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Oct. 11, 2022

Southern California Housing Market Forecast 2022 & 2023

Southern California Housing Market Forecast 2022 & 2023

September 21, 2022 

Home prices & sales are moderating across the Southern California housing market. In Southern After a two-year housing boom, the housing market in Southern California is finally moderating. In August 2022, the median house price in Southern California declined 1.6% from July. Still, the median was 4.6 percent more than it was a year ago, thanks to a brief reprieve in interest rates in July and mid of August.California, the median home price is not rising by double-digits anymore. That trend is over.

This year, mortgage rates have risen from the low 3 percent and topped 6%. 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, the sales of single-family homes in the Southern California housing market posted a decline of 28.8% from last year. However, sales grew 7.8% 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 — is 795,000, 4.6% more than last August when it was $760,000. Sales of condos and townhomes also dropped from a year earlier.

According to the California Association of Realtors, home prices statewide and in Southern California are projected to decrease by approximately 7% in 2023 compared to 2022, in part because mortgage interest rates are anticipated to remain elevated due to rising inflation.

<<<Also Read: California Housing Market Forecast: Will Price Drop?>>>

Southern California Home Sales Fell in August 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 August (Data released by C.A.R.).

Orange County led the pack again with the highest price increase of 9.1% over last year. San Bernardino is the most affordable with a median price of $472,750 for existing single-family homes. Orange County is the most expensive real estate market in Southern California with a median sales price of $1,200,000. Sales declined in all counties of Southern California by more than 20 percent.

·       In Los Angeles County, the median price rose 3% to $854,960 in August, while sales decreased by 29.1%.

·       In Orange County, the median price rose 9.1% to $1,200,000, while sales decreased by 30.2%.

·       In Riverside County, the median price rose 8.8% to $620,000, while sales decreased by 27.4%.

·       In San Bernardino County, the median price rose 8.7% to $472,750, while sales decreased by 32.6%.

·       San Bernardino County also had the highest decline in sales among all six counties.

·       In San Diego County, the median price rose 6% to $885,000, while sales decreased by 27.7%.

·       In Ventura County, the median price rose 3.6% to $884,000, while sales decreased by 24%.

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. 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 Real Estate 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 second quarter, 47,596 homes were sold, a 19% decrease from the previous year but a 13.1% increase over the first quarter.

·       Pending house sales, which are a predictor of future closings, were slightly lower in the second quarter than in the first.

·       Orange County reported the greatest loss in sales, while other areas suffered substantial drops.

·       Nonetheless, the spring market was in effect in San Diego, Los Angeles, and Orange counties, which saw double-digit percentage gains in sales over the previous quarter.

·       Listing activity has increased across the region, providing buyers with additional options.

·       That may explain, to some extent, why pending sales have slowed; purchasers are not feeling as pressed as they were when inventories were extremely low.

Southern California Home Prices

·       Home prices in the second quarter rose 10.9% compared to a year ago and were 5.4% higher than in the first quarter of 2022.

·       There was double-digit price growth in every county other than Los Angeles.

·       Riverside County led the way with prices rising by 16.7%.

·       The rest of the region also saw very impressive sales price growth.

·       Compared to the first quarter, median list prices are still up an average of 8.7%, suggesting that sellers remained rather bullish.

Southern California Days on Market

·       The average time it took to sell a property in Southern California in the second quarter of 2022 was 16 days.

·       It was 2 days less than a year before and 5 days less than in the first quarter of the year.

·       San Diego County homes continue to sell quicker than in other markets in the region.

·       Except for San Bernardino, where properties took one day longer to sell than a year before, other counties witnessed a decrease in market time.

Sept. 19, 2022

We’re entering the next stage of the housing market downturn—3 things to expect heading forward

 

 

Back in June, Fed Chair Jerome Powell made it clear: The housing market would go through a “reset.”

“I’d say if you are a homebuyer, somebody or a young person looking to buy a home, you need a bit of a reset. We need to get back to a place where supply and demand are back together and where inflation is down low again, and mortgage rates are low again,” Powell told reporters.

Whenever a central bank moves from monetary easing to monetary tightening, there’s going to be an impact on a rate-sensitive sector like real estate. That impact, of course, is going to be even greater when monetary tightening comes after the asset class—residential real estate—spiked 43% in just over two years. Powell admitted that much in June. However, Powell was noncommittal as to whether the rate shock would push home prices lower.

Fast forward to September, and we no longer need to question if the housing “reset” will affect home prices. Back in June, the U.S. housing market was still just in the early innings of a sharp drop in housing activity. Since, we’ve seen housing activity, including home sales and home construction levels, go much lower. But as data rolls in for August, we now have clear evidence that the housing market downturn has moved beyond that first stage (i.e. a sharp drop in housing activity) and into the second stage (i.e. falling home prices).

“The longer that [mortgage] rates stay elevated, our view is that housing is going to continue to feel it and have this reset mode. And the affordability resetting mechanism right now that has to happen is on [home] prices. And so there are a lot of markets across the country where we’re forecasting that home prices are going to fall double-digits,” Rick Palacios Jr., head of research at John Burns Real Estate Consulting, tells Fortune.

Let’s take a deeper look at the three elements that’ll shift as we move into the second stage of the housing market downturn

1. The home price correction is spreading.

 As mortgage rates spiked—going from 3.2% to 6.3% this year—industry insiders knew it'd cause a sharp contraction in housing activity. However, many housing bulls thought it wouldn't pull prices down. In March, Zillow went as far as to predict another 17.8% jump in home prices over the coming year.

It's clear that housing bulls got it wrong. Among the 148 regional housing markets tracked by John Burns Real Estate Consulting, 98 housing markets have seen home values fall from their 2022 peaks. Just 50 markets remains at their peak.

In 11 markets, the Burns Home Value Index* has already dropped by more than 5%. That includes a 8.2% drop in San Francisco home values. While it's common for median list prices to drop around this time of year, it's not common for home values or "comps" to fall because of seasonality. Simply put: The home price correction is sharper—and more widespread—than previously thought.

A growing chorus of research firms—including Moody's Analytics, John Burns Real Estate Consulting, Zonda, and Zelman & Associates—expect this home price correction to continue into 2023. Peak-to-trough, Moody's Analytics thinks U.S. home prices could soon fall 5%. In significantly "overvalued" housing marketsMoody's Analytics thinks that price drop could range from 5% to 10%. If a recession manifests, Moody's Analytics predicts those price drops would double. But even that scenario would still be below the peak-to-trough U.S. home price decline of 27% we saw between 2006 and 2012.

There are still some firms that don't think the home price correction—which is driven by an affordability squeeze created by spiked mortgage rates—will carry over into 2023. That includes Zillow. The Seattle-based home listing site acknowledges that 62% of housing markets should see falling home values in the third quarter of 2022. However, Zillow economists predict that only 28.5% of markets are headed for year-over-year declines between August 2022 and August 2023.

2. The housing downturn will soon spread beyond housing.

On a year-over-year basis, the ongoing housing downturn has seen new home sales and existing home sales fall by 29.6% and 20.2%. Real estate firms like Redfin, Realtor.com, and Compass have already issued layoffsHomebuilders are calling off projects, while some mortgage lenders are teetering on bankruptcy.

That said, most of the financial pain of the housing downturn has been contained within the real estate industry. That's about to change.

Researchers at Goldman Sachs recently released a paper titled “The Housing Downturn: Further to Fall.” The investment bank forecasts that U.S. housing GDP will drop by 8.9% in 2022 and another 9.2% in 2023. In the lead-up to the Great Recession—which officially started in December 2007—housing GDP fell by 7.4% in 2006 and 21.4% in 2007.

If Goldman Sachs is right, it'll mean the contractions in the U.S. housing market will soon sprawl out into the broader economy. That's not surprising. After all, the Federal Reserve has upped the Federal Funds rate in an attempt to slow the economy.

As home shoppers across the country put their home search on pause it causes homebuilders to pull back. That sees decreased demand for things like refrigerators, lumber, windows, and paint. Those economic contractions should, in theory, help to rein in runaway inflation.

"It [housing] is not the target, but it [housing] is essentially the target," Bill McBride, author of the economics blog Calculated Risk, told Fortune earlier this summer.

 

3. Sellers are calling timeout.

As the Pandemic Housing Boom fizzled out this summer, we saw inventory jump across the country. In bubbly markets, like Austin and Boise, that inventory jump was greater than 300% between March and August.

But that inventory spike is already fizzling out.

Active listings on Realtor.com jumped by 106,900 homes in May. That was followed by 102,900 and 128,200 jumps in June and July. However, that slowed in August to just a 31,900 inventory jump. And through the rest of the year, Altos Research predicts inventory will actually fall.

What's going on? For starters, sellers are realizing that buyers are done paying top dollar. Rather than take less, some sellers are simply waiting out the housing downturn.

There's also the rate lock-in effect. The vast majority of outstanding mortgages have rates below 5%—with a big chunk even below 3%. If they sell now, they'd be giving up their historically low mortgage rate. That payment jump is hardly appealing for move-up buyers.

"It's going to be very very hard to persuade people to let go of those insanely low rates," Palacios tells Fortune. While many industry insiders believe tight inventory will help to prevent a housing crash, Palacios says it won't be enough to prevent the home price correction.

Aug. 29, 2022

Home Prices In Southern California Have Dropped and May Continue Falling.

Housing prices are a key component of the Consumer Price Index, when home prices go down this could help drive down inflation

Higher Mortgage Rates Are A Key Factor in Lowering Home Prices

Mortgage rates have continued to rise as Southern California heads closer to the Fall season and that has had an effect on home prices in the area as reported by The Los Angeles Times.

Rising mortgage rates are hardly a local phenomenon but are definitely starting to change the once strong seller’s market into more of a buyer’s market. For a change, buyers have had to start to drop their prices to try and attract an increasingly reluctant pool of buyers into considering a purchase. 

One of the biggest changes are my buyers look at homes and they have some time to think about it now. It’s a normal market.”

According to Forbes.com, mortgage rates are two points higher than they were at the beginning of the first quarter of the year and that was after the rates had already increased more than they had at any other time in the last 28 years. 

Inflation is part of the reason that mortgage rates are increasing after the consumer price index also rose to a historically high level. Part of the reason for this is the Federal Reserve’s attempts to combat inflation by raising the benchmark interest rate. 

Joel Kan, an economist at the Mortgage Bankers Association (MBA) said, as quoted by Forbes.com, “Higher interest rates resulting from the Fed’s efforts to combat inflation, as well as the persistently high rate of inflation, are causing stresses for households and businesses.”

Mortgage rates, for the average 30-year, fixed-rate mortgages were as high as 5.81 in June but have gone even higher in late August. The current 30-year, fixed rate mortgage is 5.90% according to Bankrate.com. 

Countries all over the world are having to do the same to combat inflation but in the United States, financial experts predict a slowdown. Wharton business school professor Jeremy Siegel said, as quoted on CNBC’s “Squawk Box Asia, “I think we only need 100 basis points more. The market thinks it’s going to be a little more — 125, 130 basis points more. My feeling is we won’t need that much because of what I see as a slowdown.” indicating that the Federal Reserve will only have to raise the consumer price index by 100 additional basis points. 

Siegel points out that, according to CNBC, housing prices have dropped and in fact have “gone down by a record amount exceeding any six-month period.” These are one of the key indicators of whether inflation will continue to rise or slow and Siegel believes that this shows that a slowdown is on the way.

June 30, 2022

California Housing Market Report & Predictions

June 26, 2022

California Housing Market

Once again, during May 2022, the housing market in California has seen a reduction in home sales while prices continue to rise.

House prices rose in May by 1.6% and that is up 9.9% in the last 12 months.  Condo sales declined too, and in fact condo prices bucked the upward trend by falling 3.1%, although still up 14.5% vs last May of 2021.

California home prices soared 4.1% higher than March’s levels to a new record again at $884,890. Sales are slowing and fell 1.9% from March and are down 8.5% from last April.

Judging by declining sales which are uncharacteristically slow at peak buying season, Realtor’s latest outlook this month, and expected rising interest rates, the prediction is for a cooling California real estate market. Market velocity is falling at a faster rate.

The average price of a house sold in California reached another all time peak at $898,980.

When Will Home Prices Drop in California?

Californians are constantly asking if and when home prices will drop, just as the outlook for the summer is perhaps for further new records. Mortgage rates have doubled, pushing up mortgage payments, and it is hurting homeowners besieged with other record high costs. Inflation and a souring economic outlook will begin to show in home prices by summer’s end.

Rent prices too, having reached record heights are beginning to show slower growth.  The rental market suffering from exceptionally low inventory will likely not show mercy to Californians for sometime.  New housing development is once again slowing.

Higher priced homes in the state continue to sell well, while the low supply of affordable homes continues to shrink, making purchases less likely. The share of million-dollar home sales rose again in April to reach the highest level on record at 34.7% Homes sold below $500,000 hit and hit the lowest level recorded.

Supply is still a key matter even as prices and mortgage payments soar.  California Realtors are reporting increased activity up to the week ending June 25th.  Looks like a rise in new listing so the picture may be brighter for buyers desperate for a home.

Home sellers are cutting list prices as more buyers take pause: ‘The market is not the same’

Home sellers are increasingly cutting their asking prices as buyers, constrained by higher mortgage rates and overall inflation, have become less willing to jump into the housing market at any cost.

The growing number of price cuts, a trend showing up in data from Southern California and across the nation, is one of the strongest signs yet that the previously red-hot market, fueled by low mortgage rates and all-cash bidding wars, is cooling.

The price reductions don’t mean overall home values are dropping. In Southern California and the wider U.S., they make up a minority of listings, and most homes still sell for more than the list price.

Industry experts, for now, do not see a plunge coming in the housing market, catapulted to record-high prices in the first two years of the pandemic as many people sought out more space and had new savings to spend.

Values could come down modestly, some experts said, if the Federal Reserve’s actions to tame inflation send mortgage interest rates significantly higher — or tip the economy into recession.

For buyers, the market already feels significantly different from the frenzied competition of several months ago.

 

Posted in Market Updates
June 1, 2022

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