For investors all over the world, knowing how a certain market is going to behave is extremely important.
There are tons of aspects that go into predicting a real estate market.
Since the real estate market depends on numerous other trends in the area, it can be difficult to pinpoint exactly how it will behave.
But, we are still able to give some predictions and forecasts for the real estate market in 2023.
In this guide, we will be going over some of the California housing market predictions and the forecast for 2023, but if you're more interested in learning about the U.S. housing market as a whole, we've got you covered.
To begin, let us look at a general overview of the current state of the California housing market.
California Housing Market Overview
To begin, we will be going over a general overview of the California housing market. This will include things like home price growth, existing home sales, housing inventory, and rising interest rates. The majority of this information is provided by the Mortgage Bankers Association (MBA).
California Housing Prices
First off, we will be going over the current California home values. We will be using the median home prices, which is a metric used to determine the median home price in California. It is important to note that this number is not the average home price, it is the exact middle of the data set.
Currently, the California median home price is sitting at around $796,570. This is approximately a 1.8% price growth from the previous year. Even more astounding, this is an 11% increase from the price in December of 2020. However, the median closing price for these homes is only $682,000.
One interesting thing to note, however, is that while the price of the general housing markets, the price of condos actually decreased. Condo prices suffered a 1.2% decline from November and have fallen to a median of $612,750.
California Home Listings
Another very important aspect of the California real estate market is the number of home listings. Since home sales are directly affected by the number of listings in the market, it is important to look at those before making predictions.
The median listing price of a home in California is currently around $729,000. This is approximately an 11% increase from the previous year. Also, the number of active listings all over the state has suffered a steep decline.
In places like the San Francisco bay area, San Diego County, and Los Angeles County, there has been a harsh decline in the number of active listings. Along with the general decrease in the statewide median price, the active listings have gone down by as much as 45%. In San Fransisco, the seller's market only contains around 300 units, which is incredibly low.
And, as mentioned before, the price is around $682,000. This is getting to all-time highs for the California residential real estate market. These rising home prices, along with fierce housing demand, have led to our next topic, rising rent prices.
California Rent Growth
In contrast with the buyer's market, the California rental market has not suffered, it has actually been prospering. The median rent for a one-bedroom apartment in California is currently around $1,762.
The rent prices are rising nationally by about 11% to 13%. These are staggering numbers, but California's rental market is not too far behind. Cities like Fresno, San Diego, Orange County, and Los Angeles are performing extremely well. Although these may not be ideal conditions for renters, they are amazing conditions for homeowners looking to rent out their homes.
When looking at real estate markets, the population is not necessarily the first thing that one would think about. However, it is extremely important to consider. This is because it will be a lot harder to sell properties in an area that does not have a very high population.
Due to the COVID-19 pandemic, it had become very hard for a lot of people to continue living in a relatively expensive state. This lack of housing affordability and decline in housing sales caused the population of California as a whole to decrease in 2020. This could easily be due to the decrease in California home sales or the increasing mortgage rates, which will be discussed later.
So, now that we have provided a general overview of California's housing market, we can move on. In the next section, we will be going over the California housing market forecast and some predictions for 2023.
California Housing Market Forecast for 2023
All over the nation, there has been a general increase in the prices of homes and a decrease in the supply. California's housing market is suffering from essentially the same thing. Most of these trends are due to the COVID-19 pandemic, which is continuously affecting countless things around us.
Below, we will be going over the forecast for the 2023 Califonia housing market.
Decline in Home Sales
The first forecast for the real estate market in California is a decline in home sales. According to the California Association of Realtors (C.A.R.), single-family home sales are forecast to total 416,800 units in 2023.
This means that it would be a 5.2% decrease from the projected pace of 439,00 in 2021. This number has been in question for ac couple of years. In 2021, the number is 6.8% higher than the predicted pace of 411,900 homes sold in 2020.
However, as the economy begins to recover and revert back to how it was before, we could see a shift in sales and prices. This would be seen the most when one looks at the supply and demand of housing.
While the pandemic was in full force, there was little to no demand for housing. This was because there was a harsh spike in unemployment, so nobody could afford to buy a house. Now that the pandemic is receding, the demand has begun to climb its way back up. The bad news is that now, the supply is what's going short.
Mortgage Rates and Applications
One of the things that are also affected by the changes in the California housing market is the mortgage rates for these houses. According to Freddie Mac, there has been a 3.07% increase in 30-year fixed mortgage interest rates.
This figure was reported in October, which is an increase from the 2.9% reported in September. Also, the 5-year ARM mortgage interest rate rose to 2.54% in October compared to 2.45% in September.
As inflation continues to increase through 2022, rising interest rates become a source of concern. Even worse, there has been a constant decline in the number of mortgage applications.
The number of mortgage applications has been declining for a whopping 17 months straight. The main reason for this is most likely the lack of affordable housing as well as the constant increase in home prices.
Population Relocation in California
In California, there has been a major shift in the places where the population resides. One of the greatest changes has been observed in the prices of condos in California.
This has not been seen much in Califonia's history, as it has been known for its large cities filled with working-class people. The reason for this is mainly the COVID-19 pandemic. After employers began to allow their workers to work from home, the workers took advantage.
Instead of staying in the middle of the large cities, where they were close to their workplace, they were able to relocate to cheaper, roomier homes. As a result, there has been an increase in suburban home sales and a decrease in the populations of larger cities, like Los Angeles.
Another product of the pandemic is a scarce housing stock. Although the pandemic is not all to blame, it has definitely played a key role in sabotaging the supply chain and causing labor shortages.
Since this is seen as such a drastic problem, home builders have been trying to ramp up production for many months. However, the incredible demand for homes is still far from being met. In fact, the number of active home listings has fallen to a record low. This is rather typical, as housing sales usually drop in the Fall and pick back up in the Spring and the Summer.
It is also important to note that the supply has been climbing closer to the demand every year since 2020. The gap had shrunk in 2021 and continues to shrink in 2022. But, it is still not enough to meet the demand. Thus, this housing shortage will be a defining feature as we go into 2023.
Buyer's Market or Seller's Market
The biggest question surrounding California's housing market is whether it is a good time to buy or to sell. Although this question cannot be answered with complete confidence, we can give some indications to help you along the way.
According to a C.A.R. monthly Consumer Housing Sentiment index, about 59% of consumers said that it was a good time to sell. Note that this was back in April when prices were lower than they are now. In contrast, only 25% said that they think it is a good time to buy a home.
One of the things that may begin to shift the housing market is the COVID-19 vaccine. The vaccine has allowed older homeowners to sell their homes at record prices. On the other hand, they may be hesitant to sell their homes due to the increasing price of moving and finding another home.
So, in conclusion, it is definitely a seller's market in California. This is even more accurate for pandemic destination cities within the state like Los Angeles and San Francisco. Until things like the median home price and unemployment percentage are fixed, the California market will most likely remain a seller's market.