Originally Published By Gord Collins March 21, 2023
See the full story at: https://managecasa.com/articles/california-housing-market-report/
Housing Market California
Is the residential real estate market in California showing a rebound this year? Sales are up strongly month to month, although far from levels 12 months ago.
The latest housing stats from CAR shows single family house prices dropped 2.1% despite a rise in sales of 17.6% in February.
February’s statewide median home price fell almost $16,000 on average (-2.2%) to $735,480, which was down 4.8% vs February 2022 and down 18.3% from May 2022, its recent peak of $900,170). It was the 6th straight month of price declines.
The question for the market now is whether the Silicon Valley Bank initiated slide in the banking sector will lead to less demand, tighter lending, more unemployment, or whether it helps ease inflation across the US which allows the FED to pivot on interest rates.
C.A.R suggests that the drop in year over year sales may be due in part to the effects of the atmospheric river event which is continuing. Difficult in finding buyers and getting sales done would likely contribute to lower prices. The median number of days it took to sell a California single-family home tripled to 28 days in February from 9 days one year ago.
We can expect similar sales/price trends in other markets including the Atlanta Housing market, New Jersey Housing market, Nashville housing market, Denver Housing market, and Las Vegas housing market.
The SVB Bank Collapse
The banking sector looks to be under pressure as the Silicon Valley Bank and Signature Bank entered bankruptcy. The major bailout of First Republic, a large regional bank is creating headlines and the concern is that it may not be enough to stem a tide of troubled financial institutions. Buyers could be deterred by tighter lending rules as a risk off environment continues to grow.
California’s Real Estate Market in February?
February’s numbers were consistent with trends in some areas, yet highly atypical in others as mentioned above.
As mortgage rates slide, home buyers in California were a little more successful in finding a home or rental property during February.
CAR believes the drop in home prices in January arose from growing layoffs in the tech sector. Indeed the Bay Area seems to be strongly affected. It could be the outlook is the biggest driver rather than the small number of layoffs. Those layoffs could result in home put up for sale in 2023, perhaps even some foreclosures if the economy slide happens.
Yet each month’s jobs report seems solid. For the first time since the beginning of the pandemic 3 years ago, price growth was negative for all home types.
4/5ths of All Counties Saw a Price Decline
C.A.R. reports all counties suffered double-digit year over year sales drops in February. Sales in 34 counties plummeting more than 30% and 8 counties registering drops of more than 50% year over year.
C.A.R. Vice President and Chief Economist Jordan Levine said home prices will soften given demand is shifting away from high luxury homes to more affordable units.
Will Home Prices Fall in 2023?
Is it a good time to buy a home or rental property in the Golden State in 2023? The question always asked is will home prices fall? Most Millennial-aged Californians will prefer to continue renting until there is more economic certainty and numbers to justify the buy decision.
The biggest factors for the housing market forecast:
- rising interest growing another 1%
- home prices likely will keep declining slightly
- supply continues to grow
- tech sector uncertainty will weaken demand
Condos and townhomes saw a slight rise price during February.
Pending home sales rose as it normally does seasonally with the new year, however the change in prices is evident in last months stats. Demand for $2 Million+ homes is down substantially year over year.
New Home Listings
New listings continued to fall. One key reason may be that many homeowners cannot or will not relinquish their current low mortgage rates to purchase another home at rates that are nearly double. This situation will keep future listings low as well.
Home Sales Grow
CAR’s Realtor® sentiment reveals California Realtors® are more optimistic about sales, prices and listings now at February 20th, 2023.
In January, Marin county suffered the largest month to month price drops (-19.9%), with San Francisco County fell -11.4%, Santa Barbara County fell -15.6%, Mendocino down -35.1% and Yolo county dropped by 12.9%.
Strongest monthly price gainers in January were Santa Clara (+3.5%), Orange (+5.5%), Glenn, Kings (+8.3%), Merced (+8.5%), Lassen (+52.9%), Tehama (+10%) and Mono (+47.%).
San Francisco saw home prices raise 4.3% bucking the downward trend. There’s little doubt all counties in the North will see decreased sales and prices due to the atmospheric rain dump.
Forecast for Next Year?
C.A.R. Vice President and Chief Economist Jordan Levine said “High inflationary pressures will keep mortgage rates elevated, which will reduce homebuyers’ purchasing power and depress housing affordability in the upcoming year. With borrowing costs remaining high in the next 12 months, a pull-back in sales and a downward adjustment in home prices are expected in 2023.”
Levine added, “Home prices will also moderate further over the next several months as interest rates remain elevated in the near term and seasonal factors come into play.”
CAR in its 2023 California Housing Market Forecast report, predicts a 7.2% drop existing single-family home sales in 2023. It will fall to reach 333,450 sold unit units, down from their projected sales volume of 359,220 units this year, which is predicted to be 19.2% less than the 444,520 homes sold in 2021.
The median home price outlook is for a decline of 8.8% to $758,600 next year following a projected 5.7% growth this year to $831,460.
Californians Looking Elsewhere
California has the highest percentage of people looking to buy elsewhere. California, New York, District of Columbia, Massachusetts, and Illinois were the top 5 states homebuyers searched to move from. The top 5 states homebuyers searched to move to were Florida, Texas, Arizona, Maryland, and South Carolina.
The combination of housing market downturn risk, rising interest rates, and inflation are making more Californian homeowners consider selling their property this fall. That selling intention is lessened by desires to get a comfortable price, having to make extreme relocation choices, and entering into a new, more expensive mortgage.
It’s perhaps the most difficult time for sellers to be able to sell their home.
Buyers in many states are still walking away from deals at a faster pace too given they can now walk away if they can’t get the right financing, don’t like inspection reports, and other reasons. The desperate bidding war environment where they waived inspections, etc. has ended. According to Redfin, nationwide, buyers walked away from 15% of deals in August.
As layoffs in the corporate sector grow against fast rising mortgage rates, August and September’s housing market decline may worsen the October and December outlook.
California Condo/Townhouse Prices Rise
Condo prices dropped steeply in NAPA (-31.9%), SF Bay Area (-3.4%), Santa Barbara (-22%), Fresno (-17%), and San Mateo (-7.9%) while prices rose in Monterey (+16.9%), Solano (+21.7%), and San Bernardino (+14.5%). This month’s stats don’t help to answer the much asked question in the past ten years about will prices drop?.
The forecast for landlords and the rental sector is a little better. Those rental managers who use a next generation property management software are most likely to generate the best profitability in 2023. See more on the rental market forecast. Find the best rental properties in California.