Home prices & sales are moderating across the Southern California housing market. In Southern California, the median home price is not rising by double-digits anymore. That trend is over. After a two-year housing boom, the housing market in Southern California is finally moderating. As expected, in October 2022, the median house price in Southern California declined 1.2% from September. Still, the median was 3.2 percent more than it was a year ago.
This year, mortgage rates have risen from the low 3 percent and topped 7%. Rising mortgage rates made houses even less affordable for many people in Southern California. It has significantly increased the monthly cost of a property and diminished the loan amounts available to borrowers. As fewer individuals are house hunting, houses are remaining on the market for longer, offering the remaining buyers greater alternatives.
According to the latest C.A.R. report, Southern California continued to have the biggest annual drop in sales of single-family homes at 40.8 percent, as every county within the region experienced a sales decline of more than 30 percent in October. Sales also dropped 12.9% from the previous month. The Southern California median home price — the point at which half of the homes sold for more and half for less — was 773,810, 3.2% more than last October when it was $750,000. Sales of condos and townhomes also dropped from a year earlier.
According to a forecast released by the California Association of Realtors, the expected average for 30-year, fixed mortgage interest rates elevated at 6.6% in 2023, up from 5.2% in 2022 and from 3.0% in 2021. The California median home price is forecast to drop 8.8% to $758,600 in 2023, following a projected 5.7% increase to $831,460 in 2022 from $786,700 last year. Home prices statewide and in Southern California are projected to decrease by approximately 7% in 2023 compared to 2022.
<<<Also Read: California Housing Market Forecast 2023: Will Price Drop?>>>
Southern California Home Sales Fell in October 2022
The Southern California housing market has slowed significantly in recent months, owing to rising mortgage rates, which have priced many would-be buyers out of the market. Here's how individual counties of Southern California are setting or matching price records as compared to last October (Data released by C.A.R.).
San Bernardino again led the pack with the highest sales drop of 47.9% over last year. San Bernardino is also the most affordable with a median price of $465,000 for existing single-family homes. Orange County is the most expensive real estate market in Southern California with a median sales price of $1,165,000. Sales declined in all counties of Southern California by more than 30 percent.
- In Los Angeles County, the median price rose 0.6% to $854,280 in October, while sales decreased by 39.8%.
- In Orange County, the median price rose 4% to $1,165,000, while sales decreased by 38.5%.
- In Riverside County, the median price rose 3.4% to $599,990, while sales decreased by 41.5%.
- In San Bernardino County, the median price rose 4.5% to $465,000, while sales decreased by 47.9%.
- San Bernardino County also had the highest increase in median price among all six counties.
- In San Diego County, the median price rose 1.2% to $860,000, while sales decreased by 40.7%.
- In Ventura County, the median price rose 3% to $855,000, while sales decreased by 33.5%.
A Zillow home price measure that attempts to account for such changes in the mix of homes selling shows that the price of a typical home in Orange County is still above $1 million, and overall prices in Southern California haven't fallen as much as the median indicates. In its recent report, the real estate group reported that the average price of a home in Southern California has dropped 6% since May — the biggest drop since 2012.
San Bernardino County has experienced a 0.5% loss since the peak, while San Diego County has experienced a 2.6% decrease. Home prices in every county are higher than they were a year ago, an indication of the robust demand that existed before interest rates skyrocketed. Regionally, the median sales price is 4.6% more than it was a year ago; when combined with rising interest rates, this makes housing significantly less affordable than it was in 2021.
Southern California Housing Market Forecast 2022 & 2023
The housing market in the United States, and notably in Southern California, has been impacted as a direct result of rising mortgage rates. As a result of falling sales and rising inventory, a growing number of potential buyers and sellers are pondering whether or not home prices will fall in 2022 or 2023. According to some experts, both national and Southern California prices will fall next year, owing in part to the increasingly expected recession.
As the recession comes closer, some industry analysts feel the scenario is becoming more realistic, and some of them have even modified their predictions to call for price cuts in 2023. These forecasts are a divergence from those made earlier this year when the vast majority of industry professionals were of the opinion that increased mortgage rates would only postpone price appreciation. That is, home prices would proceed to go up, but at a more gradual pace compared to those seen in the preceding two years in Southern California.
A significant number of industry professionals maintain the view that a scenario involving slower development is the one that is most likely to occur. There are very few well-known analysts who anticipate price declines on par with those that were seen during the Great Recession if any at all. However, the rapidity with which the housing market is transforming is shown by the fact that a number of prominent analysts have already predicted that prices will fall in the Southern California real estate market, which is something that has not occurred for more than a decade.
Home prices are going to fall in California, according to Jordan Levine, chief economist for the California Association of Realtors. In response to falling demand, an increasing number of home sellers have reduced the prices at which their houses are placed for sale. If overall sales prices are to fall in the future, this is the first step that must be taken. Levine anticipates the California median sales price to rise 9.7% year on year in 2022, a substantial decrease from the over 20% growth projected in 2021.
Then in 2023, he expects the Federal Reserve’s actions to fight inflation will cause a mild recession, and the combination of job losses and higher rates will cause the statewide median price to fall 7.1% compared with this year, with similar declines in Southern California housing market specifically. Southern California home prices will either decline or should be largely flat over the next few years.
The job recovery trend is good, and the prospect of resuming all jobs lost due to the pandemic is becoming more tangible. Despite greater inventory levels and rising borrowing costs, the Southern California housing market is nevertheless operating strongly. However, the frenzied rate of activity during the last 18 months or so will reduce, but not to an alarming degree. The market remains favorable to house sellers, and they remain in control.
Will Home Prices Drop in Southern California Housing Market?
The following analysis of select counties of the Southern California real estate market is provided by Windermere Real Estate Chief Economist Matthew Gardner.
Southern California Home Sales
- In the third quarter, 38,356 homes were sold, a 31.8% decrease from the previous year and a 19.4% decrease over the second quarter.
- Pending house sales, which are a predictor of future closings, were down 16.2% from the second quarter.
- San Diego County reported the greatest drop in sales, while other counties also suffered substantial drops.
- Relative to the second quarter, transactions were lower across the board, with Riverside County experiencing the greatest decline (-24.1%).
- Listing activity rose an average of 41.6% compared to the second quarter.
- With more choice in the market and median list prices down 6.8% from the second quarter, it seems that many would-be buyers are sitting on the fence to see if prices will fall further.
Southern California Home Prices
- Home prices in the third quarter rose 4.6% compared to a year ago but were 7.1% lower than in the second quarter of 2022.
- The region saw double-digit price growth in Orange County.
- But the overall trend has shown price growth starting to slow.
- In Los Angeles County, home prices rose by only 1.2% year over year.
- This price adjustment due to higher mortgage rates is expected to be temporary, and owners still have ample equity in their homes.
- Mortgage rates will remain in the 6% range until the end of 2023.
Southern California Days on Market
- The average time it took to sell a property in Southern California in the third quarter of 2022 was 25 days.
- It was 7 days more than a year before and 9 days more than in the second quarter of the year.
- San Diego County homes continue to sell quicker than in other markets in the region.
- All counties saw market time increase year over year.
- More homes for sale and higher financing costs have led to increased days on market.
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