The California housing market continues to perform well as buyers enter the market in anticipation of rising mortgage rates. The 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. While January 2022 marked the first time since July 2020 that the state's median price did not increase by double digits on an annual basis, the statewide median price is expected to edge higher in the coming months as the market enters the spring homebuying season.
California housing market remained highly competitive in April 2022. It was mainly due to rising interest rates and the low housing inventory which is keeping the sense of urgency to buy among the prospective homebuyers. California's median home price increased to a new all-time high of $884,890 in April, exceeding the previous record of $849,080 set in March and breaking the $800,000 barrier for the second time in six months, according to C.A.R.
Another record was set for the second consecutive month, primarily due to robust sales at the premium end of the market. The April price was 4.2 percent higher than the March price of $849,080 and 8.7 percent higher than the April 2017 price of $814,010. The year-over-year increase was the smallest since June 2020, but it was still sufficient to establish a new state price peak. The month-to-month percentage change was greater than the long-term average of 2.3% between March and April over the previous 43 years, according to the California Association of Realtors®.
April's sales pace was down 1.9 percent from March's 426,970 and down 8.5 percent from last year's annualized rate of 458,170. The April sales decline is consistent with the -1.6 percent long-term change recorded between March and April. However, the annual sales decline was the largest decline in the previous four months. In April, sales were down 7.4 percent on a year-to-date basis.
- Sales in high-priced California sub-markets continue to outpace those in more affordable areas.
- The percentage of million-dollar home sales increased for the third consecutive month, reaching an all-time high of 34.7%.
- Sales of homes priced at less than $500,000 reached their lowest level ever.
- Below $750,000, sales decreased by double digits.
- Sales above $2 million continued to rise year over year.
- It is anticipated that the shift in the sales mix toward luxury homes will continue in the coming months.
The supply-demand imbalance continues to heat the market, with many buyers offering sales bids that are higher than the asking price. Market competitiveness was less heated than a few months ago but remained elevated in February. The statewide median sales-price-to-list-price ratio remained above 100 percent, at 104.2. Nearly 72.8 percent still sold above the asking price in April and it was a new record.
Homes are still flying off the shelves in record time. The median number of days required to sell a single-family home in California was 8 days in April and 7 days in April 2021. Tight inventory and low mortgage rates, similar to national housing market trends, are fueling the rise in California home prices. While this type of price appreciation has an impact on housing affordability, higher home prices should encourage more sellers to list their homes for sale, slowing the rate of appreciation.
Table of Contents
Will Housing Become Less Affordable 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.
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.
California is still a seller’s market and home prices have reached record-highs across all the regions due to tight supply. The supply-demand imbalance, combined with low borrowing costs, continued to drive up property prices. Nearly 73% of homes sold above the asking price in April 2022. New construction can’t keep up with demand in the California housing market. Every major region saw home prices continuing to increase from last year as buyers competed amid a shortage of homes for sale. There is an increase in demand leading to bidding wars and subsequent higher selling prices.
These trends show us that the California housing market remains very competitive. Growth of sales are prices are driven by low mortgage rates, buyers seeking more living space, and a perennial shortage of housing supply. Homes are selling quickly with a minimal price reduction. The statewide sales-price-to-list-price ratio was 104.2 percent in April 2022 and 103.3 percent in April 2021. If it's less than 100%, the home sold for less than the list price.
High demand across all of California's sub-markets means that low inventory and lightning-fast market conditions are not going away soon. There just aren’t enough homes listed for sale to satisfy the demand from buyers. California’s Unsold Inventory Index (UII) was 1.8 months as it inched up slightly from last month and from the same month a year ago. 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.
In April 2022, at the regional level, home sales in all major California regions declined from a year ago, with three of the five regions falling by double-digits on a year-over-year basis. Home prices in all major California regions, except the Far North, continued to surge from last year by double-digits, with three of them reaching a new record high in April. The San Francisco Bay Area recorded the highest year-over-year price growth with an increase of 15.9 percent.
- The San Francisco Bay Area had the highest year-over-year price gain of 15.9 percent, with the median price being $1,540,000.
- The Central Coast had a year-over-year price gain of 13.4 percent, with the median price being $1,050,000.
- Southern California had a year-over-year price gain of 11.7 percent, with the median price being $837,500.
- The Central Valley had a year-over-year price gain of 14.9 percent, with the median price being $500,000.
- The Far North had a year-over-year gain of 8.9 percent, with the median price being $400,000.
- The Los Angeles Metro Area had a year-over-year price gain of 10.3 percent, with the median price being $800,000.
- Inland Empire had a year-over-year price gain of 16 percent, with the median price being $580,000.
Will The Housing Market Go Up or Down in California in 2022?
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 March 2022, the overall housing sentiment index reached 67 (unchanged 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 17% in March, an increase from 16% last month. Still, about one in every four consumers is holding out hope that it will be easier to find a home in the next 12 months and nearly two in every three believe that home prices will rise over the same period of time.
Despite the robust gain in home prices and rising interest rates, homebuyer demand remains unexpectedly strong. 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 closed sales and C.A.R. is still forecasting at least 10% growth in home sales this year. Here's what consumers feel at this time.
Is it a good time to buy a home in California?
C.A.R.’s monthly Consumer Housing Sentiment Index for March 2022 found that only 17% of consumers believe that now is the good time to buy a home, and 83% think this is not a good time to buy a home. The overall housing sentiment is unchanged from last month. As a result of continuously rising prices in all the major regions, the housing market sentiment also shows that only 26% of the consumers feel that it will be easier to find a home over the next twelve months (+1 from last month's survey). 74% said it won't be easier to find their dream house.
Is it a good time to sell a home in California?
According to the survey, more than one-third (75 percent) of Californians believe now is a good time to sell a home. That’s an increase of +3% over the Feb 2022 poll. More than half of the consumers (64%) 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. Less than half of the people are optimistic about the economy's recovery. Only 31% (-5% from last month) believe that economic conditions will improve in the state over the next 12 months while 70% still have a gloomy outlook.
California Housing Market Forecast 2022
Let us look at the price trends recorded by Zillow over the past few years. Since the last decade (May 2012), California home values have appreciated by nearly 158% — 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 $790,475. It indicates that 50 percent of all housing stock in the area is worth more than $790,475 and 50 percent is worth less (adjusting for seasonal fluctuations and only includes the middle price tier of homes).
In April 2021, the typical value of homes in California was around $646,000. Home values have gone up 22.3% over the last twelve months. 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.
Here's a rundown of the forecast released last year by CAR
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.
Latest Weekly Trends & Forecast From California REALTORS®
CAR's latest weekly housing data for the week ending April 09, 2022, shows that buyer demand continues to be robust, albeit slightly lower than last year's record highs. More new inventory is being added. Mortgage rates continue to climb as the market expects the Feds to be aggressive in raising rates in the coming months to combat inflation. The average 30-year fixed-rate mortgage inched up to 4.72% last week from 4.67% in the prior week, reaching the highest level since December 2018.
As the Federal Reserve prepares to boost target interest rates, and despite rising mortgage rates, the housing market remains exceedingly competitive. Despite the uptick in mortgage rates, the California housing market has been stable thus far this year, and there are hints that the coming months may see a healthy homebuying season.
According to CAR, the supply situation should improve in the near future, since numerous potential sellers have indicated that they intend to list their properties over the next six months. Meanwhile, home prices are likely to climb as well, but at a slower pace than early this year. Concerns about the economy are growing that the central bank's balancing task may precipitate a recession in 2023. However, it is still too early to say if the Fed's move would result in a soft landing or a recession.
According to a new Realtor.com® survey, more than two-thirds of homeowners planning to sell in 2022 anticipate listing within the next six months or by August. Indeed, nearly half (45.4 percent) of them intend to list their home in the next three months. As a result, the housing market should experience an increase in the number of for-sale properties as spring and summer progress.
However, with the market staying competitive, four out of ten (42%) homeowners planning to sell this year stated that they will ask for more than their home is worth. Over a quarter (28%) do not intend to pay for any repairs or enhancements discovered during the inspection process, and nearly one-fifth (19%) will not accept certain contingencies.
With the statewide median price expected to increase by double digits year over year in 2022, home equity is expected to continue to grow. According to the results of the 2021 Annual Housing Market Survey, home sellers typically pocketed a net cash gain of $322,500 upon selling their homes. This represents a 95.5% increase over the purchase price. And less than 1% of all sellers experienced a net loss on their home sales in 2021, which is significantly less than the long-run average of 9.9% dating all the way back to 1994. Home sellers who stayed in their homes for less than five years earned a profit of 33.3 percent, while those who stayed for five or more years earned a profit of 135.1 percent.
In 2021, low-interest rates have been continuing to attract first-time buyers. While the share of sales is down from 38.4 percent in 2020, first-time buyers still account for more than a third (35.5 percent) of homes sold this year, the highest share since 2013. First-time buyers are finding it more difficult to purchase a home as monthly mortgage payments continue to rise. With interest rates expected to rise and home prices expected to increase slightly in 2022, the affordability challenge for first-time buyers is likely to deteriorate further in the coming year.
Here's a rundown of the California market competitiveness for the week ending April 09, 2022.
- Median Listing Price = $749K
- Median Listing Prices Per Sq. Ft. = $425
- Median Closed Price = $0.81M
- Median Closed Prices Per Sq. Ft. = $453
- % of Active Listings w/Reduced Price = 17.8%
- Median Reduction on Reduced-Price Listings % = -5.1%
- % of Sales Closed Below List Price = 17.8%
- % of Homes Closed Above List Price = 74%
- Median Overage on Homes Closing Above List = 7.4%
- Median Days on Market = 10 days
California Real Estate Market Trends 2022
Here are some of the key points of the California housing market report for April 2022, according to the May 17, 2022 release by C.A.R.
Existing-Home Sales
- April’s sales pace was down 1.9 percent on a monthly basis from 426,970 in March.
- It was down 8.5 percent from a year ago when 458,170 homes were sold on an annualized basis.
- The annual sales drop, however, was the biggest decline in the last four months.
- On a year-to-date basis, sales were down 7.4 percent in April.
- At the regional level, nearly all major regions in California with three of the five regions falling by double-digits on a year-over-year basis.
- The Central Coast region recorded the sharpest sales decline of all regions again, dropping 21.3 percent from a year ago.
- The San Francisco Bay Area (-18.1 percent) and Southern California (-16.0 percent) were the other two major regions with sales declines exceeding 10 percent from a year ago.
- Sales in 29 California counties fell more than 10 percent from a year ago.
- Counties with a sales drop from last year decreased an average of -16.3 percent in April.
- Mono had the largest decline of all counties in April, falling 70.0 percent from a year ago.
- 19 counties experienced a sales gain from last year, with Yuba (43.2 percent) surging the most.
California Median Home Price
- Median prices in all major regions continued to grow on a year-over-year basis except the Far North.
- The San Francisco Bay Area outpaced the rest of the state with a 15.9 percent year-over-year gain.
- It was followed by the Central Valley (14.9 percent), the Central Coast (13.4 percent), Southern California (11.7 percent), and the Far North (8.9 percent).
- Forty-five out of 51 counties tracked by C.A.R. recorded a price increase in April.
- 26 counties set new record high median prices.
- Thirty-three of them had a double-digit gain from a year ago with Mono surging the most at 142.6 percent.
- Median prices declined in six counties with Plumas declining the most at -12.5 percent.
California Housing Supply
- The overall housing supply condition in California improved in April, with the statewide Unsold Inventory Index (UII) inching up slightly from last month and from the same month a year ago.
- California’s Unsold Inventory Index (UII) was 1.8 months.
- 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.
- The number of active listings surged more than 20 percent on a year-over-year basis and recorded the highest yearly growth in properties for sale since January 2019.
- Active listings in April climbed to the highest level in seven months.
Median Days & Sales Price to List Price Ratio
- The median number of days required to sell a single-family home in California was 8 days in April and 7 days in April 2021.
- C.A.R.’s statewide sales-price-to-list-price ratio was 104.2 percent in April 2022 and 103.3 percent in April 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.
- The statewide average price per square foot for an existing single-family home remained elevated.
- February's price per square foot was $433, up from $383 in April a year ago.
- It rose above the $400 for the second time.
These monthly and yearly trends numbers can be positive or negative depending on which side of the fence you are — Buyer or Seller? Home sales rebounded in June 2020 for the first time since the pandemic and California’s median home price reached $626,170, improving 6.5 percent from May and 2.5 percent from June 2019. The monthly price increase was higher than the historical average price change from May to June and was the highest ever recorded for a May-to-June change.
Factors are businesses reopening, mortgage payments are falling, and some sellers are more ready and eager to sell. Sales remain strong in a traditional off-season and the new year looks promising across the region. Home sales fell in April 2022, C.A.R. reported, but the California housing market remained resilient. Median prices in all major regions continued to increase — showing signs that the listings crunch is thawing.
“As rates remain on the rise, the sense of urgency to buy is keeping the market highly competitive, especially since housing inventory continues to stay well below pre-pandemic levels,” said C.A.R. President Otto Catrina, a Bay Area real estate broker, and REALTOR®. “While we will likely see more listings come on to the market as we move further into the home-buying season, the housing shortage issue will likely persist throughout the rest of the year in major metropolitan areas, such as the Bay Area and the Southern California region.”
Whether you’re looking to buy or sell, timing your local market is an important part of real estate investment. For sellers in the California housing market, it is a good time to sell. A low inventory would keep the prices from falling. Sales Price to List Price ratio has been 104.2% in April 2022 and nearly 73% of homes were sold above their initial asking prices on MLS. A seller would always prefer this ratio to be close to 100% or higher. C.A.R.’s monthly Consumer Housing Sentiment Index dropped 2 points from last month as consumers acknowledged the current market challenges and felt increasingly pessimistic about homebuying opportunities.
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
