The real estate market in California has seen its fair share of ups and downs over the past few years. With home prices reaching new heights during the pandemic followed by rising interest rates leading to a cooldown, many are wondering - what's next for California real estate?
This in-depth article will analyze the latest real estate market trends in California, answering key questions on current conditions and 2023 predictions. We'll examine if the market is dropping, which areas are growing fastest, whether it's a good time to buy, and what experts forecast for prices and sales moving forward.
Is the Housing Market Dropping in California?
The California real estate market is showing signs of cooling down after the frenzy of the past two years. Key indicators point towards slowing demand, reduced competition among buyers, and more negotiability on home prices.
While prices are not seeing drastic declines like some other US markets, the rate of increase has slowed considerably. According to the California Association of Realtors, the median home price in California in December 2022 was $774,580, up just 1.5% from November and 8% from December 2021. This is much lower than the 25-30% year-over-year jumps seen during the peak pandemic demand.
Further data from CoreLogic indicates home prices in California increased by 4.3% from November 2021 to November 2022. This is down significantly from the 19.3% year-over-year increase California saw from November 2020 to November 2021.
Real estate agents across California report drops in bidding wars, houses sitting longer on the market, and buyers regaining some negotiation power. While prices have not seen huge drops yet, the rapid price acceleration California real estate experienced in the past two years is clearly slowing down.
What is One Emerging Trend in California's Real Estate Market?
One emerging trend shaping California's real estate market is the return of more moderate-income home buyers. With mortgage rates over 6% now compared to under 3% in 2021, high prices and rates are pricing out some luxury and investor buyers.
First-time home buyers and middle-income buyers who can still qualify for a mortgage under the new rates are accounting for a larger share of sales again. This segment is looking for reasonably priced homes compared to 2021 when they were often beat out by all-cash offers and wealthy buyers.
Agents say they are seeing younger middle-income couples and families able to buy in cities like Sacramento, Riverside, Stockton, and Fresno where prices are more affordable than in coastal cities. This marks a shift from the pandemic trend of wealthier buyers and investors dominating the market. More affordable areas and segments are emerging as an opportunity.
What is the Fastest Growing Real Estate Market in California?
Many of the more affordable California metro areas are seeing the fastest home value growth recently. According to Zillow data, the fastest-growing real estate markets in California are:
- Bakersfield - Home values up 24.3% year-over-year
- Fresno - Up 22.5%
- Sacramento - Up 17.4%
- San Bernardino - Up 16.8%
- Modesto - Up 14.8%
Most of these markets have median home values between $350,000 to $550,000, considerably lower than coastal cities. They offer relative affordability and are attracting remote workers. With their lower prices, they have room for further appreciation.
Is it a Good Time to Buy a House in California?
Whether it’s a good time to buy a house in California depends on your local market conditions, financial situation, and future plans. Here are some key factors to consider:
- Interest rates - Mortgage rates above 6% reduce purchasing power. But rates can impact different markets differently. In expensive areas, high rates may drive more declines while affordable areas remain competitive.
- Prices - Prices are still at record highs in most of California, just cooling from unsustainably hot levels. Paying today's high prices right before a larger decline may not make sense in some areas.
- Job security - California has a strong job market outside of tech layoffs. If you have a stable income, a home purchase may be reasonable. Consider future income risks.
- Timelines - For long-term buyers who plan to hold properties for 5+ years, moderate downturns are less risky. But short flips are more vulnerable.
- Lifestyle needs - Factors like more space, relocations, and school districts, may justify buying if it meets your needs, even in a high-priced market.
Overall, California remains competitive due to limited supply, high demand, and favorable economic and migration trends. But today's changing dynamics require more research and patience versus the frenzied pandemic market.
Will 2023 Be a Good Year to Buy a House in California?
The outlook for 2023 remains positive for home buyers in California who can navigate the changing dynamics. Here are some factors that point towards 2023 still being a decent year to purchase, if you time it right:
- Moderating prices - Slower appreciation and less competition create room for negotiation not seen in years.
- Increasing inventory - New listings should rise as sellers look to capitalize on high prices before further declines.
- Localized opportunities - Certain more affordable metros and segments will remain strong targets for the right buyers.
- Demand drivers - California is still attracting jobs, migration, and households forming - supporting housing demand.
- Low foreclosures - Minimal distress in the market compared to 2008, and tight supply limits downward price pressures.
2023 will not likely mirror the extremes of previous years. But patient and strategic buyers can still position themselves well for the year ahead.
Will Home Prices Drop in 2023 in California?
The consensus from various housing analysts and economists is that California home prices will see moderate declines in 2023, rather than a major crash. But the extent of the drop will vary around the state.
- CoreLogic predicts home prices will fall between 5% to 10% statewide from peak prices in early 2022. Their data shows an 8.8% year-over-year drop from October 2021 to October 2022.
- Fitch Ratings expects a 10% decline in California home prices in 2023. They expect the Bay Area will see the largest drops.
- Goldman Sachs analysts forecast a 5% to 15% price correction in major metro areas, with coastal cities dropping more than inland regions.
- PNC economists estimate California home prices will fall 6.8% in 2023. They expect higher rates and eroding affordability will cool demand.
Overall, most experts believe continued low supply, strong economic fundamentals, and favorable demographics will prevent a 2008-level housing crash. But buyers should brace for more negotiation room as the market normalizes from an overheated state.
Will Houses in California Go Down in 2024?
It’s too early to say definitively, but if high mortgage rates and economic headwinds persist, California home prices could see further gradual declines in 2024. Here are some factors that could contribute to a continued cooldown:
- Slower population growth as people move out of state due to remote work flexibility and more affordable areas drawing residents.
- Potential economic challenges like unemployment if tech layoffs accelerate or wider recession impacts jobs.
- Ongoing housing starts and permitted units increasing supply, especially in suburbs.
- Investors and second home buyers decreasing activity as profit potential declines.
However, broader demand drivers like millennial household formation, immigration, and tight supply constraints support a floor for major price declines. Overall, 2024 projections remain murky this far out. But further small to moderate price decreases are probable in today's changing market.
What is the Prediction for Real Estate in California Moving Forward?
In summary, the prevailing view is that California's real estate market will continue cooling from an overheated state in 2022-2023 toward more balance and affordability. Key predictions include:
- Slowing price growth - Appreciation around 3-5% annually versus 15-20% during the peak pandemic market.
- Moderate price declines - 5-15% price drops from peak levels depending on location, with higher-end markets seeing larger decreases.
- Increasing inventory - More listings coming to market as sellers try to take advantage of high prices.
- More negotiation - Buyers gain leverage to negotiate on price, contingencies, and other terms as competition thins.
- Localized opportunities - Relative affordability and demand in metro areas like Sacramento, Fresno, and parts of Southern California.
- Ongoing volatility - Uncertainty and fluctuations are expected as the market normalizes post-pandemic. Timelines and predictions remain difficult.
While not as extreme as doomsday predictions, California real estate does appear headed for a correction. However favorable supply-demand dynamics and economic strengths will likely prevent a 2008-style housing market crash.
Is it a Good Time to Buy a House in the USA in 2023?
For potential home buyers across the United States, 2023 presents a mix of challenges and opportunities. Here are a few key considerations for whether it could be a good time to purchase nationally:
Affordability Challenges - With mortgage rates over 6%, home prices nationally remain near record highs. This results in reduced purchasing power for buyers, presenting challenges.
Slowing Markets - Many U.S. housing markets are seeing slowing demand, reduced competition, and even price cuts in some metro areas. This presents opportunities.
Localized Strength - Real estate markets in the Southeast, Southwest, and affordable metro areas may hold up better than expensive coastal markets in 2023.
Recession Risk - Concerns over a potential recession in 2023 could further dampen demand. However, a shallow recession may impact real estate minimally.
Home Needs - Factors like changing family needs, relocations, and lifestyle preferences may outweigh market timing challenges for some buyers.
Overall, 2023 will likely be a tricky year for real estate. However strategic buyers who can adapt to changing conditions may still find sound opportunities in the right markets.
Will the US Housing Downturn Worsen in 2023?
Many signs point towards the housing downturn worsening in 2023 for several reasons:
- The Fed is expected to keep raising interest rates, pushing mortgage rates higher and squeezing affordability.
- A potential recession would negatively impact jobs and wages, hurting buyers’ ability to purchase.
- Ongoing inflation will prevent any meaningful improvement in affordability next year.
- New construction and permitting are increasing the housing supply, giving buyers more choices.
- Investor and institutional buyer demand is decreasing as profit potential diminishes.
However, markets with more balanced supply-demand dynamics, like many mid-sized metros, may avoid steep declines. Overall, further deterioration looks likely but moderating price growth rather than a 2008-style crash remains the consensus view. The downturn will impact higher-end markets and segments more than affordable areas.
What Will the US Housing Market Look Like in 2023?
Based on current projections, the overall U.S. housing market in 2023 will likely see:
- Ongoing deceleration of home price appreciation, turning negative in some markets
- Lower sales volumes as high prices and rates limit buyers
- Improving supply and inventory levels as sellers list homes
- Reduced bidding wars and more room for negotiation
- Continued volatility and unpredictability due to macroeconomic uncertainty
- Ongoing affordability challenges for buyers due to sustained higher rates
- Pockets of relative strength in more affordable metro areas
- Increased importance of localization - not all markets will experience equal impacts
While 2023 will be a cooler housing market compared to the frenzy of recent years, favorable demographics and tight inventory should prevent dramatic home price crashes nationally. Markets and segments less impacted by inflation and rate hikes appear best positioned to weather challenges next year. But higher negotiating power gives buyers opportunities amid the downturn.
Conclusion
The California real estate market is experiencing a significant shift from the ultra-competitive conditions during the pandemic. With indicators pointing towards moderating prices, slowing sales, and more room for negotiation, 2023 looks to strike a better balance between buyers and sellers.
While global economic uncertainty brings some risks, California’s housing shortage, strong job market, and desirability should prevent major declines. Strategic buyers willing to adapt to changing dynamics can find opportunities, especially in metro areas offering relative affordability and upside potential.
With patience and proper planning, 2023 can still be a viable time to purchase real estate in California. But striking the right balance between home needs and financial prudence will be key in the year ahead.
