California Real Estate Market: Will it Crash in 2023?

June 26, 2023

By Gregor Wilson

(This article originally appeared here: https://www.houzeo.com/blog/california-real-estate-market/ )

The California real estate market is experiencing a major shift. The median sale price decreased by 9.01% in April 2023 year-on-year, and the number of homes sold dropped by 38.6%. New buyers are starting to enter the market as mortgage rates are stabilizing, currently at 6.79%.

he California housing market is showing signs of warming up, although there are potential risks associated with potential interest rate hikes and a housing market recession.

• Buyers Have More of an Upper Hand: With a significantly slower market compared to the post-pandemic highs, California is expected to see a decrease in home prices by 20%.
• Mortgage Rates Have Almost Doubled: Mortgage rates increased 33.13% from May 2022’s 5.10% to 6.79% for the month of May, 2023.
• Sellers are Slowly Coming Back: The number of listings increased by 106.52% in April 2023. From 12,944 in December 2022.
• It’s Taking Longer to Sell: California homes stayed on the market for an average of 30 days, 11 days more than last year.

California Real Estate Market Trends

Housing Market Metrics	Current Housing Market Trend 2023	Comparison YoY
1. Median Sale Price	$761,300	???? -9.01% YoY
2. Number of Homes Sold	21,415	???? -38.6% YoY
3. Homes Sold Above List Price	44.1%	???? -26.7 pt
4. Homes Sold With Price Drops	18.3%	???? +2.0 pt
5. Homes Sold Sale-to-List Price	100.4%	???? -5.3 pt
6. Median Days on Market	30 days	???? +11 days YoY

Source: Redfin.com

The current California housing market statistics reflect the national trend of high demand and low supply. Home prices in the state experienced a decline, resulting in a decrease in sales.

After a decade of steady home price gains, the market has reached the affordability limit for many homeowners.

California Housing Market Statistics

• Average Home Prices: The average median home price in California is $761,300, down by 9.01% YoY. In 2023, experts predict the median sale price growth to drop by roughly 4%, the first annual drop since 2012. Currently, the sale-to-list price ratio is at 100.4%, with a decline of 5.3 pt YoY as of April 2023.
• Home Sales: As per April 2023 data, home sales are at a low of 21,415 a 38.6% YoY decrease.
• Average Rent Prices: An average California tenant pays $2,506 as rent in 2023.
• Pending Sales: Pending home sales grew in February by 0.8% for the third consecutive month. There are currently 35,872 pending listings for sale in California.
• Median Days on Market: The median days on the market for homes for sale was 30 days, up by 11 days YoY.

Will Home Prices Drop in the Second Quarter of 2023?

No! In the second quarter of 2023, NAR experts predict an 8.08% rise in the median sale price, which is down 2.5% YoY. The housing market will continue to warm up between high mortgage rates and economic uncertainty.

As per Zillow’s California housing market forecast, the national Zillow home value index rose by 4.4% in March 2023. Over the next year, it is expected to rise by 0.6%. NAR predicts 4.78 million existing home sales in 2023.

Will the Housing Market Crash in California?

Several economists believe the housing market will slow down in 2023, but not crash. As the mortgage rates are stabilizing now after the recent bank crisis, more buyers feel confident to enter the housing market.

Let’s look at why most experts believe that the housing market in California is not going to crash.

5 Reasons Why the Housing Market is Unlikely to Crash

1. Low Months of Supply: As per May 2023 data, only 2.6 months’ supply is available. This scarcity of inventory explains why many buyers need to bid over the listing price. According to the law of supply-demand, it is predicted that home prices will remain stable for now.
2. Low Newly Constructed Housing Supply: The supply of newly constructed houses has yet to return to pre-2007 levels. Also, there’s no way for homebuyers to buy land, get regulatory approval, and increase the supply quickly.
3. New Buyers Entering the Market: There’s a strong demand for homes across various demographics. Millennials and Hispanics are in their prime buying years. As a result, there’s still a limited amount of inventory available.
4. Strict Lending Standards: There were several cases of liar loans in 2007 where anyone could get a mortgage without a credit check. Today, mortgage lenders in California place high standards on borrowers, and most home buyers are required to have an excellent credit score.
5. Fewer Foreclosures: A majority of homeowners own significant equity in their homes. The personal balance sheets of homeowners are much stronger today than they were 15 years ago. As a result, the threat of rising foreclosures in California is low.

Is 2023 a Buyer’s Market or a Seller’s Market?

2023 is unusual compared to previous housing market trends. That’s why, it’s difficult to gauge whether it is a seller’s or a buyer’s market.

Due to relatively high mortgage rates, buyers entering the market are few. Likewise, low inventory and a reduced number of listings indicate sellers’ reluctance to sell.

In the wake of Silicon Valley Bank’s fall, daily average mortgage rates fell from 7% to 6.5%. Likewise, home prices across the nation fell by 1.8% over the span of a weekend, which saw a sudden spike of 7% in mortgage applications.

After Fed’s recent announcement, the average weekly mortgage rates increased from 6.57% to 6.79%. Further, mortgage purchase applications grew by 17% in February-March.

California Housing Market Predictions 2023

The housing market majorly depends upon the economy’s health. As economies slow, the money supply becomes limited. It becomes difficult to borrow money, fewer home buyers enter the CA housing market.

The national unemployment rate remains at 3.7% in May 2023. The private sector in various states also shows positive job growth, says ADP.

Here are a few real estate housing market predictions for 2023 based on the experts’ forecast.

• Mortgage Rates Stabilizing: The 30-year fixed-rate mortgage averaged 6.79% for the month of June 2023, up from 6.57% previously. However, these rates are still lower than last year’s peak of 7.08%.
• Fewer Home Sales: Reports predict far fewer home sales for the remainder of 2023. Compared to last year, number of homes being sold plunged by 38.6%.
• Low Home Prices: Home prices will remain low compared to last year, falling by 2.5% in most markets.
• Stable Housing Affordability: According to NAR’s chief economist, rates will remain stable for existing homes during 2023, and approx 4.78 million existing homes will be sold.
• iBuyers Likely to Buy Homes Below Market Value: During the past year, house flipping profits have fallen by 18.4%. Top iBuyers like Opendoor reported huge losses last quarter. Lastly, Zillow and Redfin shut down their iBuyer services in 2021 and 2022.

California Housing Market Predictions for the Next 5 Years

Home prices have risen by 41.14% in the past 5 years. This constant growth is expected to reduce gradually.

As mortgage rates continue to increase, homebuyers will delay their purchase. There will be low demand for housing, and the home value growth rate will decrease.

Should I Sell My CA Home Now or Wait?

10% of homeowners believe that now is a good time to sell a home. Home prices are still at record highs, but some experts predict that many markets will decline by 5% to 10%.

If you are in a market where home prices are still high, this might be a good time to sell a house in California. You can sell your house in the following circumstances:

• Before the Mortgage Rates Touch Record Highs: Mortgage rates may touch 7.8% in the coming year as the Fed tries to control inflation. Compared to 1971, the present rate could reach an average of 8% for a 30-year fixed mortgage. As interest rates are still low, many prospective buyers may enter the market now rather than later.
• You Need to Upsize or Downsize: Significant changes in family dynamics may require you to sell your property and move to a different one.
• You Need to Relocate: If you’ve got a new job or have decided to retire, or relocate to a new state, there is no way around selling. The best time to sell a house is when you’re ready to move.

» For Sale By Owner Homes in California: Are you relocating to California? Check out homes for sale near you.

Tips to Sell Your CA Home In A Slow Market

• Price Your Home Competitively: Inventory starts to rise in a slow real estate market. It is better to price your home competitively and get the best deal and quick offers.
• Offer Incentives & Seller Credit: You can offer to pay the CA buyer’s closing costs, reduce repair costs, or provide a transferable home warranty as an incentive. If you can’t afford any of these, you can sell your house as is in California.
• List on the Open Market: When you list on MLS in California, your property gets the best market exposure. And that means inviting offers from all types of buyers, investors and cash home buyers. A Flat Fee MLS California listing service is the fastest way to list on the MLS.
• Sell to Cash Home Buyers: Cash home buyers in California will make instant cash offers on your house. Although these companies can help you sell your home fast, they offer a lot less than your home’s fair market value.

Tips to Sell Your CA Home in Hot Market

• Find the Best Way to Sell: Even if you’re selling your house yourself in California or through an agent, we recommend listing on the MLS with Flat Fee MLS listing services. The best For Sale By Owner websites in California can help you market your house, either for a small fee or even for free.
• Make Quick Repairs: Clean and de-clutter your home, and make small fixes like repairing a leaky faucet or fixing a shattered window. Know more creative ways to market your house.
• Stage Your Home: Preparing your home for sale, with or without the help of a professional home stager, is home staging. It mainly involves cleaning, depersonalizing, and making your home appealing visually.

Should I Buy a Home Now or Wait?

According to statistics, 77% of people think that now is a bad time to buy a house in California. This is mainly because of the relatively high mortgage rates in the past few weeks, which allow only a few buyers with strong financial conditions to enter the market.

If you’re planning to buy now, plan your finances well and make sure you have 5 to 6 months of savings after you put your down payment.

Tips for Buying a CA Home in a Slow Market

• Consider the Value of the Property: A slow market is the buyer’s market. There is a high chance that the home values may decrease before it starts to increase again.
• Don’t Buy at the Lowest Price: California house buyers should remain cautious since sellers may conceal major defects. Get a home inspection report before you buy any house that’s too cheap to be true. Otherwise, you can end up with a bad investment.
• Don’t Invest in Properties for the Short Run: If you’re not planning to stay in a real estate property for a long time, do not buy it. Buying a home solely for selling will only increase inventory. This won’t be beneficial in a slow real estate market.

Tips for Buying a Home in a Hot Market

• Research Local Market: The California real estate housing market is highly localized, as market trends vary from region to region.
• Lower Your Debt: Lowering your debt-to-income ratio will help you easily qualify for a mortgage preapproval when applying for a loan.
• Increase Your Earning Potential: 60% of workers who switched jobs last year earned more money in their new positions, beating inflation. Despite the economic downturn and rising mortgage rates, you must look for opportunities to boost your income.

Disclaimer: The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Houzeo Corp., its affiliates, or its employees. The information set forth herein has been obtained or derived from sources believed by the author to be reliable. However, the author does not make any representation or warranty, express or implied, as to the information’s accuracy or completeness, nor does the author recommend that the attached information serves as the basis of any investment decision. It has been provided to you solely for informational purposes only and does not constitute an offer or solicitation of an offer, or any advice or recommendation.