worth less than their mortgages. As of March 2008, an estimated 8.8 million borrowers – 10.8 percent of all homeowners – were underwater on their mortgages, a figure that is expected to have climbed to 12 million by November 2008.

By September 2010, 23 percent of all homes in the United States were worth less than the mortgage loan. Borrowers in this circumstance have an incentive to default on their mortgages because a mortgage is normally non-recourse debt backed by real estate. As foreclosure rates rise, so does the inventory of available homes for sale.

In 2007, the number of new residences sold was 26.4 percent lower than the previous year. The inventory of unsold new houses in January 2008 was 9.8 times the sales volume in December 2007, the highest value of this ratio since 1981. Furthermore, about four million existing residences were for sale, with around 2.2 million of them being unoccupied.

Inability of Homeowners To Make Their Mortgage Payments

The inability of homeowners to make their mortgage payments was primarily due to adjustable-rate mortgages resetting, borrowers overextending, predatory lending, and speculation. Once property prices began to collapse in 2006, record amounts of household debt accumulated in the decades. Consumers started paying off debt, which decreases their spending and slows the economy for a prolonged period of time until debt levels are decreased.

Housing speculation using high levels of mortgage debt drove many investors with prime-quality mortgages to default and enter foreclosure on investment properties when housing prices fell.  As prices fell, more homeowners faced default or foreclosure. House prices are projected to fall further until the inventory of unsold properties (an example of excess supply) returns to normal levels. According to a January 2011 estimate, property prices in the United States fell by 26 percent from their high in June 2006 to November 2010, more than the 25.9 percent decrease experienced during the Great Depression from 1928 to 1933.

There were roughly 4 million finalized foreclosures in the United States between September 2008 and September 2012. In September 2012, over 1.4 million properties, or 3.3 percent of all mortgaged homes, were in some stage of foreclosure, up from 1.5 million, or 3.5 percent, in September 2011. In September 2012, 57,000 houses went into foreclosure, down from 83,000 the previous September but still far over the 2000-2006 monthly average of 21,000 completed foreclosures.

A variety of voluntary private and government-administered or supported programs were implemented during 2007–2009 to assist homeowners with case-by-case mortgage assistance, to mitigate the foreclosure crisis engulfing the U.S. During late 2008, major banks and both Fannie Mae and Freddie Mac established moratoriums (delays) on foreclosures, to give homeowners time to work towards refinancing In 2009, over $75 billion of the package was specifically allocated to programs that help struggling homeowners. This program is referred to as the Homeowner Affordability and Stability Plan.

Is There a Housing Bubble in 2022?

When a new generation of homebuyers enters the market, housing bubbles often arise naturally as a result of population expansion. As a result of this expansion, the demand for housing is expected to rise. Speculators, excellent economic circumstances, low-interest rates, and a wide variety of financing alternatives are all elements that will lead to an increase in home values. Increased demand drives up costs because of the building time lag. Any time housing prices diverge significantly from demographically-based organic demand, the broader economy is at risk of entering a state of crisis.

The COVID-19 pandemic did not slow home prices at all. Instead, it skyrocketed. In September 2020, they were a record $226,800, according to the Case-Shiller Home Price Index. According to the National Association of Realtors, the sales rate hit 5.86 million houses in July 2020, rising to 6.86 million by October 2020, surpassing the pre-pandemic record. Many people were taking advantage of the low-interest rates to purchase either residential properties or income-based flats that appeared to be inexpensive.

Home prices rose 18.8% in 2021, according to the S&P CoreLogic Case-Shiller US National Home Price Index, the biggest increase in 34 years of data and substantially ahead of the 2020s 10.4% gain. The median home sales price was $346,900 in 2021, up 16.9% from 2020, and the highest on record going back to 1999, according to the National Association of Realtors. Home sales had the strongest year since 2006, with 6.12 million homes sold, up 8.5% from the year before.

As speculators entered the market, home prices skyrocketed, exacerbating the housing market bubble. Now it reaches a time when home prices are no longer affordable to buyers. Rising prices make properties unsustainable, causing them to be overpriced. In other words, pricing increases. Low inventory, fierce competition, and large price increases have harmed purchasers since 2020, but quickly rising mortgage rates are making it much more difficult to find an affordable house in 2022.

As prices become unsustainable and interest rates rise, purchasers withdraw. Borrowers are discouraged from taking out loans when interest rates rise. On the other side, house construction will be affected as well; costs will rise, and the market supply of housing will shrink as a result. In contrast to a sudden jump, a sustained rise in interest rates will inflict little damage to the housing market in 2022.

Rising rent costs and mortgage rates, which increased from an average of just 3.2% at the beginning of the year to 5.81 percent by mid-June, have increased the cost of housing, pricing many individuals out of the market. This has resulted in a decline in house sales since an increasing number of individuals are unable to buy homes at the present inflated prices. According to NAR, existing-home sales declined for the fourth consecutive month in May, falling 3.4% from April and 8.6% from the same period last year.

Given the relative scarcity of available homes, the majority of analysts concur that a decline in housing prices is improbable. In addition to rising mortgage rates and subsequently less demand, a downturn might exert downward pressure on home prices. Despite many similarities to the housing bubble of 2008, the present housing market is quite different from it.

Homeowners with mortgages are not at a high risk of default, housing values are mostly determined by supply and demand rather than speculation, and lending rates continue to rise. Accordingly, the concept of a housing market crash is deemed improbable by a number of industry professionals. Many analysts believe that sky-high mortgage rates and the associated drop in housing demand will moderate the increase of home prices rather than result in any significant reversal in prices or a crash, which is generally defined as a widespread drop in home prices.

However, in the event that a more widespread recession hits the economy of the United States, the conditions might be created for a little decline in housing values. A deeper and more widespread economic downturn is likely to prompt a greater number of homeowners to sell their homes than would be the case otherwise. Because of the rise in available inventory, housing prices could experience some leveling out as a result.

It is also possible that a recession may just serve to limit the increase of property values, which is what many people anticipate would happen if interest rates continue to climb. However, it is still challenging to bring prices down because there are only limited properties available for purchase. The number of people applying for mortgages has already dropped by more than 50 percent since this time last year. It is not unrealistic to foresee a further decline in home demand given the impending implementation of additional rate increases. This will serve to rebalance the housing market, which is now squeezed, but it won't necessarily bring it to the point where it crashes.

References

  • https://en.wikipedia.org/wiki/Subprime_mortgage_crisis#
  • https://www.investopedia.com/articles/economics/09/subprime-market-2008.asp
  • https://www.forbes.com/advisor/mortgages/real-estate/will-housing-market-crash/
  • https://www.noradarealestate.com/blog/housing-prices/
  • https://investorplace.com/2022/06/what-would-cause-the-housing-market-to-crash-in-2022/
  • https://www.noradarealestate.com/blog/housing-market-predictions/

Mortgage Interest Rates Forecast 2022 & 2023

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Mortgage Interest Rates Forecast: Will Rates Go Down?

Mortgage rates have risen since the start of 2022, reflecting investors' concerns that the economy is heating up and that the Fed will cool it down and reign in inflation. U.S. Treasury bond rates, which mortgage rates follow, encountered two tough patches this year: in late February, when Russia invaded Ukraine, and in mid-May when investors worried about poor consumer spending. Bond yields and mortgage rates declined throughout these times.

Most mortgage-market analysts predict rates will be choppy over the next few months but will settle above where they are now—with the 30-year fixed-rate mortgage just around 5 percent—for the next year or two. The Fed raised interest rates by 75 points in June — the biggest increase since 1994.

Then it enacted its second consecutive 0.75 percentage point interest rate increase in July, taking its benchmark rate to a range of 2.25%-2.5%. Now, it is set for another 75-basis-point rate hike in the coming weeks due to the hot U.S. consumer price inflation data released for August. Before the data, the majority of economists anticipated that the Fed would slow the pace of rate hikes in November to a half-point increase, but now a 0.75-point increase is predicted.

<<<Also Read: How To Invest in Mortgage Estate Notes?>>>

Mortgage experts predict that mortgage rates will increase in the coming weeks. 78 percent of respondents to Bankrate's weekly poll believe interest rates will rise, 11 percent believe rates will fall, and 11 percent believe rates will remain the same. Inflation is still problematic, the Fed will continue to raise rates aggressively, and there is a growing supply of mortgage-backed bonds that must be absorbed as the Fed withdraws.

Before becoming less hawkish and considering a pause in rate hikes, Fed officials have stated that they want to see several month-to-month inflation rates annualize to less than 3%. Treasury yields have jumped across the curve, with the two-year rate soaring as much as 21 basis points to about 3.78%, the highest since October 2007. Yields on 30-year bonds rose about six basis points to 3.57%, a level last seen in 2014, and were trading below the rates offered by five-year notes.

Yields on benchmark 10-year notes climbed as much as 10 basis points to 3.46%, while the dollar rallied against its major peers and US stocks dived. The US consumer price index rose 0.1% in August after remaining unchanged in July, according to data released by the Labor Department on Tuesday. Prices increased 8.3% from one year ago, a slight deceleration is largely attributable to recent declines in gasoline prices.

The Fed's policies affect lenders' cost of money, not mortgage rates. Most lenders have factored in inflation-related cost hikes. Since December, costs have paralleled Fed moves. Mortgage rates sometimes rise before predicted lender cost rises to minimize sticker shock. Therefore, volatility in mortgage rates is expected. The recent Fed rate rise affects your finances. It will undoubtedly raise credit cards, home equity, and line of credit interest rates (HELOCs).

Rate rises generate increased rates on high-yield savings accounts and other savings instruments. Experts say the recent Fed rate hike shouldn't prompt homebuyers to hesitate or change their plans. Rate and conditions vary on a borrower's credit, loan type, and mortgage lender. ARMs and HELOCs are likewise related to the prime rate, but 15- and 30-year mortgage rates are fixed and tied to Treasury yields and the economy. Rates have practically doubled since the start of the year, reducing buyers' purchasing power.

In a few months, consumers will feel the Fed's rate hike. In one to two billing cycles, credit card and vehicle loan rates will certainly rise. Those with adjustable-rate mortgages or who want to get one soon should expect higher rates. Many Americans with variable-rate private student loans might see interest rates hike next month. Home prices, rentals, and inflation are all at historic highs. A recession is imminent, and more corporations are declaring layoffs to stave off a consumer spending slump.

People are contemplating big-ticket purchases because of employment uncertainties. Higher borrowing rates have impacted real estate demand. New and existing house sales declined in the first half of the year, while contract signings dropped sharply in the summer. As a result, many house sellers are seeing their properties linger on the market longer. Price cuts are a go-to for sellers. As fall and winter approach, we may anticipate home markets to rebalance and pick up speed.

Mortgage Rate Predictions Next Week

Mortgage experts are divided over where rates are headed in the coming weeks. In response to Bankrate's weekly poll, 78 percent say rates are going up, and 11 percent say rates are going down. In September, the benchmark fixed rate for 30-year mortgages surpassed 6 percent for the first time since November 2008. As of now, mortgage rates are moving above 6 percent.

After rising sharply in the first few months of 2022, the 30-year fixed mortgage rate began to fluctuate in June, approaching 6 percent before stabilizing in the 5s. Federal Reserve policy has no direct effect on fixed mortgage rates, but for a time, the central bank's actions led to a decline in 10-year Treasury yields, which drive the movement of fixed mortgage rates. For September and beyond, analysts expect more rate volatility, with inflation one of many markers to watch.

If the predictions of leading experts are accurate, in September, mortgage interest rates will likely remain in the same region as they are now, fluctuating slightly. “The economy will slow faster than inflation, so more yo-yo action should be expected in September,” Bankrate chief financial analyst Greg McBride says. “The average 30-year fixed will be between 5.6 percent and 6.0 percent, with the average 15-year fixed rate in the 4.75 percent to 5.0 percent neighborhood.”

Mortgage Interest Rate Weekly Trends in 2022

3-Month Trend 30-Year Fixed Rates 15-Year Fixed Rates 10-Year Fixed Rates 5/1 ARM Rates
9/9/2022 6.08% 5.33% 5.46% 4.52%
9/2/2022 5.95% 5.18% 5.25% 4.42%
8/26/2022 5.92% 5.08% 5.17% 4.33%
8/19/2022 5.60% 4.89% 5.03% 4.22%
8/12/2022 5.46% 4.86% 4.90% 4.19%
8/5/2022 5.52% 4.74% 4.72% 4.18%
7/29/2022 5.57% 4.82% 4.80% 4.18%
7/22/2022 5.84% 5.00% 5.00% 4.26%
7/15/2022 5.73% 4.89% 4.84% 4.21%
7/8/2022 5.67% 4.87% 4.86% 4.27%
7/1/2022 5.83% 5.06% 5.04% 4.29%
6/24/2022 5.89% 5.10% 5.21% 4.26%
6/17/2022 5.91% 5.11% 5.18% 4.02%
6/10/2022 5.54% 4.75% 4.67% 3.91%
6/3/2022 5.46% 4.69% 4.57% 3.90%
5/27/2022 5.28% 4.60% 4.50% 3.91%
5/20/2022 5.48% 4.74% 4.74% 3.87%
5/13/2022 5.57% 4.81% 4.78% 3.85%

(Source: Bankrate.com)

The Fed is battling inflation. With the pandemic's waning influence, inflation at 40-year highs, and the Fed predicting four more rises, interest rates might continue to rise in 2022. An imminent recession has produced rate decreases and might cause more any week. Freddie Mac, the MBA, and other industry heavyweights disagree on whether 30-year mortgage rates will rise or level out by 2022.

Experts are forecasting that the 30-year, fixed-rate mortgage will vary from just above 5% to as high as 7% by the end of 2022. Here are some of the earlier mortgage interest rate predictions made for 2022.

  • Realtor.com Chief Economist Danielle Hale: “For mortgage rates, we’re likely to see upward pressure with much less intensity. Mortgage rates are currently near 5.5%, and I expect them to hover between 5.5% and 6% between now and the end of 2022.”
  • MBA Chief Economist Mike Fratantoni: Mortgage “rates may have already peaked and could stay between 5% and 5.5% through the remainder of 2022.”
  • National Association of Realtors (NAR) Chief Economist Lawrence Yun: “Mortgage rates bouncing along near 6% is certain for the remainder of the year. They could go up even close to 7%, especially if oil and gas supply further lags and pushes up the critical energy prices during the winter heating season.”
  • Zillow Vice President of Capital Markets Paul Thomas: “Mortgage rates are likely to be volatile in the near term as markets are pricing in the competing influences of high inflation and Federal Reserve rate hikes against increasing risks of economic slowdowns and a potential recession. Considering the current situation, we’re more likely to see higher rates by the end of the year than lower ones.”

Sources

  • https://www.bankrate.com/mortgages/rate-trends/
  • https://www.bankrate.com/mortgages/mortgage-rates/
  • https://www.realtor.com/research/freddie-mac-mortgage-rates-july-28-2022/
  • https://www.forbes.com/advisor/mortgages/mortgage-interest-rates-forecast/
  • https://themortgagereports.com/32667/mortgage-rates-forecast-fha-va-usda-conventional

SF Bay Area Housing Market: Prices, Trends, Forecast 2022-2023

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Will the Bay Area Housing Prices Drop?

This page has been updated to reflect the most recent trends in the San Francisco Bay Area housing market. Even though homes in the Bay Area housing market continue to sell for record prices, the market is leveling out. According to C.A.R., the number of house sales in the state plummeted by 29.1 percent in August 2022 compared to the same month last year.

Not only that but sales in three of the nine counties in the Bay Area fell more than 30 percent in August, with Sonoma plunging the most by 40.3%. The Bay Area housing market continues to decelerate from the frenetic levels of the last two years, offering advantageous conditions for purchasers who lost bids or waited out the intensely competitive market. The huge decline in sales occurs as mortgage rates increase, discouraging purchasers.

The interest rates are beginning to affect prospective buyers hoping to enter the market. There is slightly more inventory, which is a positive development because the inventory is still low. But the more inventory there is, the less competitive the housing market will become for buyers. The cost of purchasing a property in San Francisco has not yet decreased. The median sales price in Bay Area topped $1 million for the eighteenth month in a row.

The median sale price for a Bay Area home last month was $1.25 million, which is less than July's price of $1,300,000. It is the price in the very middle of a data set, with exactly half of the houses priced for less and half-priced for more in the Bay Area real estate market. It shows that the Bay Area housing market is distinguished by high demand and a scarcity of available inventory. Due to persistent demand from the state's high-income residents, home prices have skyrocketed in this market.

Bay Area Real Estate Market Trends [Aug 2022]

The housing prices in Bay Area dropped in August 2022. According to current trends, housing prices in the majority of Bay Area communities will decline over the next twelve months. Zillow projects a decline of 4% in the Bay Area home prices between August 2022 to August 2023. The median sales price of this region, which includes all nine counties of Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo, Santa Clara, Solano, and Sonoma, was $1,250,000.

According to C.A.R., this is a 1.2 percent drop over the last August. The Bay Area median home price was also 3.8 percent less than the previous month's median price of $1,300,000. Sales of existing homes were down in all the major regions of the California housing market in August. The Central Coast region continued to have the sharpest decline of all regions, with sales dropping 30.6 percent from a year ago. The San Francisco Bay Area (-29.1 percent) had the second largest drop of all regions.

The housing inventory in the Bay Area is low but increasing. As of August 2022, the months of supply for existing single-family houses in the Bay Area is 2.5 months, a significant increase from last year when it was 1.5 months. Homes are selling for more than the asking price because affluent home buyers are ready to spend more to win bids. Sales Price to List Price Ratio = 100.1%.

Only those who do not have enough money for a down payment are delaying their purchases. Looking at the low supply of homes, high-interest rates, interested buyers may have a difficult time finding available properties in the Bay Area in 2022. Hence, sales and prices are expected to decline further in the coming months.

Bay Area Housing Market
Data by CAR

Below is the latest tabulated housing market report for the entire Bay Area released by the California Association of Realtors. The tabulated report shows the sales and prices of the Bay Area counties for August 2022. Much of the Bay Area real estate market remains in “seller's market” territory with months of supply of available single-family homes being about 2.2 months at the current pace of sales.

Bay Area Housing Market Trends
Source: CAR.org

Bay Area Housing Market Forecast 2022 & 2023

San Francisco Bay Area consistently ranks among the most expensive real estate markets in the world, and it is one of the most densely populated cities in the U.S. The Bay Area housing market consists of all nine counties (Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo, Santa Clara, Solano, and Sonoma) and 101 municipalities. The region is home to three major cities: San Francisco, Oakland, and, the largest, San Jose.

San Francisco's real estate market is shaping up to continue the trend of the last few years as one of the hottest markets in California. What are the San Francisco real estate market predictions for 2022 to 2023? Let us look at the price trends recorded by Zillow over the past few years. Since the last decade (September 2012), the San Francisco County home values have appreciated by nearly 100% — Zillow Home Value Index.

The current typical value of homes in San Francisco County is $1,534,752 (August 2022). It indicates that 50 percent of all housing stock in the area is worth more than $1,534,752 and 50 percent is worth less (adjusting for seasonal fluctuations and only includes the middle price tier of homes). In Aug 2021, the typical value of homes in San Francisco County was around $1.48 million. San Francisco County home values have gone up 3.4% since then.

San Francisco Real Estate Appreciation Rates

In the last ten years, San Francisco has seen some of the highest property appreciation rates in the country. San Francisco real estate has risen 106.51% in the last ten years, with an annual home appreciation rate of 7.52%, putting the city in the top 20% of the country for real estate appreciation.

However, over the last year, San Francisco's appreciation rates have lagged behind the rest of the country. San Francisco's appreciation rate during the last year has been 10.71%, which is lower than the rate in most American cities. According to NeighborhoodScout statistics, house appreciation rates in San Francisco were 3.37% in the most recent quarter, equating to a 14.19% annual appreciation rate.

Importantly, this places San Francisco among the top appreciating areas in the country for the most recent quarter and may indicate the city's near-term real estate investment strength. This data also shows that San Francisco's latest yearly appreciation rate is lower than 90% of California's other cities and towns.

San Francisco-Oakland-Hayward Metro (Bay Area) Forecast up to August 2023

The typical value of homes in San Francisco-Oakland-Hayward Metro (Bay Area) is $1,422,887, up 7.5% over the past year. Here are Zillow's latest home price projections for the Bay Area and its counties. Higher mortgage rates are playing an important role in the moderation of price growth. Bay Area (San Francisco-Oakland-Hayward Metro) home values have gone up over the past year but they are expected to decline by 4% from Aug 2022 to Aug 2023 (ZHVI).

Here is the graphical representation of historical home prices since the last decade.

Bay Area Housing Market Forecast
Source: Zillow

San Francisco County Housing Market Trends

Tech hubs like San Francisco and San Jose have drawn substantial homebuyer demand over the last two years but San Francisco’s infamously hot real estate market saw an outward migration due to the pandemic. People were leaving the city, increasing demand in the suburbs. The value of suburban single-family homes is skyrocketing, while rents and pricing in tech hubs are falling.

  • In August 2022, the existing single-family home sales growth was negative in SF county.
  • The closed sales were down by 23.9% from the previous year but up 3.4% from the previous month, according to C.A.R.
  • The median price for a single-family home in San Francisco County was $1,635,000, down 11.6% YTY and 3.8% MTM.
  • The previous month's median price in San Francisco was $1,700,000.
  • Last year's median price in San Francisco was $1,850,000.

In California, San Francisco and Los Angeles are the top markets for outward migration, for both permanent and temporary moves during the pandemic. Rents and condominium prices are expected to grow over the next twelve months, according to most analysts. Lesser-known areas with greater space, such as the Richmond, Sunset, and West Portal, are becoming increasingly popular for single-family homes.

Rents were falling in many major cities across the country due to the pandemic, but the drop was most pronounced in San Francisco, one of the nation's priciest housing markets. After the pandemic began in March 2020, rent went into free fall in almost every major city on either coast as well.

When the vaccine rollout began in January 2021, cities on the East Coast saw rents rise back to where they were before the pandemic. But on the West Coast, prices have only risen incrementally, leaving the Bay Area and Seattle still well below where they were before the pandemic began. After a prolonged slump, San Francisco rents are slowly climbing to pre-pandemic levels. The median one-bedroom rent in the city is now $3,095, an 11% increase compared to the previous year. (source: Zumper)

San Francisco Condo Housing Market Shows Drop in Sales

The high inventory levels for condos and townhomes in San Francisco county have made it favorable for condo buyers. The current unsold condo inventory index is 3.9 months and the sustained supply is finally lowering the median prices of condos. People simply no longer wish to live in densely populated areas, especially apartment buildings where they have to share common areas. They want enough space for a home office or two and their own outdoor space as well.

The current median price for a condo in San Francisco County is $995,000, which is a decrease of 13.5% from last year. The price is down 17.1% from the last month's median price of $1,200,000. Due to the pandemic lower prices of SF condos were driving more sales. In December 2021, condo sales increased by almost 44.4% year-over-year. However, in January 2022, the rate of sales growth declined as buyers seem to be pulling out for a while. Condo sales in SF county decreased by 29.5% as compared to January of last year.

As of August 2022, condo sales declined by 26.5% YoY. However, it is a jump of 4.4% from sales registered in July. San Francisco County is seeing higher levels of inventory with a significantly larger jump than in the surrounding suburbs. San Francisco had an unusually low inventory relative to other large cities before the pandemic. You can expect more condo listings in the second half of 2022. Hence, it could be an opportunity for those that have been wanting to buy a condo for a while and were previously priced out.

San Francisco Housing Market Report
Infographic Source: CAR.org

What Are Average Rent Prices in San Francisco?

As of September 20, 2022, the average rent for a 1-bedroom apartment in San Francisco, CA is $3,095. This is an 11% increase compared to the previous year. Over the past month, the average rent for a studio apartment in San Francisco remained flat. The average rent for a 1-bedroom apartment increased by 1% to $3,095, and the average rent for a 2-bedroom apartment decreased by -1% to $4,147.

  • The average rent for a 2-bedroom apartment in San Francisco, CA is currently $4,147. This is a 6% increase compared to the previous year.
  • The average rent for a 3-bedroom apartment in San Francisco, CA is currently $4,844. This is a 1% increase compared to the previous year.
  • The average rent for a 4-bedroom apartment in San Francisco, CA is currently $6,495. This is a 23% increase compared to the previous year.

Average Rent in San Francisco Neighborhoods

According to data by Apartmentlist, San Francisco rents have increased by 0.7% compared to last month, and are up by 12.08% compared to last year. The most expensive neighborhoods in San Francisco are Pacific Heights ($3,799), Mission Bay ($3,708), and Northern Waterfront ($3,606). The most affordable neighborhoods in San Francisco are Nob Hill ($3,393), Lower Nob Hill ($2,892), and Tenderloin ($2,515).

Neighborhood Average 1- Bedroom Rent
Pacific Heights $3,799
Mission Bay $3,708
Northern Waterfront $3,606
South Beach $3,599
Civic Center $3,531
South of Market $3,453
Cathedral Hill $3,440
Nob Hill $3,393
Lower Nob Hill $2,892
Tenderloin $2,515

Why is Rent So High in San Francisco?

The high cost of living in San Francisco is attributable to the city's thriving tech industry and proximity to Silicon Valley. Given the high number of tech businesses likely to go public this year, the Bay Area could become even more pricey. Rent soared by more than 50 percent by the 1990s as the city's economy advanced due to increased tourism, the surge of innovative computer companies, and insufficient new home creation.

According to  Apartmentlist, using the 30% rule, you can approximate the wage required to rent an apartment in San Francisco.

  • If you are renting an average-priced studio apartment in San Francisco, your annual salary should be around $99,440 or higher.
  • If you are renting an average-priced 1-bedroom apartment in San Francisco, your annual salary should be around $135,480 or higher.
  • If you are renting an average-priced 2-bedroom apartment in San Francisco, your annual salary should be around $181,440 or higher.
  • If you are renting an average-priced 3-bedroom apartment in San Francisco, your annual salary should be around $217,080 or higher.

San Francisco Real Estate Investment Overview

Should you consider San Francisco real estate investment? Many real estate investors have asked themselves if buying a property in San Francisco is a good investment as the median price for a two-bedroom sits at $1.35 million. The high cost of real estate in San Francisco is impossible for most families to manage. Exodus is yet another problem and a new report confirms that the numbers are staggering. Online real estate company Zillow released new statistics shining a stark light on the issue this week.

Their “2020 Urban-Suburban Market Report” reveals that inventory has risen a whopping 96% year on year, as empty homes in the city flood the market like nowhere else in the country. Although this article alone is not a comprehensive source to make a final investment decision for San Francisco, we have collected some evidence-based positive things for those who are keen to invest in the San Francisco real estate market. If you can afford it, then it’s an investment that will continue to increase in value over time.

Due to low-interest rates in 2021, there was an influx of high-end luxury buyers, with certain instances where homes have been sold for $1 million over asking. Let’s talk a bit about San Francisco and the surrounding bay area before we discuss what lies ahead for investors and homebuyers. San Francisco is home to nearly 900,000 people. It is the hub of the San Jose-San Francisco-Oakland area; this larger metro area is home to nearly nine million people.

The city alternately makes the news for people paying incredibly high rents to live in boxes, the homeless problem, and the tech industry. This makes many think about why or how anyone could live there. Others would think why you’d want to buy a property now in such an overvalued real estate market. Yet we can give you ten positive signs about the San Francisco housing market. Keep on reading to find out more. Why is housing so expensive in San Francisco?

First of all, the entire state of California has a consistent housing shortage due to limited land. Most of the cities including San Francisco are failing to meet the regional housing needs. New construction permits in all cities often lag due to community resistance which blocks new housing. Jobs are increasing and the economy is the strongest in 50 years. But due to the tight supply of homes, San Francisco home prices have grown much faster than incomes.

The minimum annual income required for owning a house in the San Francisco bay area in 2019 was $197,970. That's an increase of 119.1% since 2012 when affordability was at its peak. Homeownership is not rebounding anytime soon in San Francisco. By 2025 more than 60% of the population is estimated to rent. Housing affordability has been a consistent issue for first-time buyers over the last few years. They have limited options in the San Francisco housing market.

Although mortgage rates have decreased, big down payments & all-time high home prices aren't spurring more sales. Many simply can’t afford to buy a house due to these factors. Despite Covid-19, in the latest quarter, the San Francisco real estate appreciation rate has been around 0.21%, which amounts to an annual rate of 0.84%. Some experts feel that home prices may drop by 1 to 2% in the next twelve months.

This is a good sign for new homebuyers and investors as far as affordability is concerned as many of them can’t afford to buy a median-priced home in San Francisco. We shall discuss some more important reasons why you may want to consider buying San Francisco investment properties for the long-term buy and hold.

San Francisco's Strong Economy Propels Real Estate

Why doesn’t everyone just move out of the San Francisco housing market? Some do move, but they have a one-and-a-half to two-hour commute each way to work because they still want to work there. They just can’t afford to live there. Moreover, it is the high-tech job market that draws so many people to San Francisco and leaves many others struggling to pay the bills. San Francisco is turning into a major international city. It is a white-collar city, with fully 90.74% of the workforce employed in white-collar jobs, well above the national average.

In a report published by Google in June 2019, it announced one billion dollars of investment in housing across the Bay Area. A 10-year plan to add thousands of homes to the Bay Area. The company would be making this major investment in what it believes is the most important social issue in the bay area real estate market.

This proposition by Google will add thousands of new homes to the Bay Area real estate market over the next ten years. About $750 million would be used for repurposing Google's own commercial real estate for residential purposes. This will allow for 15,000 new homes at all income levels in the Bay area. Another $250 million investment fund would be utilized to provide incentives to enable developers to build at least 5,000 affordable housing units across the Bay area housing market.

As a move to support affordable housing initiatives these investments will help Google plans to give $50 million in grants through Google.org to nonprofits focused on the issues of homelessness and displacement of citizens. The company also plans to fund community spaces that provide free access to co-working areas for nonprofits, improve transit options for the community, and support programs for career development, education, and local businesses.

As it is the epicenter of the technology industry, there are a lot of people with an immense amount of wealth. Wealth isn’t just limited to the uber-wealthy founders of major tech companies or successful VCs but also the general workforce, whose salaries and incomes are among the highest in the world. Overall, San Francisco is a city of professionals, managers, and sales and office workers. Also of interest is that San Francisco has more people living here who work in computers and math than 95% of the places in the US.

The predicted 2020 job market slowdown won’t result in layoffs, just a drop in job growth to 1.5 to 2 percent a year. Note that the area already has an unemployment rate of 1.2 percent below the national average. The unemployment rate in the San Francisco-Redwood City-South San Francisco MD was 1.8 percent in December 2019, down from a revised 1.9 percent in November 2019, and below the year-ago estimate of 2.1 percent.

This compares with an unadjusted unemployment rate of 3.7 percent for California and 3.4 percent for the nation during the same period. An upcoming recession is likely to have a limited effect on the SF Bay Area’s housing market. It will only temper housing price appreciation but not reduce it. These solid economic fundamentals are integral to maintaining high rental property demand and ensuring a good return on investment.

San Francisco Rental Market

You may read about the growth of Portland and other Pacific Northwest cities as talent and businesses flee the expensive San Francisco real estate market. That’s hardly impacted the San Francisco housing market, though. However, San Francisco has several advantages over its Oregon rivals, and that’s the fact that you aren’t in Oregon. Oregon passed a state-wide rent control law in 2019. This is in addition to many city regulations regarding affordable housing. In Oregon, your ability to raise rents is limited by the state.

Making matters worse, there are many more renters than property owners, so they’ll tighten the allowable rental increases and continue to hamper owners until they’re losing money. And then there is California. You can find a variety of rent control laws in the San Francisco housing market because every city takes its approach to the problem. This means that you can find suburban San Francisco rental properties where you could raise rental rates to match the market. Furthermore, rent control laws typically don’t apply to newer single-family homes.

California, on the whole, is unfriendly to landlords. It is challenging to evict people. It can take a long time to evict someone who occasionally pays the rent. Taxes are high. What does this do to the San Francisco housing market? It leaves open the possibility that you could snap up San Francisco rental properties at a relative bargain price by people who just want to quit, whether they want to sell the properties or leave the state. For example, the laws governing the San Francisco real estate market allow you to buy San Francisco rental properties and evict the tenants to turn the units into condos for sale.

SF Rental Statistics

San Francisco holds the position of the priciest rental market. It is still #1 among the top 5 rental markets in the nation. The average rental income for traditional San Francisco investment properties is well above the national average.  Like most of the Bay Area, the percentage of people renting in San Francisco is more than the owners. San Francisco has around 56 percent of its residents living in rental homes.

If condo prices are going to drop or remain flat in 2021, people will see a good investment opportunity. They’ll be able to get in at a good price and there will be an increase in demand. If you’re in the market for a condo in San Francisco, that means you could get a great deal. According to several rent reports (discussed above), rental price declines have hit the bottom and are almost flat as compared to the previous month.

San Francisco's Geography & Zoning Restrictions Limits inventory

San Francisco real estate market is perpetually constrained in terms of inventory. Several factors contribute to this, but principally the strict zoning laws prevent new development and high-rise construction throughout the city. The strict zoning laws, coupled with the fact that the SF is only seven by seven miles, make it a very constrained market and keep supply perpetually low. San Francisco sits on a peninsula, surrounded on three sides by water.

They cannot build to meet housing demand. The surrounding cities are densely built up, as well. The only way the San Francisco real estate market could meet demand is by ripping out large swaths of two and three-story buildings to build condo towers, but that’s almost impossible given local regulations. The ability to build up is limited in the surrounding suburbs because of the mountains.

The San Francisco real estate market is, for better or for worse, beholden to several competing interest groups. For those with money that own their homes and have the most influence, “not in my backyard” or NIMBY means that voters fight any proposal to replace a 2 or 3-story warehouse with a 20-story apartment or condo building. They want to protect the look and feel of the community, and through high-rise construction could start to relieve the overcrowding in the San Francisco real estate market.

The horrific stories of developers going through four years of red tape to build multi-family San Francisco rental properties deter others from even trying. Ironically, this creates significant returns for those who buy up San Francisco rental properties and can convert them to multi-family housing.

San Francisco's Environmental Movement

The environmentalist movement and California are intertwined in the public’s mind and for good reason. This is the best demonstration of its impact in Marin County. An estimated 85 percent of the county is off-limits to development. This doesn’t mean there are no homes here. It means that there are large estates that cannot be turned into tract homes. Neighbors fight any such project. This is why George Lucas had to threaten to build hundreds of homes on Skywalker Ranch when they wouldn’t let him expand his studios there. This also explains why the San Francisco real estate market cannot solve its affordable housing crisis by building in relatively open lands in Marin County.

Warehouses and factories have been converted to lofts in large, established cities around the world. They offer open spaces, high ceilings, and proximity to public transit and downtown amenities. San Francisco is no exception to this trend. The difference is the growth in high-density San Francisco rental properties as can only be found in co-living spaces. These can be considered high-end dorms.

People may rent a bunk bed and storage space for their possessions, gaining access to laundry, kitchens, and workout facilities. Several people may share a bedroom that rivals a cramped college dorm room. These facilities are booming because they cater to the new college graduates already used to living this way and willing to continue to do so to work for Big Tech firms in San Francisco.

San Francisco's Luxury Real Estate Market is Booming Despite Pandemic

Dealing in the luxury real estate market has its benefits. More affluent buyers are the demographic least affected by any economic crisis such as brought up by the Covid-19 pandemic as they have the greatest financial resources. Although home prices soaring there is an influx of wealthy buyers. A relatively high percentage of the buyers in the city are all cash (Around 40 to 60 percent of them). Those that aren’t paying all cash are putting at least 20 percent down with the ability to close fast, even with a loan.

In June, house values in California city reached a record monthly high of $1.8 million. Deep-pocketed home buyers across San Francisco bolstered the market’s rebound and pushed up transactions and house prices, according to a report Monday from Compass. The number of luxury single-family homes—defined by the report as those priced at $3 million and above—that accepted an offer in June surpassed 30, the highest level the metric has reached in two years, data from the brokerage showed.

The increase helped push San Francisco house values to a record monthly high of $1.8 million in June, 3% higher than the previous peak of $1.75 million in June 2019. You will find first-time homebuyers who are buying over $2.5 million or baby boomers looking for second homes in the $2 million range. New units are being built in the San Francisco housing market. However, the reality is that the pool of people who can afford to buy is smaller and smaller and the supply of housing is not growing with demand. They mostly consist of luxury condos and mega-mansions built for the elite of the Big Tech workforce.

Another unintended side effect of regulations on San Francisco rental properties is that it incentivizes the construction of high-end units. Investors could invest in these projects or buy properties in the hopes that they are torn down and redeveloped. This is why burned-out husks can sell for hundreds of thousands of dollars and ones with demolition permits can sell for a million or more.

San Francisco's Real Estate Appreciation Rate is High

Thanks to all the factors discussed above, the entire bay area has one of the highest appreciation rates. A major reason San Francisco’s housing prices have climbed so high over the past decade is the city’s vibrant tech industry, which started booming in 2012 (thanks, in part, to a tax incentive aimed at attracting tech companies to the city over Silicon Valley). It now attracts a skilled workforce to the city while also driving up the demand for housing and the cost of living.

The data from NeighborhoodScout reveals that San Francisco real estate appreciated 100.33% over the last ten years, which is an average annual home appreciation rate of 7.20%. This figure puts San Francisco in the top 10% nationally for real estate appreciation. And within San Francisco, some individual neighborhoods’ home values have jumped by more than 100%, according to Trulia & Zillow. Here are the five San Francisco neighborhoods that have had the biggest jump.

  • Bayview: Bayview had a $424,900 median home value in April 2009, which went to $1.07 million in Jan 2020. The current value is $1,004,025 (Zillow Home Value Index).
  • The Forest Knolls: In April 2009, the neighborhood’s median home value was $811,800, and it topped $1.8 million in Aug 2018. The current value is $1,895,032, up 11% YTY.
  • Bernal Heights: This neighborhood went from a median home value of $715,000 in April 2009 to $1.66 million in Aug 2018. The current value is $1,684,994, up 7.5% YTY.
  • Mission: This East of The Castro neighborhood is in central San Francisco. The median home value was $699,900 in April 2009 and $1.53 million in Dec 2019. The current value is $1,420,188, up 1.8% YTY.
  • Potrero Hill: This neighborhood lies in the East of the Mission District. It has a median home value of $734,200 in April 2009 and it topped $1.59 million in Sep 2020. The current value is $1,528,254, up 2.1% YTY.

The good news is that if you are a home buyer or real estate investor, San Francisco has a track record of being one of the best long-term real estate investments in the nation over the last ten years. So if you bought a home in San Francisco 10 years ago, it’s very likely you’d have profited on the deal by now — in fact, in several neighborhoods, you would have a good chance at doubling your money. All the variables that contribute to real estate appreciation continue to trend upwards which makes investing in SF real estate a sound decision.

Where To Invest In San Francisco Real Estate Market?

Are you looking to buy an investment property in the San Francisco real estate market? California has the 6th largest economy in the entire world. This is largely driven by its innovative production, the heavy tech sectors in the state, and more. The San Francisco market is expensive, but that doesn’t mean it is overpriced. There are opportunities, though they come with risks. If the city had better leadership and more people willing to allow redevelopment on a large scale, the city could blossom.

Good cash flow from San Francisco investment property means the investment is, needless to say, profitable. A bad cash flow, on the other hand, means you won’t have money on hand to repay your debt. Therefore, finding the best investment property in San Francisco in a growing neighborhood would be key to your success.

If you invest wisely in San Francisco real estate, you could secure your future. If you are a beginner in the business of cash flow real estate investing, it is very important to read good books on real estate. The less expensive the San Francisco investment property is, the lower your ongoing expenses will be.

When looking for the best real estate investments in San Francisco, you should focus on neighborhoods with relatively high population density and employment growth. Both of them translate into high demand for housing. San Francisco home prices are not only among the most expensive in the state of California but they are also some of the most expensive in all of the United States. According to Realtor.com, Dolores Heights has a median listing price of $2.5M, making it the most expensive neighborhood.

Some of the popular neighborhoods in and around San Francisco are South Beach, Pacific Heights, Mission District, Presidio Heights, Excelsior, St. Francis Wood, North Beach, West Portal, Outer Sunset, Hayes Valley, Portola, Dogpatch, Bernal Heights, Noe Valley, and Russian Hill.

According to Financialsamurai.com, the best neighborhood to buy property in San Francisco is Golden Gate Heights. This neighborhood has many homes with ocean view properties (under $1,000/Sq Ft), and some of the best schools in SF. Golden Gate Heights consists of mainly single-family homes instead of condos. As a result, the neighborhood is family-friendly and much less dense than other areas of San Francisco. The neighborhood is relatively inexpensive. At an average price per square foot of $850 – $980, Golden Gate Heights is an absolute steal compared to other neighborhoods in San Francisco.

Other best neighborhoods to buy investment properties in San Francisco are:

  • Inner Parkside, Parkside
  • Inner Sunset, Outer Sunset
  • Inner Richmond, Outer Richmond
  • Diamond Heights

All of these neighborhoods are safe, relatively inexpensive, and offer single-family homes for working-class people in the SF Bay Area. Single-family homes are defensive during downturns and tend to outperform during upturns.

Bernal Heights is considered an ideally located yet still moderately affordable place to raise a family. It’s on the south side of San Francisco, so it’s very easy to commute. The typical home value in Bernal Heights is $1,684,994. Bernal Heights home values have gone up 7.5% over the past year and this neighborhood will continue to rise in value.

Tenderloin is an affordable neighborhood for those who can afford to buy a home in the median price range of $679K, trending up 26% year-over-year. As of October 2021, the Tenderloin is a balanced real estate market, which means there is a healthy balance of buyers and sellers in the market. When housing supply meets housing demand, real estate investors should not miss the opportunity since entry prices of homes remain affordable.

Bayview is one of the most affordable neighborhoods, with a median listing price of $850K (on Realtor.com). Bayview saw an astounding 136% appreciation from 2000 to 2006, followed by a huge 50% drop from 2006 to 2010/2011. From 2012 onward the recovery has been consistent. The median listing home price in Bayview was $850K in October 2021, trending down -10.5% year-over-year. The median listing home price per square foot was $664. The median home sold price was $920K.

Median housing prices in Bayview are also still among the lowest of any neighborhood in the city, which attracts buyers looking to get a foothold in the rapidly appreciating Bay Area housing market. The markets in Bayview and nearby neighborhoods are quite strong because they contain the most affordable houses in the city. It has one of the highest appreciation rates in the SF Bay Area region. During the downturn, its housing market became dominated by distressed sales and it fell so far that now, with the disappearance of the subprime effect, its recovery has been equally dramatic.

Stoneridge Park is a neighborhood in Pleasanton, California. It lies in Alameda County—one of the nine counties of the Bay Area region. According to Niche.com, it is a family-friendly neighborhood and one of the best places to live in California. Living in Stoneridge Park offers residents an urban-suburban mix feel and most residents own their homes. In Stoneridge Park, there are a lot of restaurants, coffee shops, and parks. The public schools in Stoneridge Park are highly rated (A+). The median home value is $911,000 and the median rent is $2,572.

Parkside receives an overall grade of A from Niche.com. It is a neighborhood in San Francisco County and is also considered one of California's best places to live. Living here offers residents an urban-suburban mix feel and most residents own their homes. The public schools in Parkside are highly rated. It is an expensive neighborhood with a typical home value of $1,631,675. Parkside home values have gone up 14.1% over the past year and they will continue to rise over the next twelve months.

Here are the top neighborhoods in San Francisco having the highest real estate appreciation rates since 2000—List by Neigborhoodscout.com.

  1. Presidio Heights
  2. Pacific Heights
  3. Sea Cliff
  4. Pacific Heights West
  5. Cow Hollow West
  6. Inner Richmond Northeast
  7. Laurel Heights
  8. Cow Hollow
  9. Pacific Heights Southeast
  10. Noe Valley North

California Real Estate Investment Markets

Apart from San Francisco, you can also invest in many other real estate markets in California. California's real estate market is the focus of many U.S. and foreign real estate investors.

Another market to buy rental properties in California is San Jose. San Jose is part of Silicon Valley, a place where $100,000 a year or higher salaries from competing tech firms have driven up the cost of real estate. But what about the San Jose housing market itself? San Jose is the third-largest city in California, home to roughly a million people. It has the highest cost of living in any area in the U.S., and it is one of the most expensive housing markets in the country.

If you want to invest in the San Jose rental properties, you may not need to buy and renovate. Instead, if you know of industrial or commercial properties near major employers they may need to convert to employee housing, which you could buy now and hold until it sells. If that doesn’t happen, you could still turn it into a co-working space.

The San Diego real estate market offers an ideal mix of limited supply, high demand, and excellent income potential. If you’re going to invest in California, it needs to be in San Diego. The San Diego real estate market has been ranked among the ten most expensive real estate markets in the country, though it ranks below several other West Coast cities. This creates massive demand for San Diego rental properties by those who simply cannot afford to buy homes. The rental market will continue to grow as the city grows an estimated 500,000 by 2050, adding tens of thousands each year.

Another expensive market like San Francisco is LA. The numbers may not make sense for many investors but if you ask savvy investors based in LA they would like to bet anytime on this expensive real estate market. The Los Angeles real estate market has many points in its favor beyond its sheer size. The strong market fundamentals make the Los Angeles housing market a good place to invest if you’re looking at buying real estate in California.

Los Angeles has an unemployment rate of around 4%. What makes Los Angeles unique is the employment market. Want to work in Hollywood? Move to L.A. Want to work for a production company or in fashion? Come to L.A. If rent is too high, share an apartment or single-family home with friends. The Los Angeles housing market has seen a bump in residential construction. This has helped to satisfy some demand from renters. However, due to increasing demand, the new supply hasn’t brought prices down.

The Oakland real estate market is a cheaper version of the San Francisco real estate market with similar rental rates and a slightly friendly legal climate. It presents a good opportunity for real estate investors. The Oakland real estate market is second only to San Francisco in terms of rental rates. It is rivaling New York City, Boston, and San Francisco in terms of rental prices. One-bedroom apartments are averaging $2400 a month. Yet Oakland housing units remain two hundred to five hundred thousand dollars cheaper than San Francisco properties. This means you’ll see far better ROI on Oakland rental properties than San Francisco properties.

For most investors, buying or selling real estate is one of the most important decisions they will make. Choosing a real estate professional/counselor continues to be a vital part of this process. They are well-informed about critical factors that affect your specific market areas, such as changes in market conditions, market forecasts, consumer attitudes, best locations, timing, and interest rates.

NORADA REAL ESTATE INVESTMENTS has extensive experience investing in turnkey real estate and cash-flow properties. We strive to set the standard for our industry and inspire others by raising the bar on providing exceptional real estate investment opportunities in many other growth markets in the United States. We can help you succeed by minimizing risk and maximizing the profitability of your investment property in San Francisco.

Consult with one of the investment counselors who can help build you a custom portfolio of San Francisco turnkey investment properties in some of the best neighborhoods. All you have to do is fill up this form and schedule a consultation at your convenience. We’re standing by to help you take the guesswork out of real estate investing. By researching and structuring complete San Francisco turnkey real estate investments, we help you succeed by minimizing risk and maximizing profitability.

Please do not make any real estate or financial decisions based solely on the information found within this article. Some of the information contained in this article was pulled from third-party sites mentioned under references. Although the information is believed to be reliable, Norada Real Estate Investments makes no representations, warranties, or guarantees, either express or implied, as to whether the information presented is accurate, reliable, or current. All information presented should be independently verified through the references given below. As a general policy, Norada Real Estate Investments makes no claims or assertions about the future housing market conditions across the US.

References:

Market Data, Reports & Forecasts
https://www.car.org/en/marketdata/data
https://www.zillow.com/sanfrancisco-ca/home-values
https://www.zillow.com/research/2020-urb-suburb-market-report-27712/
https://www.littlebighomes.com/real-estate-san-francisco.html
https://www.realtor.com/realestateandhomes-search/SanFrancisco_CA/overview
https://www.bayareamarketreports.com/trend/san-francisco-home-prices-market-trends-news

San Franciso (City) Cooling-off
https://www.cnbc.com/2020/09/27/san-francisco-housing-suburbs-red-hot-but-city-still-in-demand.html

City details
http://worldpopulationreview.com/us-cities/san-francisco-population

Best Neighborhoods
https://www.neighborhoodscout.com/ca/san-francisco/real-estate
https://www.helena7x7.com/san-francisco-neighborhood-appreciation-rates/
https://www.financialsamurai.com/best-san-francisco-neighborhoods-to-buy-property-for-price-appreciation
https://www.niche.com/places-to-live/search/best-neighborhoods-to-buy-a-house/m/san-francisco-metro-area/

Rental Market Statistics
https://www.rentcafe.com/average-rent-market-trends/us/ca/san-francisco/
https://www.rentjungle.com/average-rent-in-san-francisco-rent-trends/
https://www.zumper.com/blog/rental-price-data/
https://www.nolo.com/legal-encyclopedia/california-rent-control-law.html
https://homeguides.sfgate.com/tenants-rights-landlord-sells-house-53734.html
https://www.npr.org/2019/02/27/698509957/oregon-set-to-pass-the-first-statewide-rent-control-bill

Should You Invest in SF
https://realestate.usnews.com/places/california/san-francisco/jobs
https://sf.curbed.com/2020/3/11/21155283/buying-a-house-san-francisco-2020
https://reason.com/2018/02/21/san-francisco-man-has-spent-4-years-1-mi
https://www.nytimes.com/2017/01/21/us/san-francisco-children.html
https://www.latimes.com/politics/la-pol-ca-marin-county-affordable-housing-20170107-story.html
https://www.citylab.com/equity/2016/04/blame-geography-for-high-housing-prices/478680
https://www.theguardian.com/business/2016/aug/05/high-house-prices-san-francisco-tech-boom-inequality
https://www.mercurynews.com/2019/03/14/bay-area-job-market-slowdown-experts-predict-google-apple-amazon-facebook
https://www.washingtonpost.com/news/morning-mix/wp/2015/04/17/george-lucas-wants-to-build-affordable-housing-on-his-land-because-weve-got-enough-millionaires

Luxury market
https://www.mercurynews.com/2014/03/05/in-the-bay-area-million-dollar-homes-are-torn-down-to-start-fresh
https://www.sfgate.com/realestate/article/863-carolina-street-potrero-hill-tear-down-listing-13844146.php
https://www.housingwire.com/articles/36691-la-demolishing-affordable-housing-building-luxury-housing-instead

Housing Market Forecast 2024 & 2025: Predictions for Next 5 Years

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Housing Market Predictions for Next 5 Years

Here's what some of the experts predict will happen in the housing market in the next five years. According to Zillow, the current typical value of homes in the United States is $355,852. This value is seasonally adjusted and only includes the middle price tier of homes. In July 2021, the typical value of homes was $300,000. United States home values have gone up 18.2% over the past year and will continue to rise albeit at a much slower rate.

The housing market forecast has been revised in August 2022 by Zillow Group. The real estate group now forecasts a significant slowdown in annual home value growth – as measured by the raw Zillow Home Value Index – from the current rate of 16% to 2.4% for the twelve months ending July 2023. This is a significant update from last month’s forecast of 6.9% appreciation through June 2023.

The nation's median home value fell 0.1% in July from June, the first monthly decline since 2012, and monthly growth has slowed from April's 1.9% peak. Their forecast now includes the share of for-sale listings that receive a price cut in its calculation. This share has risen as sellers adapt to changing market conditions. Weaker home sales forecasts also contribute to lower home value forecasts.

<<<Also Read: Housing Market Report for July 2022>>>

The forecast for 5.3 million existing home sales in 2022, which would reflect a 14.1% decrease from 2021, also reflects recent market changes and continued weakness in leading indicators of the metric. Sales dropped faster than anticipated in June, while July saw weaker-than-expected pending home sales and mortgage applications.

Weak consumer mood typically leads to slow house sales. Aggressive interest rate rises are also feared to induce an economic slowdown, which would reduce house purchases. Recent economic data sent mixed signals, which factor into forecasts. July's job growth and the unemployment rate were stronger than expected.

Existing home sales plummeted in July to the lowest rate (SAAR) in the last two years. Few homeowners are selling and giving up their low rates, which contributes to the decline. As a result, home sales are falling further from the 2021 peak, causing inventory to build and home prices to fall as buyers leave and sellers stay.

Bidding wars are fading as competition decreases and more sellers cut their prices, giving buyers more breathing room. Those priced out won't see improvements soon. Falling prices should bring demand back to the market and push prices up, especially as inventory stabilizes at a much lower level than the pre-pandemic norm.

Low inventory and pent-up demand will continue to drive this market, and home sales are predicted to stay lower than in recent years – at least for the near future.

Housing Market Forecast 2024 and 2025

The Zillow home price expectations survey found that the housing market is likely to recover to pre-pandemic, 2019 norms by 2024, at least in terms of inventory and the proportion of purchases made by first-time home buyers. Home prices have grown 32 percent in the previous two years as a result of a shrinking number of properties on the market. The diminishing supply of available properties has been a major contributor.

  • Most panel members predict housing inventory to reach pre-pandemic levels by the end of 2024.
  • The share of first-time buyers is predicted to stay below 2019 levels until 2024.
  • The most bullish quartile of respondents predicted that prices will grow by 46.5 percent between now and the end of 2026, compared to only 10.3 percent for the most conservative group.
  • The average response predicts a total increase of 26.8% rise by the end of 2026 or a compound annual growth rate of 4.9 percent in the next (almost) five years.

The total inventory decreased from an average of 1,6 million units per month in 2018 and 2019 to a little over 1 million in 2021 and will decline further in 2022.  The largest group of respondents (38 percent) to Zillow's study predicts housing market inventory to rebound to a monthly average of 1.5 million units or higher in 2024. A second-largest of respondents (36 percent) predict that supply will return to pre-pandemic levels in 2023, while the third-highest proportion of votes (12 percent) came from those who believe it will happen in 2025.

The pandemic brought record-breaking price increases and rent increases that made saving for down purchases much harder. As a result, according to a Zillow survey of recent buyers, the percentage of first-time home buyers fell from 45 percent in 2019 to 37 percent in 2021. First-time purchasers would reclaim their pre-pandemic market share within the next two years, with 26 percent predicting 2024 and 25 percent predicting 2025.

About 18% of experts surveyed said they don't expect the percentage of first-time buyers to surge over 45% until after 2030, despite many Millennials, the largest U.S. generation ever will be well into their prime home-buying years far before then. The median age of U.S. buyers is 43, while the average skews higher (45 years old). Almost one in five buyers (17%) are in their twenties or younger, while roughly a quarter (23%) are in their sixties or older. In other words, the age distribution of buyers represents somewhat of a middle ground when it comes to the U.S. population.

They are typically younger than tenured homeowners (those who have not moved in the past year), but older than renters. Buyers tend to have higher household incomes than the U.S. population overall. The annual median household income among buyers is approximately $86,000, compared to the overall national median (2019) of $65,700.

Another Zillow Home Price Expectations survey conducted in June shows that despite a more than 100-basis point increase in mortgage rates since the previous survey just three months ago and the potential for higher rates in coming months, the panel’s expectations for 2022 home price appreciation still rose to 9.3% from 9.0% last quarter. This would be a significant step down from the 19.6% appreciation observed over the 2021 calendar year, but still high above long-term historical averages.

Looking ahead, the most optimistic quartile of respondents expected a 46.1 percent increase in prices between now and the end of 2026, while the most conservative quartile predicted a 9.3 percent increase in that period. Respondents anticipate a total increase of 26.4 percent by the end of 2026.

housing market predictions 2022 to 2026
Source: Zillow Home Price Expectations Survey

Real Estate Forecast Next 5 Years

The robust real estate forecast for the next 5 years is driven by the expectations for tight market conditions to persist, with demand for housing exceeding the supply of available homes. Despite declining buyers' optimism that now is a good time to buy a house, the number of households interested in becoming homeowners remains high. This is especially true for younger homebuyers, who are likely first-time buyers and are struggling to save for a down payment as rents continue to reach record highs.

Simultaneously, seller expectations for larger down payments appear to be increasing, fueled by a still-competitive housing market and repeat buyers with relatively more available equity. The housing market is unlikely to shift from a seller's to a buyer's market anytime soon. Rising mortgage rates may take some of the steam out of the market, allowing inventory to rise slightly. It would also slow the rate of home price appreciation and reduce the possibility of a red-hot housing market resulting in an overheated market.

The supply of available homes is so low that even a significant drop in demand due to higher interest rates will not turn this into a buyer's real estate market, according to industry experts. Because there are not enough houses available to meet demand, home prices will continue to rise, but the combination of rising home prices and elevated mortgage rates means fewer people will be able to afford to buy.

There would still be continuous price appreciation, scarcity of inventory, and good demand. Some markets will experience lower appreciation rates than others, with the Sunbelt performing particularly well. Home prices do not appear to be decreasing, even in some of the country's most expensive markets, the tier one markets. For example, according to CoreLogic, these large cities continued to experience price increases in February, with Phoenix on top at 30.4% year over year. The second rank was held by Las Vegas with 26.5% year-over-year price growth followed by San Diego (25.2%).

Now that mortgage rates have reached the 6 percent barrier, a worldwide research firm, Capital Economics, predicts that the U.S. house price rise will likely slow in 2023, not this year. Capital Economics forecasted that the U.S. housing market will experience a 5 percent decrease in house price growth by mid-2023, followed by a “gradual rebound” to a 3 percent annual price rise by the end of 2024. It's a major analysis that arrives as the U.S. housing market begins to shift, with increasing mortgage rates pricing out or discouraging potential homeowners.

However, the firm does not forecast a spectacular “price decline” or a housing bubble bust similar to that of 2006, which precipitated the global financial crisis and the Great Recession. A 5 percent fall would definitely constitute a price decrease, but it would not cause home prices to spiral out of control. Remember that house prices have risen steadily for several years and surged significantly during the COVID-19 epidemic.

A price drop is noteworthy, but in the grand scheme of things, it is relatively little. Before the housing bubble of 2006, the U.S. housing market was primarily supported by exceedingly risky bank lending methods that produced a synthetic demand for housing, allowing those who could not afford to retain their homes to acquire them. According to analysts, today's market does not have the same circumstances.

According to analysts, today's market does not have the same circumstances. Capital Economic forecasts that mortgage rates would increase to 6.5 percent by 2023. According to Matthew Pointon, a senior property economist at Capital Economics, if home price growth follows our earlier predictions and declines to zero by mid-2023, mortgage payments would remain above their mid-2000s peak until mid-2023.

“That looks unsustainable and house prices are therefore set to fall. However, our previous point about a lack of forced sellers remains. Therefore, we expect lower home demand to lead to a relatively small fall in house prices, with annual growth dropping to -5% (year over year) by mid-2023,” Pointon added. “That would bring the mortgage payment burden back under the mid-2000s level by the start of 2023.”

Where Will Home Prices Rise the Most in 2024?

Fortune magazine reached out to Moody’s Analytics to get access to its latest proprietary housing analysis, and according to it, home prices will increase by zero percent in 2023—a dramatic decrease from the 19.7 percent price growth the housing market experienced in the last 12 months. However, analysts anticipate that price changes will vary significantly between regions of the United States.

In its analysis, the financial intelligence firm calculated how home prices are likely to shift in 414 regional housing markets between the fourth quarter of 2022 and the fourth quarter of 2024. Among the nation’s 414 largest housing markets, Moody’s Analytics forecast model predicts that 210 markets are on the verge of seeing home prices decline over the coming two years and 204 markets are poised to see home prices rise over the coming two years.

These cities are expected to report the biggest rise in home prices in 2024:

  1. Albany, Georgia (5.5 percent)
  2. Casper, Wyoming (4.52 percent)
  3. Columbus, Georgia (4.09 percent)
  4. Rocky Mount, North Carolina (3.97 percent)
  5. San Jose, California (3.83 percent)

Housing Market Forecast For Next 5 Years

References

  • https://www.zillow.com/research/home-value-sales-forecast-july-2022-31240/
  • https://www.zillow.com/research/daily-market-pulse-26666/
  • https://www.zillow.com/research/zillow-2022-hottest-markets-tampa-30413/
  • https://www.zillow.com/research/buyers-consumer-housing-trends-report-2021-30039/
  • https://fortune.com/2022/08/15/falling-home-prices-to-hit-these-housing-markets-in-2023-and-2024/
  • https://www.capitaleconomics.com/publications/us-housing/us-housing-market-update/surge-in-mortgage-rates-makes-house-price-falls-likely/

California Housing Market: Prices, Trends, Forecast 2022-2023

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How Is The Housing Market In California Right Now?

Monthly and annual home price growth accelerated in August in the California housing market. For the first time in five months, California house sales also increased in August. It was mainly due to a window of opportunity generated by a temporary decline in mortgage rates that created a little more favorable lending climate, according to C.A.R.

Closed escrow sales of existing, single-family detached homes in California totaled a seasonally adjusted annualized rate of 313,540 in August. August’s sales pace was up 6.1 percent from 295,460 in July and down 24.4 percent from a year ago when 414,860 homes were sold on an annualized basis.

California home prices stabilized in August, with the statewide median price increasing both monthly and yearly, but at a slower-than-2% rate. The statewide median price increased 0.7 percent in August to $839,460, up from $833,910 in July and up 1.4 percent from $827,940 in August of last year.

<<<Also Read: Will the US Housing Market Crash? >>>

The price increase was the smallest in more than two years. The nominal price increase was attributed in part to a shift in the sales mix in August. The August statewide median price increased slightly by 0.7 percent from July, with sales in the million-dollar price segment increasing 6.8 percent from the previous month.

“It’s encouraging to see that August’s sales pace rebounded above an annualized 300,000 units sold,” said C.A.R. Vice President and Chief Economist Jordan Levine. “Although we do not expect a rapid bounce-back because the Fed is expected to continue raising interest rates to get inflation under control, the monthly increase in closed and pending sales suggests that the market may have already priced in most of the rate increases to date. Still, buyers will continue to grapple with rising costs of borrowing, which will keep home sales below the 350,000 annualized pace for the remainder of the year.”

Looking at the current market shift, C.A.R. has reduced its 2022 housing prediction, projecting 380,630 existing single-family house sales in 2022, a 14.4 percent decrease from the 444,520 units sold in 2021. The most recent forecast is a decrease from the expectation of 416,810 units sold in October 2021.

Despite a slower growth rate in the year's second half, the California median home price is expected to rise 9.7 percent to $863,390 in 2022, representing a significant increase from the yearly median of $786,750 in 2021. The latest statewide median price projection is higher than the estimated price of $834,440 in October. According to C.A.R., the average 30-year fixed mortgage interest rate will climb to between 6.25 percent and 6.5 percent by the end of 2022, averaging 5.2 percent for the year.

Weekly Real Estate Trends and Forecast in California [September, 19 2022]

Existing single-family home sales in California rebound amid a temporary rate cut: The fact that August home sales surpassed 300,000 units is significant. Although we do not expect a rapid recovery because the Fed is expected to continue raising rates to control inflation, the monthly increase in closed and pending sales suggests that the market has already priced in the majority of the rate increases to date. Nonetheless, buyers will continue to face rising borrowing costs, keeping home sales below 350,000 for the rest of the year.

In the latest weekly data released by C.A.R., 18.7 percent of realtors think sales will increase and 3.2 percent think that prices will increase in the coming weeks. According to Freddie Mac’s weekly survey, the 30-year fixed-rate mortgage averaged 6.02% as of September 15. That is more than 316 basis points higher than what it was a year ago at this time when it averaged 2.86% – more than double. The increase in rates will continue to weigh on homebuyer demand in the coming months, as evidenced by the most recent decline in mortgage applications.

In Q2-2022, California housing affordability hit a 15-year low. As home prices hit a record high in the second quarter of this year, mortgage interest rates doubled. This has hurt California's housing affordability. In the second quarter of 2022, 16% of California households could afford the $883,370 median-priced home, down from 24% the previous quarter and 23% the same quarter last year. A minimum annual income of $199,200 was needed to afford a 30-year fixed-rate mortgage at 5.39%. Second-quarter 2022 housing affordability fell nationwide.

California Housing Market 2022 forecast
Source: CAR

Is the Housing Market Cooling Off in California?

The California housing market sizzled last year to break all records. It was a hot seller’s real estate market. According to Zillow, at the state level, California’s housing market remains the most valuable in the country, with a total value of $9.24 trillion as of last December, accounting for more than a fifth – 21.3 percent – of the national total. However, California’s overall value growth of $1.38 trillion in 2021 represents only “20.1 percent” of the overall national growth of $6.9 trillion – somewhat “underperforming” by about -5.5 percent relative to its total weight, particularly given the extreme growth seen in other states.

Here's a rundown of the California housing market demand for the week ending September 17, 2022.

California Active & Closed Median Home Prices Trends

  • Existing SFR Active Listings = 47,000
  • Year-to-Year Existing SFR Active Listings Growth = 21.8%
  • Median New Listing Price = $750,000
  • Year-to-Year New Existing SFR Median List Price Growth = 7.2%
  • Month-to-Month New Existing SFR Median List Price Growth = 0.1%
  • Median New Listing Prices Per Sq. Ft. = $421
  • Existing SFR Median Closed Prices = $750,000
  • Year-Over-Year Existing SFR Median Closed Price Growth = 2.7%
  • Month-to-Month New Existing SFR Median Closed Price Growth = 1.4%

California Housing Market Competitiveness

  • % of Active Listings w/Reduced Price = 43.2%
  • Median Reduction on Reduced-Price Listings % = -5.4%
  • % of Sales Closed Below List Price = 61%
  • Median Reduction on Reduced-Price Sales % = -5.8%
  • % of Homes Closed Above List Price = 29%
  • Median Overage on Homes Closing Above List = 2.9%
  • Median Days on Market for Closed Sales = 25
  • Median Days on Market for Active/Unsold Homes = 44
California Housing Price Trends
Source: CAR.org

The California housing market stabilized briefly due to a temporary reprieve on mortgage rates in July and early August. The number of active listings has surpassed its yearly peak, and while it is taking slightly longer to sell a property, the proportion of homes experiencing price decreases has steadied near pre-crisis levels. Both monthly and annual price rises accelerated in August, and pending sales indicate a rebound for homes valued at $2 million and beyond, according to the California Association of Realtors®.

  • Existing, single-family home sales totaled 313,540 in August on a seasonally adjusted annualized rate, up 6.1 percent from July and down 24.4 percent from August 2021.
  • August’s statewide median home price was $839,460 up 0.7 percent from July and up 1.4 percent from August 2021.
  • Year-to-date statewide home sales were down 14.9 percent in August.
  • More than two-thirds of all California counties experienced a year-over-year increase in their median prices.
  • Three counties had triple-digit year-over-year gains in homes for sale, with Yuba leading the pack.

The statewide median sales-price-to-list-price ratio was 98.4 percent in August as the market becomes less competitive. The median number of days required to sell a single-family home in California was 19 days in Aug, 10 days more than Aug 2021. California is still a moderate seller’s market and home prices have reached record-highs across all the regions due to tight supply.

The supply-demand imbalance continued to drive up property prices. But in recent weeks, interest rates have remained stable, and fewer properties are selling for more than the asking price. As a result, potential buyers have the rare chance to see more listings enter the market and face less competition which may push them into a bidding battle. Housing supply in California improved from a year ago but tightened slightly from the prior month as housing demand rose in August.

California Housing Market

The overall supply condition in California improved from a year ago but tightened slightly from the prior month as housing demand rose in August. The Unsold Inventory Index (UII) increased to 2.9 months in August 2022 from 1.9 months a year ago. Weaker housing demand, however, continued to be the primary factor for the improvement in the index.

At the regional level, home sales in all major California regions declined from a year ago, with four of the five major regions dropping more than 20 percent on a year-over-year basis. Home prices rose in all major California regions except San Francisco Bay Area and the Far North.

  • The San Francisco Bay Area had a year-over-year price decline of 1.2 percent, with the median price being $1,250,000.
  • The Central Coast had a year-over-year price gain of 5 percent, with the median price being $950,000.
  • Southern California had a year-over-year price gain of 4.6 percent, with the median price being $795,000.
  • The Central Valley had a year-over-year price gain of 2.2 percent, with the median price being $460,000.
  • The Far North had the highest year-over-year drop of 1.8 percent, with the median price being $380,000.
  • The Los Angeles Metro Area had a year-over-year price gain of 4.7 percent, with the median price being $765,000.
California Housing Market Report
Source: C.A.R.'s July 2022 Market Report

Will the California Housing Market Crash?

Realtor.com's 20 Hottest Markets rankings show California has dropped off the list. People are seeking housing by moving to less expensive cities, with more affordable housing options. The rankings are a factor in a combination of demand (measured by the number of unique views per home listing) and how quickly homes are selling (measured by the number of days on the market). For the first time in the history of these monthly rankings—which began in 2016—California has dropped off the list and is nowhere to be found.

In January, California was on the list with five metros in the top 20 hottest markets. In March, that number had dwindled to just two metros; by April, California fell out of the rankings entirely. While Californians have endured exorbitantly high property prices for years, at least some homebuyers appear to have reached their breaking point. Amidst the harsh reality of rising mortgage rates (already over 5 percent) and inflation eroding their wages, many people are yearning for a new sort of paradise: one where they don't have to worry about paying their bills.

According to most experts, the market will continue to see good buyer demand and a positive rate of home price appreciation, despite a significant cooling from the extreme heat of early spring 2022. However, California is no longer a desirable location to live in since purchasers have endured exorbitantly high housing prices for years, and at least some homebuyers appear to have hit their breaking point. The tight supply and the higher cost of borrowing were responsible for the near double-digit decline in sales in June.

Each month C.A.R. surveys 1,000 California consumers regarding their sentiments about various aspects of the housing market or the economy that directly impact housing to create a California Housing Sentiment Index. In June 2022, the overall housing sentiment index was 56 (down 4% from last month). It showed that consumers acknowledged the current market challenges and felt increasingly pessimistic about homebuying opportunities.

Consumers who thought it was a “Good time to buy” dropped to 14% in June. There is some evidence that inventory is gradually starting to thaw, but real estate faces many variables in the months ahead. Encouragingly, the number of new listings being added to the MLS each day has finally started to exceed pending sales and C.A.R. is still forecasting a 10% growth in home sales this year. Here's what consumers feel at this time. The 2022 California housing market forecast has been revised to 380,630 units sold and a statewide median price of $863,390.

Is it a good time to buy a home in California?

The consumer optimism returned in early August, according to C.A.R.'s monthly Consumer Housing Sentiment Index, as interest rates fell. The share of respondents who thought it was a good time to buy a home increased month over month for the third consecutive month to 19 percent, bringing the Housing Sentiment Index to 59, but still significantly lower than the Index of 72 in August 2021.

Meanwhile, those who believed it was a good time to sell a home fell to 56%, down from 72% in August 2021. Interest rates have been rising since mid-August, and housing sentiment is expected to turn negative next month. Two-thirds (64%) of California consumers expected the state's overall economic conditions to worsen over the next year, while three-quarters (75%) expected interest rates to rise.

Is it a good time to sell a home in California?

According to the survey, close to two-thirds (56 percent) of Californians believe now is a good time to sell a home. That’s a decrease of 4% over the July 2022 poll. Less than one-third of the consumers (36%) who participated in the survey still feel that home prices will continue to rise in the 12 months. That’s an increase of 1% from the previous month. More than one-third of the people are optimistic about the economy's recovery. About 36% (+12% from last month) believe that economic conditions will improve in the state over the next 12 months while 64% still have a gloomy outlook.

California Housing Market Outlook
Infographic Credits: CAR's Aug 2022 Housing Sentiment Index

California Housing Market Forecast 2022 and 2023

Let us look at the price trends recorded by Zillow over the past few years. Since the last decade (Aug 2012), California home values have appreciated by nearly 157.8% — Zillow Home Value Index. ZHVI is not the median price of homes that are sold in a month within a geographic region. It is calculated by taking all estimated home values for a given region and month (Also called Zestimates), taking a median of those values, and applying some adjustments to account for seasonality or errors in individual home estimates.

It, therefore, represents the whole housing stock and not just the homes that list or sell in a given month. By this calculation, the current typical home value of homes in California is $799,311. It indicates that 50 percent of all housing stock in the area is worth more than $799,311 and 50 percent is worth less (adjusting for seasonal fluctuations and only includes the middle price tier of homes).

In June 2021, the typical value of homes in California was around $674,000. Home values have gone up 18.5% since last June. It can be said that California is currently the seller's real estate market which means that demand is exceeding the supply, giving sellers an advantage over buyers in price negotiations. There are fewer homes for sale than there are active buyers in the marketplace. Buyer demand remains robust, which has been pushing home prices up by a double-digit rate of appreciation.

California Housing Market Forecast
Courtesy of Zillow.com

Here's the California Housing Forecast for 2022

What are the California real estate market predictions for 2022? California housing market is shaping up to continue the trend of the last few years as one of the hottest markets in the U.S. Supply constraints and higher home prices will bring California home sales down slightly in 2022, but transactions will still post their second-highest level in the past five years, according to a housing and economic forecast released today by the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.).

  • Existing, single-family home sales are forecast to total 416,800 units in 2022, a decline of 5.2 percent from 2021’s projected pace of 439,800.
  • California’s median home price is forecasted to rise 5.2 percent to $834,400 in 2022, following a projected 20.3 percent increase to $793,100 in 2021.
  • Housing affordability is expected to drop to 23 percent next year from a projected 26 percent in 2021.

C.A.R.'s “2022 California Housing Market Forecast” assumes a 5.2 percent decrease in existing single-family home sales next year, to 416,800 units, down from the predicted 439,800 units in 2021. The forecast for 2021 is 6.8% greater than the pace of 411,900 houses sold in 2020. California's median house price is expected to climb 5.2 percent to $834,400 in 2022, from $659,400 in 2020. Demand and supply imbalances will keep prices rising, but higher interest rates and a partial adjustment of the sales mix will likely slow the price rise. The rise of remote working will help keep costs in control and prevent the statewide median price from increasing too quickly in 2022.

According to C.A.R.'s 2022 projection, the US gross domestic product would expand by 4.1 percent in 2022, after a predicted rise of 6.0 percent in 2021. With a predicted nonfarm job growth rate of 4.6 percent in 2022, up from 2.0 percent in 2021, California's unemployment rate will fall to 5.8 percent in 2022, down from 7.8 percent in 2021. In 2022, the average 30-year fixed mortgage rate will be 3.5 percent, up from 3.0 percent in 2021 and 3.1 percent in 2020, but still low by historical standards.

California Housing Forecast
Courtesy of Car.org

California House Prices & Sales Trends

California Real Estate Market Trends
Infographic Courtesy of CAR

Here are some of the key points of the California housing market report for August 2022, according to C.A.R.

Existing-Home Sales

  • August’s sales pace was up 6.1 percent on a monthly basis from 295,460 in July.
  • It was down 24.4 percent from a year ago when 414,860 homes were sold on an annualized basis.
  • Year-to-date statewide home sales were down 14.9 percent in August.
  • At the regional level, all major regions experienced sharp declines from last year.
  • With four of the five major regions dropping more than 20 percent.
  • The Central Coast region had the biggest drop of all regions, with sales plunging 30.6 percent from a year ago.
  • The San Francisco Bay Area (-29.1 percent) had the second largest drop of all regions.
  • Southern California also recorded a 28.8 percent drop from Aug 2021, while the declines in Central Valley (-22.1 percent) and the Far North (-10.5 percent) were comparatively less.
  • All but four counties tracked by C.A.R. posted sales drops from last August 2022.
  • Of the 47 counties that experienced a year-over-year sales decline, 30 counties suffered a plunge of more than 20 percent.
  • San Benito County recorded the biggest sales drop from last August at -68.2 percent.
  • Four counties recorded a sales increase from a year ago, with Plumas gaining the most at 43.3 percent.

California home sales

California Median Home Price

  • Median prices in all major regions continued to grow on a year-over-year basis except for SF Bay Area and the Far North.
  • The Central Coast led the way at a 5.0 percent increase, followed by Southern California at 4.6 percent and Central Valley at 2.2%.
  • In San Francisco Bay Area, the median home price dropped by 1.2%.
  • In the Far North, the median home price dropped by 1.8%.
  • More than two-thirds of all California counties experienced a year-over-year increase in their median prices.
  • Seven counties continued to record double-digit growth rates in their median prices from a year ago.
  • Napa (29.2 percent) had the biggest price gain of all counties.
  • Fifteen counties registered a dip in their median prices from a year ago, with Tehama dropping the most at -13.8 percent.

California home prices

California Housing Supply

  • Housing supply in California improved from a year ago but tightened slightly from the prior month as housing demand rose in August.
  • The statewide unsold inventory index (UII) increased to 2.9 months in August 2022 from 1.9 months a year ago.
  • The improvement in the index was partly due to an increase in supply and partly due to weaker demand.
  • The index indicates the number of months it would take to sell the supply of homes on the market at the current rate of sales.
  • Active listings surged by 57.1 percent year-over-year in August.

Median Days & Sales Price to List Price Ratio

  • The median number of days required to sell a single-family home in California was 19 days in August and 9 days in August 2021.
  • C.A.R.’s statewide sales-price-to-list-price ratio was 98.4 percent in August 2022.
  • It was below 100 percent for the first time since June 2020.
  • The statewide sales-price-to-list-price ratio was 102.8 percent in August 2021.
  • Looking at sale-to-list percentages can help buyers and sellers get a sense of how to negotiate prices.
  • A higher ratio of 100% or above shows a strong market favoring sellers.
  • August's price per square foot was $406, up from $395 in August a year ago.

These monthly and yearly trend numbers can be positive or negative depending on which side of the fence you are — Buyer or Seller?

“California’s housing market stabilized briefly as a temporary reprieve on mortgage rates in July and early August brought buyers into the market,” said C.A.R. President Otto Catrina, a Bay Area real estate broker and REALTOR®. “Active listings have passed their annual peak, and while homes are taking slightly longer to sell, the share of homes seeing price reductions has also stabilized to near pre-pandemic levels. In fact, price growth in August actually picked up on both a monthly and annual basis, and pending sales suggest a bounce-back for homes priced $2 million and above.”

Housing Affordability in California

Housing costs have been on the rise in California, which has impacted affordability. Only twenty-four percent of California households could afford to purchase the $797,000 median-priced home in the first quarter of 2022, down from 25 percent in fourth-quarter 2021 and down from 27 percent in first-quarter 2021.

According to C.A.R.'s Traditional Housing Affordability Index (HAI), the percentage of home buyers who could afford to purchase a median-priced, existing single-family home in California in the first-quarter 2022 was down to 24 percent from 25 percent in the fourth quarter of 2021 but was down from 27 percent in the first quarter of 2021. The first-quarter 2022 figure is less than half of the affordability index peak of 56 percent in the first quarter of 2012.

California Housing Affordability Index
Source: Q1 2022 Housing Affordability Index By C.A.R.

C.A.R.’s HAI measures the percentage of all households that can afford to purchase a median-priced, single-family home in California. C.A.R. also reports affordability indices for regions and select counties within the state. The index is considered the most fundamental measure of housing well-being for homebuyers in the state.

  • A minimum annual income of $158,000 was needed to qualify for the purchase of a $797,000 statewide median-priced, existing single-family home in the fourth quarter of 2022.
  • The monthly payment, including taxes and insurance on a 30-year, fixed-rate loan, would be $3,950, assuming a 20 percent down payment and an effective composite interest rate of 3.97 percent.
  • The effective composite interest rate was 3.28 percent in the fourth quarter of 2021 and 3.08 percent in the first quarter of 2021.
  • A minimum annual income of $148,000 was needed to make monthly payments of $3,700
  • It included principal, interest, and taxes on a 30-year fixed-rate mortgage at a 3.28 percent interest rate.
  • Thirty-two percent of home buyers were able to purchase the $640,000 median-priced condo or townhome.
  • A minimum annual income of $126,800 was required to make a monthly payment of $3,170.
  • Compared with California, nearly half of the nation’s households could afford to purchase a $368,200 median-priced home.
  • Which required a minimum annual income of $73,200 to make monthly payments of $1,830.
  • Nationwide affordability was down from 54 percent a year ago.

References/Data Sources

  • https://www.car.org/
  • https://www.car.org/aboutus/mediacenter/newsreleases
  • https://www.car.org/marketdata/data/countysalesactivity
  • https://www.car.org/marketdata/marketforecast
  • https://www.car.org/marketdata/marketminute
  • https://www.car.org/marketdata/interactive/housingmarketoverview
  • https://www.zillow.com/ca/home-values
  • https://lao.ca.gov/LAOEconTax/Article/Detail/265
  • https://sf.curbed.com/2020/3/23/21188781/sf-housing-market-coronavirus-covid-19
  • https://www.ppic.org/publication/new-patterns-of-immigrant-settlement-in-california
  • https://fox40.com/news/business/local-real-estate-market-slows-amid-covid-19-pandemic
  • https://www.point2homes.com/news/us-real-estate-news/experts-california-real-estate-2020.html
  • https://www.washingtonpost.com/business/2020/02/27/mortgage-rates-head-back-down-coronavirus-fears
  • https://www.cnbc.com/2020/03/18/weekly-mortgage-applications-drop-over-8percent-as-interest-rates-jump.html
  • https://www.usnews.com/news/business/articles/2020-03-25/business-fallout-companies-in-china-see-delays-in-reopening
  • https://www.dallasnews.com/business/real-estate/2020/03/25/homeowners-who-cant-pay-their-mortgages-are-getting-help
  • https://www.wfsb.com/news/businesses-considered-essential-under-stay-safe-stay-home-policy/article_53f8e0d0-6d17-11ea-a04d-57ecbb72c518.html

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Contact

Norada Real Estate Investments 30251 Golden Lantern, Suite E-261 Laguna Niguel, CA 92677

(949) 218-6668
(800) 611-3060
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