Past couple years, hundreds of thousands homebuyers had to put their purchase journey on hold simply because the competition in California Real Estate market was brutal. All they could do was to pray for the market to ease out big times and the home prices would come down for whatever reasons.
Well, here we are! In 2023, it seems like those buyers got what they wished for as the California Association of Realtors released their 2023 forecast last week. Unfortunately, it’s only half-good news.
Key predictions
- The forecast for single-family home sales are predicted to decrease by 7.2% from 359,220 (2022 projected) to 333,450 units in 2023.
- California’s median home price is predicted to decrease by 8.8% in 2023 down to $758,600 after the initial 2022 increase of 5.7% ($831,460 median).
- Part of the outcomes from battling inflation, housing affordability or P/E Ratio is expected to drop down to 18% in 2023 comparing to 19% in 2022.
With the continuous battle against inflation, interest rate is predicted to be elevated… again, which as we all are experiencing the suppressing effect on buyer’s demand due to weaking buyer’s affordability. Additionally, since it’s an uphill batter against high inflation and slow economic growth, the 30-year fixed rate (currently average at 6.6% by the time of this article) will remain relatively high for the next couple years.
However, should the interest rate be the only thing we should be concerned about? Absolutely not as we’re already in a modest recession at the moment. Here’s a few other big items we must consider:
- Buyer vs Seller Expectations. The biggest question and also equilibrium we must reach is the intersection where buyer expectation meets sellers. Unfortunately, with the current state of the economy, there are way too many moving pieces for that to happen across the board. However, I really don’t blame either party for holding the logic on their end. The profitable equity gained in 2020 and 2021 was simply way too good but achieving that level of profit is extremely difficult in this market. Only well-priced homes can only enter escrow now with much more fewer exceptions that were sold above asking price. Sellers are still taking time to readjusting their expectations right now. On the other end, buyers have no choice but to have that expectations already established simply because the rate hike automatically disqualify many buyers out of their original budge and reduce the buying power by a great margin.
- Employment Stability. With the GDP’s projection dipping by 0.5% next year and unemployment rate ticking up by 4.7% due to slow economic growth, many companies will continue to tighten up their balance sheet and perhaps continue to tighten up their rosters by slowing down hiring or cutting staff. If you are in a volatile industry, sadly, you must put this into consideration since your employment will have a strong direct effect on your eligibility to purchase a house and repay the mortgage.
- Trouble with Asset Allocation. Have you seen the stock market lately? And have you seen what’s happening to the Cryptocurrency world? I have and they suck! The Dow hits its rock bottom and recession low earlier in October, 2022 along with majority of the crypto asset vanishing throughout the year. No market is winning at the moment and billions of investor’s asset has been wiped off. Therefore, it’s more like a common sense question at this point. Would you sell at a loss to get a semi-decent deal at Real Estate? Or you would wait for your assets to recover? It’s certainly a tough question to answer. And if you’ve been holding on to your cash, good for you! Cash buyers have major leverages in this market.
2023 CALIFORNIA HOUSING FORECAST (C.A.R as Source)
| 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022p | 2023f | |
| SFH Resales (000s) | 417.7 | 424.9 | 402.6 | 398 | 411.9 | 444.5 | 359.2 | 333.4 |
| % Change | 2.0% | 1.7% | -5.2% | -1.2% | 3.5% | 7.9% | -19.2% | -7.2% |
| Median Price ($000s) | $502.3 | $537.9 | $569.5 | $592.4 | $659.4 | $786.7 | $831.5 | $758.6 |
| % Change | 5.4% | 7.1% | 5.9% | 4.0% | 11.3% | 19.3% | 5.7% | -8.8% |
| Housing Affordability Index* | 31% | 29% | 28% | 31% | 32% | 26% | 19% | 18% |
| 30-Yr FRM | 3.6% | 4.0% | 4.5% | 3.9% | 3.1% | 3.0% | 5.2% | 6.6% |
My Personal Takeaway!
I’m sure you’ve heard of this saying by now by hundreds of other Real Estate agents: “We’ve been here before! This is just another cycle”. With that being said, I’ll stay on a more optimistic side and repeat those words to you one more time.
Unless a major world event happens, the housing market will make a comeback and perhaps stronger than ever for the same reasons I’ve been sharing in past articles such as stricter & more regulated mortgage industry, more diversified job categories (and the ability to work remotely), and the dynamic of educational channels and knowledge floating around us, which will minimize the impact of a crash landing.
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