California Real Estate Market: Will it Crash in 2023?
The California housing market is experiencing a major shift. Although the median sale price increased by 0.5% in September 2022 Y-O-Y, the number of homes sold dropped by 37.5%.
Homes are staying on the market for longer as buyers struggle to find affordable housing with mortgage rates at a 20-year high of 7.08%.
Now that the housing market California is threatened by a similar instance of rising mortgage rates and the possibility of a recession, buyers and homeowners are asking a familiar question: when will the housing market crash?
Common Housing Market Terms and Their Trends
1. California Median Home Prices
Over a given period, the median home price is the middle sale price among all homes ranked from highest to lowest with respect to their market value.
» Current Housing Market Trend 2022: In September 2022, median home prices in California were up by 0.5% compared to the last year.
2. Inventory
Inventory or homes for sale refers to the number of unsold residential and commercial real estate units.
» Current Housing Market Trend 2022: The supply of homes remains historically low, according to Lawrence Yun, NAR Chief Economist and Senior Vice President of Research. In September 2022, the inventory of unsold existing homes stood at 3.2 months.
3. Homes Sold
The Total number of properties sold during the period.
» Current Housing Market Trend 2022: According to the Redfin data, the total number of homes sold this year was at an all-time low of 37.5% compared to the last year.
4. Median Days on the Market
The median number of days a property spends on the market in a given geography during a specified period.
» Current Housing Market Trend 2022: The median days on the market was 37 days, up by 13 days Y-O-Y.
5. Mortgage Interest Rates
Lenders charge interest rates on a mortgage. It can be fixed or variable depending upon the mortgage lender.
» Current Housing Market Trend 2022: The national average 30-year fixed rate mortgage rate is at 6.9% and up 3.8 points year over year.
6. Mortgage Application Rates
The number of mortgage applications received compared to the previous year.
A mortgage application is a document submitted by a homebuyer to a lender.
» Current Housing Market Trend 2022: Mortgage applications were 41% lower than a year ago.
7. Foreclosures
Whenever a homeowner fails to make mortgage payments, the government takes over the property and calls it a foreclosure.
» Current Housing Market Trend 2022: 21,869 U.S. properties started the foreclosure process in September 2022, down 9 percent from the previous month but up 113 percent from a year ago.
California Housing Market Predictions 2023
Surged mortgage rates and plunged home sales have worried buyers and sellers about the housing market trend in 2023.
Home sales are down by 37.5% year-over-year, and National Avg. 30-year fixed mortgage rate ranges from 6% to 7.1%.
This indicates that the rate of existing home sales has slowed to its lowest level in 10 years.
Here are a few real estate housing market predictions for 2023 based on the experts’ forecast.
1. Higher Mortgage Interest Rates
Experts predict that mortgage rates will continue to climb because of continued inflation, potential recession, and geopolitical tensions.
Financial market participants anticipate the Fed raising its target Fed funds rate by 175 to 200 basis points from current levels.
This will roughly average the 30-year and 15-year mortgage rates at 8.50 and 7.70, respectively.
2. Lower Home Sales
Increasing mortgage rates will surely have a major impact on home sales in 2023.
With the observed trend, higher interest rates could cause a 10% drop in home sales next year.
Home listings will no longer go out of inventory at a faster pace.
Also, the median days on the market might reach up to 35 days or more in the next year, with a current avg of 37 days.
3. Lower Home Prices
Some experts predict that due to low inventory, home prices won’t drop in 2023.
While others believe that due to the higher interest rates, sellers will lower their prices to current levels.
Home values are expected to go down by 5% to 10% due to unaffordability. As the Fed attempts to control inflation by increasing mortgage rates.
4. Lower Housing Supply / Inventory
Before the 2008 housing market crash, the housing supply or inventory peaked at a 13-month supply.
We only have enough for 3.5 months’ supply, of inventory.
Homeowners are unlikely to trade in their 3% mortgage for a new home with a 7% loan unless necessary. As a result, there are chances that the housing supply will remain low.
5. Lower Home Affordability
Experts believe that home affordability will not change dramatically.
Home prices may continue to fall but will not be enough to offset the higher interest rate.
As a result, the monthly mortgage payment will remain high, and homes may look less affordable.