The California housing market is experiencing some interesting shifts. As we enter the new year, it's essential to understand the current trends and how they could impact buyers, sellers, and investors. In this article, we'll explore the latest data from the California Association of Realtors (C.A.R.) and provide insights into what lies ahead.
Slowing Economy and Home Sales
In November, California witnessed a decline in home sales due to higher borrowing costs and a slowing economy. According to the C.A.R. monthly brief, single-family home prices dropped by 2.2% compared to October, and sales slipped by 7.4%. This decline was primarily attributed to elevated mortgage interest rates and a persistent shortage of homes for sale.
2024 C.A.R. President Melanie Barker, a Yosemite REALTOR®, expressed optimism for the coming year. With mortgage rates dropping to their lowest level in four months and the Federal Reserve planning to cut rates further in 2024, prospective homebuyers could reenter the market early in the year.
Realtor Sentiment and Market Forecast
Realtor sentiment in California is eroding as fewer properties enter the sales pipeline. However, California real estate agents, homeowners, and buyers are eagerly awaiting 2024 and the promise of lower mortgage rates. The forecast for 2024 predicts a whopping 22.9% increase in existing single-family home sales, reaching 327,100 units, compared to 266,200 in 2023.
The California housing market forecast is optimistic, with falling mortgage rates, rising prices, economic expansion, and strong demand for homes. Home prices are projected to rise by 6.2% to a median price of $680,300 next year, while housing affordability is expected to remain flat. Despite an outmigration of Californians to low-tax states, the state's real estate market remains viable, and people still want to buy homes here.
November's Sales Activities and Price Trends
In November, home sales in major regions across California experienced a year-over-year decrease. The Central Valley region saw the most substantial decline (-14.4%), followed by the Central Coast (-10.4%). The Central Coast also suffered a 9% drop in single-family homes, while the inland region observed a 1.1% price increase.
Notably, some counties experienced significant price drops, such as Napa (-19.75%) and San Mateo (-14%). However, these price drops did not lead to an increase in sales. On the other hand, Southern California's statistics differed from the north. Orange County homes sold for 2% more than in October and were up 18.2% compared to the previous year.
California Condo Sales and Mortgage Rates
California condo prices remained steady in November, but sellers received 8.2% more compared to the previous year. However, sales declined by 13.2% since October. The rental market also saw an increase, with condos and townhouses remaining unsold rising from 2.8 in November 2022 to 2.9.
Mortgage rates have been declining from their 2023 highs, but home prices continue to rise. Mortgage payment growth is currently 13.1% higher than one year ago, while price growth reached 6.2%.
Home Prices for California Counties
Home prices in the Far North region and the Bay Area rose, while other regions experienced declines. Napa County, which saw a 15.4% price increase in October, experienced a significant downshift of 19.7% in November. Similarly, Santa Barbara fell by 34.3% after a 33% rise the previous month. San Mateo and Monterey also witnessed price drops of 14.3% and 15.9%, respectively.
In the Los Angeles Metro area, house prices remained stable at $785,000 after a 1.6% decline in September. San Diego saw a 1.7% price increase in November, despite a 16.9% decline in sales.
Rental Market and California Rent Prices
As for the rental market, rent prices in California are falling. According to Zillow's rental report for December 2023, rent prices decreased by $45 per month compared to the previous month and $230 from one year ago. However, there is still a significant number of rental units available, with 74,558 listed on Zillow.
California cities ranked among the most expensive for renters in the US, with San Francisco, San Jose, and Los Angeles topping the list. However, with rent prices falling, it may be a good time for renters to find more affordable options.
The Outlook for California's Housing Market
While the buyer market may be deteriorating, there are still plenty of buyers with funds ready to enter the market when mortgage rates ease. Rent prices may continue to fall in 2024, but higher rent prices are always a possibility as the economy rebounds from a short downturn. The economic outlook is somewhat uncertain, with factors such as FED drop timing, inflation, and unemployment impacting the housing market.
The baseline scenario for C.A.R.'s 2024 California Housing Market Forecast predicts a 22.9% increase in existing single-family home sales and a 6.2% rise in median home prices to $860,300. However, the debt ceiling crisis may result in upward pressure on interest rates, potentially deflating sales projections. Additionally, the severe housing shortage and competitive market could drive prices even higher.
Conclusion
The California housing market is undergoing significant changes. While the slowing economy and higher borrowing costs have impacted sales, there is hope for the future. Lower mortgage rates and rising demand for homes could drive a rebound in the market in 2024. However, uncertainties remain, and it's important for buyers, sellers, and investors to stay informed about the latest trends and forecasts.
Many thanks to CAR for providing valuable market information and graphics.
Note: The information and data presented in this article are based on the original data and reports from the California Association of Realtors.