Will the California Housing Market Crash?
High-interest rates continued to dampen the sales in the California housing market. A brief reprieve from rising interest rates helped California house sales break a three-month sales slump in December, but they remained below the 250,000 mark for the second consecutive month. Home sales have fallen for 17 straight months year over year, and it was the fourth time in the last five months that sales dropped more than 30 percent from the year-ago level, according to the California Association of Realtors®.
Their report showed that there was an uptick in December’s home sales as buyers took advantage of a slightly more favorable lending environment. California home sales remained suppressed in all price points but sales at higher price points are falling faster. The price segment of $2,000k+ declined the most at 53% YoY. Pending sales improved on a monthly basis, inching up across all price points as mortgage rates cooled.
The median home price in California stayed on a decreasing trend for the fourth consecutive month and has been declining for six of the past seven months. December's median price of $774,580 was down 0.4% from November's median price of $777,500. The December price was also lower year-over-year for the second straight month, falling 2.8% from the $796,570 recorded in December of 2017.
California's typical home price climbed by 4.5 percent in 2022 compared to 2021's number of $786,750 but is projected to fall by 8.8 percent in 2023. As new active listings continued to decline to the lowest level in at least the last five years, the lack of housing inventory was the key factor stopping prices from plummeting.
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“It’s encouraging to see an uptick in December’s home sales as buyers took advantage of a slightly more favorable lending environment that provided them with a window of opportunity to enter the California housing market,” said C.A.R. President Jennifer Branchini, a Bay Area REALTOR®. “As buyers and sellers gradually adapt to the new normal, we are seeing a shift toward a more balanced market. With both sides slowly adjusting their expectations, it’s hopeful that we’ll see sales ratcheting higher as market conditions improve further throughout 2023.”
At the regional level, all major regions recorded year-over-year sales drops of more than 35 percent, with Southern California incurring the biggest decline of all regions for the third month in a row at -48.3 percent. The Central Coast was the other region in the state with a drop of over 40 percent (-45.9 percent), followed by the Central Valley (-39.3 percent), the Far North (-38.3 percent), and the San Francisco Bay Area (-37.4 percent).
At the regional level, all major regions experienced a reduction in median home prices from a year earlier, with the San Francisco Bay Area suffering the largest annual price decline of 9.6 percent. All nine counties in the Bay Area witnessed a median price reduction year-over-year, with four of the nine counties experiencing a decline of more than 10 percent. The median price in the Far North decreased at a modest rate of -7.7 percent, followed by the Central Valley (-4.4 percent), Central Coast (-3.3 percent), and Southern California (-3.3 percent) (-0.9 percent).
- San Francisco Bay Area had the highest year-over-year price decline of 9.6 percent, with the median price being $743,180.
- Southern California had a year-over-year price decline of 0.9 percent, with the median price being $1,084,500.
- The Central Coast had a year-over-year price decline of 3.3 percent, with the median price being $869,860.
- The Central Valley had a year-over-year price drop of 4.4 percent, with the median price being $430,000.
- The Far North had the highest year-over-year drop of 7.7 percent, with the median price being $350,000.
California Housing Market Forecast for 2022
A supply-demand imbalance will continue to put upward pressure on prices, but higher borrowing rates and partial adjustment of the sales mix will likely limit the median price rise. Looking at the current market shift, C.A.R. has reduced its 2022 housing prediction. The 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.
The California median home price is forecast to rise 5.2 percent to $834,400 in 2022, following a projected 20.3 percent increase to $793,100 in 2021 from $659,400 in 2020. 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.
Housing affordability is expected to drop to 23 percent next year from a projected 26 percent in 2021. Furthermore, as the trend of remote working continues, a change in housing demand to more affordable places will keep prices in check and prevent the statewide median price from climbing too quickly in 2022, according to the CALIFORNIA ASSOCIATION OF REALTORS®.
Latest California House Prices & Sales Trends [December 2022]
Here are some of the key points of the California housing market report for December 2022, according to C.A.R.
Existing-Home Sales Trends
- December’s sales pace was up 1.1 percent on a monthly basis from 237,740 in November.
- It was also down 44.1 percent from a year ago when 429,860 homes were sold on an annualized basis.
- For the year as a whole, statewide home sales were down 23.1 percent from 2021.
- At the regional level, all major regions experienced sharp declines of more than 35 percent from last year.
- Southern California had the biggest decline of all regions for the third month in a row at -48.3 percent.
- The Central Coast was the other region in the state with a drop of over 40 percent (-45.9 percent).
- The Central Valley (-39.3 percent), and the Far North (-37.4 percent) also posted sales declines of more than 35 percent from last year.
- The San Francisco Bay Area (-37.4 percent) recorded the smallest sales declines among the five major regions in California.
- Every C.A.R. county reported a double-digit sales loss from December of last year.
- As mortgage rates doubled in 2022, sales in 43 of 51 counties fell by more than 30%.
- Del Norte (-65.5 percent) had the largest sales drop in December.
California Home Price Trends
- Sharp decreases in housing demand continued to push down home prices in all five major regions in California.
- San Francisco Bay Area experienced the biggest price decline from last year at -9.6 percent.
- All nine counties in the Bay Area witnessed a median price reduction year-over-year, with four of the nine counties experiencing a decline of more than 10 percent.
- The median price in the Far North decreased at the rate of -7.7 percent, followed by the Central Valley (-4.4 percent), Central Coast (-3.3 percent), and Southern California (-3.3 percent) (-0.9 percent).
- In December, two-thirds of all counties continued to see negative year-over-year price growth, with the median price in ten counties falling by more than 10 percent.
- The county with the greatest yearly decline was Lassen (-41.8%), followed by Mono (-21.3%) and Napa (-19.2%).
- In 16 counties, the median price was more than it was a year earlier, with three of those counties posting double-digit increases.
- The county with the greatest annual price increase was Del Norte, with a 13.8% increase.
California Housing Supply
- Housing inventory in California continued to rise from the previous year but dipped on a month-to-month basis as the year came to an end.
- The statewide Unsold Inventory Index (UII) was more than double the 1.2 months recorded in December 2021
- It was down from the 3.3 months registered in November.
- 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.
- All price categories experienced a 92 percent or greater increase in UII from a year ago.
- With the $1 million and above price group experiencing the greatest increase (154.5 percent).
- In 47 of the 51 counties tracked by C.A.R., the number of active listings increased compared to December of last year, as a result of the dramatic decline in housing demand.
- Thirteen counties experienced a year-over-year increase in the triple digits, with Marin leading the pack with a growth rate of 151.3 percent.
- Only two counties saw a fall in active listings from the previous year: Del Norte with a 22.7 percent annual decline and Plumas with a 4.8 percent decline from last December.
Median Days & Sales Price to List Price Ratio
- The median number of days it took to sell a California single-family home was 28 days in December and 12 days in December 2021.
- C.A.R.’s statewide sales-price-to-list-price ratio was 96.2 percent in December 2022 and 101.2 percent in December 2021.
- It was below 100 percent for the fifth time since June 2020.
- 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.
- The statewide average price per square foot for an existing single-family home was $377, down from $382 in December a year ago.
California Housing Market Forecast 2023
Here's the California Housing Forecast for 2023 released by the C.A.R. on October 12, 2022. A modest recession caused by an ongoing battle against inflation will keep interest rates elevated to suppress buyer demand and contribute to a weaker housing market in 2023, according to a housing and economic forecast released today by the CALIFORNIA ASSOCIATION OF REALTORS®. High inflationary pressures will keep mortgage rates high, reducing purchasing power and lowering property affordability for prospective purchasers in the coming year. As a result, housing demand and prices will fall throughout 2023.
- Existing, single-family home sales are forecast to total 333,450 units in 2023, a decline of 7.2 percent from 2022’s projected pace of 359,220.
- California’s median home price is forecast to decline 8.8 percent to $758,600 in 2023, following a projected 5.7 percent increase to $831,460 in 2022.
- Housing affordability is expected to drop to 18 percent next year from a projected 19 percent in 2022.
According to C.A.R.'s “2023 California Housing Market Forecast,” existing single-family home sales will fall 7.2 percent next year to 333,450 units, down from 359,220 units in 2022. The forecast for 2022 is 19.2 percent lower than the 444,520 residences sold in 2021. The median home price in California is expected to drop 8.8 percent to $758,600 in 2023, after rising 5.7 percent to $831,460 in 2022 from $786,700 in 2021. Next year's median price rise will be slowed by a less competitive housing market for homebuyers and a stabilization in the mix of home sales.
According to C.A.R.'s 2022 projection, the U.S. gross domestic product of 0.5 percent in 2023, after a projected uptick of 0.9 percent in 2022. With California’s 2023 nonfarm job growth rate at 1.0 percent, up from a projected increase of 4.9 percent in 2022, the state’s unemployment rate will edge up to 4.7 percent in 2023 from 2022’s projected rate of 4.4 percent.
Stubbornly high inflation and growing economic concerns will keep the average for 30-year, fixed mortgage interest rates elevated at 6.6 percent in 2023, up from 5.2 percent in 2022 and from 3.0 percent in 2021 but will remain relatively low by historical standards.
Let us look at the price trends recorded by Zillow over the past few years. Since the last twelve months, California home values have appreciated by nearly 4.4% — 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 $760,644. It indicates that 50 percent of all housing stock in the area is worth more than $760,644 and 50 percent is worth less (adjusting for seasonal fluctuations and only includes the middle price tier of homes).
- Typical Home Value in California: $760,644 as of December 31, 2022
- 1-year Value Change: +4.4%
- 0.996 is the Median sale to list ratio as of November 30, 2022
- 34.1% Percent of sales over list price as of November 30, 2022
- 50.9% Percent of sales under list price as of November 30, 2022
California Housing Market Continues to Slow Down in January – Weekly Trends
According to C.A.R., with prices declining, consumers' assessments of their current status and expectations for the future improved, but remain historically low. And while the real estate market remains sluggish and fewer REALTORS® than in previous years are optimistic about future listings, sales, and prices, the most recent decline in mortgage rates has continued to stimulate mortgage application activity and offer optimism that the market may have already reached its bottom.
REALTORS® start the year less confident: REALTORS® expect the market to pick up in the new year, according to C.A.R.'s monthly member poll. As the home market continues to struggle, fewer of them are confident this year. The latest survey revealed the fewest share of respondents who expect listings would be up compared to the same month of the prior two years.
Despite quadrupling from December to January, the share of people expecting more sales was the lowest in three years. However, the 2.45% of REALTORS® who thought prices will rise behind the same month a year earlier by 43.85% while being the greatest share in the recent 6 months.
Rates fall, mortgage applications rise: As rates fell, mortgage applications rose 1.2% from the week before to January 6. Mortgage applications continue to fluctuate week-to-week due to interest rate adjustments. Despite a small interest rate relief, seasonally adjusted purchase applications fell 1% from the week before to the lowest level since 2014. Due to a large weekly rate drop, refinancing applications jumped 5%. As of January 12, the 30-year fixed-rate mortgage (FRM) averaged 6.33%, down from 6.48% the week before.
Is It a Good Time to Buy a Home in California?
The percentage of REALTORS® who believe sales will increase in the foreseeable future increased to 23.5%. Members indicate reduced demand, but a lack of listings keeps inventory reasonably tight. According to C.A.R.'s, 3.4% of REALTORS® polled believe that prices will increase and 23.5% think that sales will increase in the California housing market. The proportion of responders who think that listings will increase was 39.9%, an increase of 15.8% from the previous week.
Weekly Real Estate Trends and Forecast in California [January 2023]
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 January 14, 2022.
California Active & Closed Median Home Prices Trends
- Existing SFR Active Listings = 32,000
- Year-to-Year Existing SFR Active Listings Growth = 45.8%
- Median New Listing Price = $710,000
- Year-to-Year New Existing SFR Median List Price Growth = 1.6%
- Month-to-Month New Existing SFR Median List Price Growth = 3.6%
- Median New Listing Prices Per Sq. Ft. = $400
- Existing SFR Median Closed Prices = $695,000
- Year-Over-Year Existing SFR Median Closed Price Growth = 0%
- Month-to-Month New Existing SFR Median Closed Price Growth = -0.4%
- Existing SFR Median Closed Prices Per Sq. Ft = $397
California Housing Market Competitiveness
- % of Active Listings w/Reduced Price = 41.5%
- Median Reduction on Reduced-Price Listings % = -5.5%
- % of Sales Closed Below List Price = 69.8%
- Median Reduction on Reduced-Price Sales % = -6.3%
- % of Homes Closed Above List Price = 19%
- Median Overage on Homes Closing Above List = 2.6%
- Median Days on Market for Closed Sales = 38
- Median Days on Market for Active/Unsold Homes = 70
Housing Affordability Trends in California – 3rd Quarter
Housing costs have been on the rise in California, which has impacted affordability. The CALIFORNIA ASSOCIATION OF REALTORS® reported that housing affordability in California rebounded in the third quarter, with the statewide index for existing single-family home sales inching up to 18 percent from a 15-year low of 16 percent in the second quarter of 2022.
According to C.A.R.'s Traditional Housing Affordability Index, the proportion of California homebuyers who could afford to purchase a median-priced, existing single-family home in the third quarter of 2022 increased to 18 percent from 16 percent in the second quarter of 2022 but decreased from 24 percent in the third quarter of 2021. In the first quarter of 2012, California had a peak affordability index of 56 percent.
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 $192,800 was needed to make monthly payments of $4,820, including principal, interest, and taxes on a 30-year fixed-rate mortgage at a 5.72 percent interest rate.
- Nearly 30 percent (27 percent) of California home buyers were able to purchase the $630,000 median-priced condo or townhome.
- A minimum annual income of $146,400 was required to make a monthly payment of $3,660.
- A minimum annual income of $192,800 was needed to qualify for the purchase of an $829,760 statewide median-priced, existing single-family home in the third quarter of 2022.
- The monthly payment, including taxes and insurance on a 30-year, fixed-rate loan, would be $4,820, assuming a 20 percent down payment and an effective composite interest rate of 5.72 percent.
- Despite the sizable quarter-to-quarter drop in median price, the share of households in California that could afford to buy a median-priced condominium or townhome continued to slide from last year as the cost of borrowing remained high.
- Twenty-seven percent of California households earned the minimum income to qualify for the purchase of a $630,000 median-priced condo/townhome in the third quarter of 2022.
- It required an annual income of $146,400 to make monthly payments of $3,660.
- The third quarter 2022 figure was down from 37 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
