California Housing Market: What’s Happening In 2023?
The California real estate market is one of the most expensive in the U.S. that’s adjusting to higher mortgage rates and rising inflation. However, the Golden State housing market remains healthy in its various regions, including the tech-savvy Bay Area and multi-faceted Southern California. California Housing Market Trends Home prices vary across California, but markets may follow the same trends. Several metro areas are in the early stages of transitioning from a seller’s market to a neutral setting—though homes remain expensive for most buyers. Median Sales Price Trends The majority of median sales prices across California decreased between 2022 and 2023. These are the recent median sold price readings from the California Association of Realtors (CAR) for existing single-family home real estate transactions. First-Time Homebuyer Affordability Index Many first-time homebuyers are struggling to purchase a single-family home in many California counties. For example, CAR reports that the Housing Affordability Index statewide was 36 in Q1 2023 compared to 58 nationwide. A lower number means housing is less affordable. Some of the least affordable regions were the SF Bay Area and LA metro area, for indexes of 35 and 36, respectively. In comparison, the Central Valley is one of the most affordable areas in the state, with scores of 50 in Sacramento and 51 in Fresno—two of the best places to live in California. Related: A Guide To Down Payment Assistance Programs California Housing Market Forecast CAR forecasts an overall reduction in existing home sales and median prices for 2023. Fewer Homes for Sale Single-family home resales dropped by 19.2% from 2021 to 2022. The association predicts 7.2% fewer homes will sell in 2023. Lower Median Home Price Patient buyers are more likely to be rewarded with lower closing prices. After the median price increased 5.7% year-over-year to $831,500 in 2022, CAR estimates the statewide median price will dip to $758,600 in 2023 for an 8.8% decline. Real Estate Demand Likely to Remain Steady While sellers in many counties are more likely to slash asking prices and see their homes remain longer on the market, buyer demand and prices should remain steady and will remain a seller’s market or a neutral market. California Housing Supply A key indicator is the current housing supply level. Redfin reports an average supply of two months in May 2023. According to Redfin, “months of supply indicates how long it would theoretically take for every home that’s currently on the market to sell based on the current rate of home-selling activity.” While inventory is increasing, the highest reading within the last five years was in January 2019 with four months of supply. For now, the relative lack of homes for sale is a favorable factor for sellers. Remote Workers Will Influence Markets Another pivotal factor for home prices in cheaper counties and rural areas is the increased popularity of remote work. Without the burden of daily commutes to work, people are able to live in more favorable locations. To put this into perspective, the 2022 Consumer Survey from CAR finds that 42% of the 1,114 respondents anticipate working remotely full-time for the foreseeable future. Another 22% are able to work from home on a part-time basis, which allows them to live in locations that are not commuter-friendly. Is It a Good Time to Buy a House in California? If the California housing market predictions are accurate, 2023 will be a better year to buy a home in many counties. Prices are forecasted to be at some of the lowest levels since the pandemic real estate boom began, and inventory is increasing. A significant pricing factor occurs when looking for the best mortgage rates. The 30-year fixed mortgage rate climbed to a 20-year high in November 2022 and edged down slightly by the year’s end. More buyers must wait for home prices to drop to offset the extra interest costs and maintain an affordable monthly payment. Is It a Good Time to Sell a House in California? In most situations, it’s better for homeowners to sell now instead of waiting because median sales prices are trending lower in many counties and major cities. While homes are remaining on the market longer and price reductions are becoming more common, inventory is still tight and a fair number of homes continue selling above asking price. As a result, you’re able to sell a home quickly. It can also become more difficult to sell if home loan rates continue ticking higher as fewer borrowers can afford homes that are still priced at levels when mortgage rates were at historic lows in 2020 and 2021. The California real estate market remains seller-friendly, but buyers are regaining bargaining power as the local markets rebalance as 2023 continues. Via FORBES by Josh Patoka
Housing Market Predictions For 2023: When Will Home Prices Be Affordable Again?
Though summer temperatures have been scorching hot across many parts of the country, housing market activity remains tepid. The national average 30-year fixed mortgage rate continued to push higher in the fourth week of August, rising to 7.23% the week ending August 24. The median existing-home sales price also broke through $400,000 for the first time in 2023, hitting $410,200—the second-highest price ever recorded—and is now poised to surpass the June 2022 all-time high of $413,800, according to the National Association of Realtors (NAR). Meanwhile, existing monthly home sales dropped 3.3%, with all four major U.S. regions posting year-over-year sales declines. Despite high mortgage rates, the market remains as competitive as ever thanks to strong demand coupled with tight inventory supply, due, in part, to those who purchased homes in recent years at record-low interest rates staying put. These and other factors form a perfect affordability crisis storm that continues to sideline many aspiring homeowners. Housing Market Forecast for August 2023 Housing market activity remains weak overall thanks to high mortgage rates, elevated home prices and constrained housing inventory—a trifecta of headwinds perpetuating the housing affordability crisis. At the same time, high inflation and more interest rate hikes still hang in the air. Mortgage rates rose the first week of July, jumping to 6.96% by mid-month as Federal Reserve policymakers voted to raise the federal funds rate by a widely anticipated 25 basis points at the July meeting. A basis point is one-hundredth of one percentage point. The federal funds rate is the rate financial institutions lend to each other overnight. A Fed rate hike indirectly impacts long-term home loans, such as 30-year, fixed-rate mortgages. The federal funds rate hovered near zero in March 2022 when the Fed began raising rates. The rate range is now 5.25% to 5.5%. The Fed will likely not stop there. In response to reporters at the post-meeting press conference, Federal Reserve Chair Jerome Powell stated the economy has yet to feel the full impact of the Fed’s actions and that the committee’s efforts to tame inflation to its 2% target still had “a long way to go,” The Fed revealed new terminal rate projections in June that suggest the rate will reach 5.6% by the end of 2023, implying at least one more rate increase in 2023. Consequently, many experts believe mortgage rates will remain above 6% for the remainder of this year. Some Experts Foresee Sluggish Housing Market Recovery In mid-August, weekly averages for 30-year mortgage rates surpassed their fall 2022 peak. As it stands, it’s hard to imagine housing market conditions significantly improving anytime soon, especially if the Fed continues with rate hikes. Mortgage originations amounted to only $344 billion in the first quarter of 2023, their lowest total since the second quarter of 2014, according to a Freddie Mac report. Housing experts expect originations will remain muted through the rest of 2023. In addition, existing-home sales were down a whopping 18.9% from the year before, per NAR. “I expect the number of homes for sale to decline this year and continue to be a damper on home sales,” said Danielle Hale, chief economist at Realtor.com, in an emailed statement. “Limited inventory is also keeping prices high even though housing affordability has deteriorated significantly in the past three years.” On the other hand, some experts are choosing to flip the script and focus on the signs indicating that the market is entering a new phase. “The recovery has not taken place, but the housing recession is over,” said Lawrence Yun, chief economist at NAR. Despite this optimistic take, Yun acknowledges that home prices will remain high due to demand outpacing housing supply and that more inventory will prove critical to providing greater access and affordability for aspiring home buyers. Housing Inventory Outlook for August 2023 Low housing inventory has been a challenge since the 2008 housing crash when the construction of new homes plummeted. It still hasn’t fully recovered—and won’t in 2023. Housing supply remains at near historic lows—especially entry-level supply—consequently propping up demand and sustaining higher home prices. Even so, new single-family homes have been coming to the rescue—at least to some extent—enticing eager shoppers frustrated by the limited resale inventory. Moreover, the price gap between the median existing-home sales price and new home sales price has closed markedly in recent months, another incentive luring home seekers. Nonetheless, new home sales took a small hit between May and June as mortgage rates sailed past the 6.5% mark. Sales dipped 2.5% to 697,000 new single-family homes selling in June compared to 715,000 in May. The median sales price for a new home was $415,400, according to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development (HUD). “With low existing home inventory, new home inventory is becoming competitive, and new homes are now competitive on price,” said Robert Frick, corporate economist with Navy Federal Credit Union, in an emailed statement. “The premium for a median-priced new house versus an existing house is now only $5,000. In October 2022, the median sales price for a new home was $496,800, while the median existing-home sales price was $378,800—a difference of $118,000. This gap has since narrowed by roughly 96%. Inventory of unsold, existing homes was unchanged between May and June, shackling existing inventory to a paltry 3.1-month supply at the current sales pace. Existing inventory has remained stalled at record lows for months. Many experts say a balanced housing market has four to six months of inventory. “Inventory is approximately 46% below the historical average dating back to 1999,” says Jack Macdowell, chief investment officer and co-founder at Palisades Group. “We think that it is highly unlikely that the inventory problem will be resolved in 2023,” Macdowell says. The country ultimately needs 4.3 million more homes, according to a Zillow analysis. “There are simply not enough homes for millions of people,” said Orphe Divounguy, senior economist at Zillow, in a press release. “Unless we address the shortage of smaller, more affordable, starter-type homes, we risk leaving families without a seat—and it will only get worse over time.” Housing Starts Forecast 2023 There were mixed data in the construction realm, suggesting some home builder wariness amid mercurial mortgage rate moves and other industry challenges. Single-family construction starts sagged after a four-month run, dipping 7% in June as applications for building permits rose 2.2% from the previous month, according to the Census Bureau and HUD. At the same time, builder confidence continues to rise, though at a slower pace. The most recent National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) that tracks builder sentiment inched up from 55 to 56. The last time the index reported a reading this high was a year ago. A reading of 50 or above means more builders see good conditions ahead for new construction. Despite mortgage rates fluctuating near 7%, builders pulled back further on offering buyer incentives in July, as frustrated home seekers hamstrung by low levels of existing inventory continued turning their attention toward new construction. Only 22% of builders offered sales cuts in July, compared to 25% in June and 27% in May. “The lack of resale inventory means prospective home buyers who have not been priced out of the market continue to seek out new construction in greater numbers,” said Alicia Huey, chairman of NAHB, in a press statement. Nonetheless, even as builders work to meet the demand, headwinds remain, including costlier supplies, challenges obtaining lots, a shortage of construction workers and tighter credit conditions due to the Fed’s aggressive interest rate hikes. Persistently high mortgage rates—an indirect consequence of the Fed’s monetary policy to curb inflation—also continue to impact builder decisions. “Although builders continue to remain cautiously optimistic about market conditions, the quarter-point rise in mortgage rates over the past month is a stark reminder of the stop and start process the market will experience as the Federal Reserve nears the end of the ongoing tightening cycle,” said Robert Dietz, chief economist at NAHB, in the statement. Affordability Struggles Sideline Hopeful Home Buyers Despite signs that home prices are beginning to weaken in some regions, the country is contending with a housing affordability crisis thanks to a meager housing supply, persistently high mortgage rates and sales prices that have steadily resumed their climb since February. The median existing-home sales price jumped from $396,100 to $410,200 in June, the second-highest price ever recorded and only 0.9% below the high of $413,800 a year ago, according to NAR. Even as inflation cools, those hoping to buy a home continue to feel the effects of pandemic-fueled home price appreciation coupled with elevated interest rates. First-time home buyers hoping to buy a starter home will need to earn about $64,500 a year—that’s 13% more than a year ago, according to a Redfin report. A typical starter home hit an all-time high of $243,000 in June. Yet, if you make $75,000 or less, chances are you won’t be able to purchase a home in today’s market. Those earning $75,000 a year can afford a $256,000 home, yet homes at this price or less accounted for only 23% of the existing home listings in April 2023, according to a Realtor.com and NAR Home Affordability & Supply Report. Given the rebound in home prices along with the average 30-year fixed interest rate hovering well above 6%, it’s no surprise that housing affordability is showing signs of further deterioration. Seventy-six percent of aspiring homeowners were unable to afford listed homes in their market in the second quarter of 2023, up from 73% in the first quarter, according to the latest Housing Trends Report, a measure of prospective home buyers’ perceptions about available, affordable homes in their markets, published by NAHB. “Unless we address the shortage of smaller, more affordable, starter-type homes, we risk leaving families without a seat–and it will only get worse over time,” Divounguy said. Will the Housing Market Crash in 2023? Even with elevated interest rates, home prices continued their steady climb, for the most part, between March and May, according to the latest S&P CoreLogic Case-Shiller Home Price Index. The U.S. National Home Price non-seasonally adjusted (NSA) index reported marginal month-over-month and year-over-year decreases. However, stark differences existed at the regional level, with the best-performing cities coming as a surprise, especially as they beat out normally top-ranked cities such as Las Vegas, Phoenix, Tampa and Miami. “This month’s league table shows the Revenge of the Rust Belt, as Chicago (+4.6%), Cleveland (+3.9%) and New York (+3.5%) were the top performers,” said Craig J. Lazzara, managing director at S&P DJI, in the report. “If this seems like an unusual occurrence to you, it seems that way to me, too.” However, it is worth noting that these price increases occurred during a spring home buying season period when the average 30-year fixed interest rate fell below 6.5% for a number of weeks, dipping as low as 6.27% one week. “Slightly lower rates motivated eager buyers to enter the housing market, but dwindling home supply meant that this demand kept upward pressure on prices,” said Hannah Jones, economic research analyst at Realtor.com, in an emailed statement. “The housing market remains unaffordable for many buyers, but some areas are seeing high levels of competition as a result of low for-sale inventory.” On the flip side, home values continued to plunge in West Coast pandemic boomtowns along the Pacific Coast, with Seattle (-11.3%) and San Francisco (-11.0%) at the bottom. The West overall (-6.9%) remained the weakest region. Despite some areas seeing price declines, experts point out that today’s homeowners stand on much more secure footing than those coming out of the 2008 financial crisis, with many borrowers having positive equity in their homes. Consequently, the likelihood of a housing market crash is low. “Homeowner equity is at the highest level it’s been in the past several decades, so homeowners have a lot of value in their home,” says Nicole Bachaud, an economist at Zillow. Will There Be a Lot of Foreclosures in 2023? Foreclosures continue to trend up, potentially hitting pre-pandemic levels soon, according to a recent report from ATTOM, a property data provider. Foreclosure activity was up in the first half of the year by 13% compared to the same period last year, and experts say increased activity may be the norm for the foreseeable future. “Although overall foreclosure activity remains below historical norms, the notable surge in foreclosure starts indicates that we may continue to see a rise in foreclosure activity in the coming years,” said Rob Barber, chief executive officer at ATTOM. In June, foreclosure filings were up 3% from May and 8% from last year, according to ATTOM. Foreclosure completions were down 20% from the previous month but up 1% from a year ago. The top five states with the highest foreclosure rates in June were, from highest to lowest, Maryland, Delaware, New Jersey, Connecticut and Illinois. While foreclosure rates are up year-over-year, experts do not expect to see a wave of foreclosures in 2023. Even in areas with depreciating home values, many homeowners have substantial equity due to progressive home price appreciation in recent years. Some 49% of mortgage-owned residential properties in the U.S. were equity-rich in the second quarter of 2023, according to the latest report from ATTOM, meaning the combined estimated market values for those properties were worth at least double the estimated loan balance amounts. When Should I Buy a Home in 2023? Buying a house—in any market—is a highly personal decision. Because homes represent the largest single purchase most people will make in their lifetime, it’s crucial to be in a solid financial position before diving in. Use a mortgage calculator to estimate your monthly housing costs based on your down payment and interest rate. Trying to predict what might happen this year is not the best homebuying strategy. “Buyers sitting on the sidelines today in anticipation of lower prices tomorrow may end up disappointed,” says Neda Navab, president of the U.S. region at Compass, a real estate tech company. “The housing market—like so many other markets—is almost impossible to time,“ says Divounguy. “The best time for prospective buyers is when they find a home that they like, that meets their family’s current and foreseeable needs and that they can afford.” Divounguy says “getting on the housing ladder” is worthwhile to begin building equity and net worth. Instead of waiting for much lower prices, experts suggest buying a home based on your budget and needs. If you find a home you love in an area you love, and it also fits your budget, then chances are it might be right for you. However, if you make too many sacrifices just to get a house, you may end up with buyer’s remorse, potentially forcing you to offload the house. Tips for Buying in Today’s Housing Market Even as prices soften, you may realize that the area where you want to buy a home is still out of reach, so it’s important to be flexible. “If you badly want a house and can work remotely or switch jobs, moving to lower-priced housing markets is a good idea to consider,” says Frick. “Millions of Americans have done that already.” Also, get all your ducks in a row in advance—review your financial situation, gather required documents, shop multiple lenders and strengthen your credit score. That way, when you find your dream home, you’ll be in a better position to act fast in a tight market. “Only the best prepared, with their financing lined up, a solid understanding of what they can afford, and constant checking of prices and listings will be successful in today’s highly-competitive market,” says Frick. “Know how much your monthly payment will be—complete with taxes—and how well that fits into your budget.” Getting to know a local realtor where you’re hoping to buy can also potentially give you a crucial edge in a tight housing market. “Find out what your options are with a reputable, experienced agent,” Divounguy says. “A lack of inventory means buyers should expect plenty of competition, especially in more affordable areas and for more affordable houses. However, if you’re a first-time homebuyer you should be especially careful when choosing an agent. “With the market’s shift, you want to hire an expert who’s been there before, has a pulse on all the changes happening in your desired neighborhood and works well with your loan officer.” Tips for Selling in Today’s Housing Market “Sellers should make sure to work with an agent in order to get their pricing right,” Divounguy says. Divounguy adds that homes that are priced right are the ones that get the competition while others linger on the market. He also advises sellers to take steps sooner rather than later to get their houses ready to sell. “The top regret we hear from sellers year after year is that they wish they started prepping their home for sale sooner,” Divounguy says. “And don’t neglect your online curb appeal.” Divounguy also advises sellers to include a 3-D home virtual tour or an interactive floor plan in their listings. He reports that listings that utilize these virtual tools on Zillow get 69% more page views and 80% more saves. Article via | Forbes.com By Robin Rothstein, Chris Jennings
Don’t Fall for the Next Shocking Headlines About Home Prices
If you’re thinking of buying or selling a home, one of the biggest questions you have right now is probably: what’s happening with home prices? And it’s no surprise you don’t have the clarity you need on that topic. Part of the issue is how headlines are talking about prices. They’re basing their negative news by comparing current stats to the last few years. But you can’t compare this year to the ‘unicorn’ years (when home prices reached record highs that were unsustainable). And as prices begin to normalize now, they’re talking about it like it’s a bad thing and making people fear what’s next. But the worst home price declines are already behind us. What we’re starting to see now is the return to more normal home price appreciation. To help make home price trends easier to understand, let’s focus on what’s typical for the market and omit the last few years since they were anomalies. Let’s start by talking about seasonality in real estate. In the housing market, there are predictable ebbs and flows that happen each year. Spring is the peak homebuying season when the market is most active. That activity is typically still strong in the summer but begins to wane as the cooler months approach. Home prices follow along with seasonality because prices appreciate most when something is in high demand. That’s why, before the abnormal years we just experienced, there was a reliable long-term home price trend. The graph below uses data from Case-Shiller to show typical monthly home price movement from 1973 through 2021 (not adjusted, so you can see the seasonality): As the data from the last 48 years shows, at the beginning of the year, home prices grow, but not as much as they do entering the spring and summer markets. That’s because the market is less active in January and February since fewer people move in the cooler months. As the market transitions into the peak homebuying season in the spring, activity ramps up, and home prices go up a lot more in response. Then, as fall and winter approach, activity eases again. Price growth slows, but still typically appreciates. Why This Is So Important to Understand In the coming months, as the housing market moves further into a more predictable seasonal rhythm, you’re going to see even more headlines that either get what’s happening with home prices wrong or, at the very least, are misleading. Those headlines might use a number of price terms, like: Appreciation: when prices increase. Deceleration of appreciation: when prices continue to appreciate, but at a slower or more moderate pace. Depreciation: when prices decrease. They’re going to mistake the slowing home price growth (deceleration of appreciation) that’s typical of market seasonality in the fall and winter and think prices are falling (depreciation). Don’t let those headlines confuse you or spark fear. Instead, remember it’s normal to see a deceleration of appreciation, slowing home price growth, as the months go by. Bottom Line If you have questions about what’s happening with home prices in your area, connect with a trusted real estate professional.
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