2023 Annual Southern California Housing Market Reflection & Estimates for 2024
As we transition from 2023 to 2024, it's timely to reflect on Southern California's housing market. The past year was a rollercoaster for real estate, with fluctuating interest rates, changing buyer behaviors, and evolving economic conditions. This article reflects on the key aspects that have shaped the region's real estate landscape over the past year and explores the forecasts for 2024.
2023 Market Overview: Median Prices and Sales Activity
The Southern California housing market has displayed remarkable resilience despite 2023 being marked by a mix of high prices, fluctuating demand, the increase in interest rates and the ongoing impact of economic factors.
In November 2023, the California housing market faced a significant downturn, as reported by the California Association of Realtors (C.A.R.). This downturn was characterized by the lowest sales levels seen in 16 years, primarily attributed to the elevated borrowing costs, which placed significant pressure on potential homebuyers.
Existing single-family home sales were down 7.4% from October and 5.8% from November 2022, totaling 223,940 on a seasonally adjusted annualized rate. The median home price was $822,200, a decrease of 2.2% from October but an increase of 6.2% from the previous year. This decline in sales was the most substantial monthly drop in the past year, and it marked the 29th consecutive annual decline, although it was the smallest in the last 20 months. Elevated mortgage interest rates and a shortage of homes for sale were the main factors hindering sales. However, with recent drops in mortgage rates and indications from the Federal Reserve of further rate cuts in 2024, there's potential for an increase in homebuyer activity in the early part of the year.
Regarding affordability in the third quarter of 2023, C.A.R. also reported a 16-year low, with only 15% of households able to afford the median-priced home at $843,600. This is a decrease from 16% in the second quarter of 2023 and 18% in the third quarter of 2022. To afford such a home, a household would need a minimum annual income of $221,200 to manage monthly payments of $5,530, including principal, interest, and taxes on a 30-year fixed-rate mortgage at a 7.14% interest rate. The affordability for condos and townhomes also decreased, with 23% of households able to afford the median price of $650,000, requiring a minimum income of $170,400.
The Bigger Picture: What's happening Nationwide?
In Forbes Housing Market Predictions for 2024, the forecast for the national housing market is cautiously optimistic. The article notes that 2023 was challenging for many aspiring home buyers due to surging mortgage rates and high median home prices. However, there are signs of a potential shift in 2024, with expectations of some softening in home prices in certain areas and an optimistic view that the Federal Reserve might halt its rate-hiking campaign. Despite this, affordability challenges persist due to pent-up demand and low inventory, which continue to bolster prices. Experts predict a "flat stretch" for the housing market in 2024, suggesting a stabilization rather than a significant downturn or upswing.
Forecasting 2024: Looking Ahead SoCal Housing Landscape
Shifting focus specifically to Southern California, the region often mirrors the national trends but with its unique market dynamics. According to the 2024 California Housing Market Forecast released by the California Association of Realtors® (C.A.R.), the upcoming year is set to witness significant changes in the state’'s real estate landscape. The forecast predicts a notable rebound in the housing market, driven by a combination of slower economic growth and decreasing inflation that is expected to lead to lower mortgage interest rates, creating a unique set of opportunities that is likely to boost home sales in California. Let's explore some of the key points addressed in the C.A.R. forecast to understand the landscape that awaits us next year.
Increase in Home Sales: Single-family homes are expected to rise by 22.9% to 327,100 units, up from the projected 266,200 units in 2023.
Rising Median Home Prices: The median home price is forecasted to increase by 6.2% to $860,300.
Stable Housing Affordability: Projected to remain steady at 17% in 2024, the same as the projected rate for 2023.
Economic and Market Factors: Slower economic growth and cooling inflation are expected to lower mortgage interest rates in 2024, creating a more favorable market for both buyers and sellers.
GDP and Job Growth: The U.S. GDP is expected to grow by 0.7%, with California’s job growth at 0.5% and an unemployment rate of 5.0%.
Inflation and Mortgage Rates: Inflation is expected to decline to 2.6%, with a decrease in the average 30-year fixed mortgage rate to 6.0%.
Housing Supply: A 10% to 20% increase in active listings, though supply will remain below the norm.
Federal Reserve Policy: The Federal Reserve may loosen monetary policy, potentially reducing mortgage rates to the mid-5% range.
Buyer Opportunities: Lower borrowing costs and more available homes could motivate market reentry, especially for first-time and repeat buyers.
Embracing 2024 with Cautious Optimism
As we transition from 2023 to 2024, the Southern California housing market shows signs of cautious optimism. Despite the past year's challenges, including downturns and affordability issues, the upcoming year holds promising prospects. With anticipated lower mortgage rates and a rise in home sales, the market is expected to rejuvenate. Stability in housing affordability and a gradual increase in median home prices indicate a balancing market. Economic shifts towards slower growth and reduced inflation are set to create favorable conditions for buyers and sellers alike. Overall, 2024 appears to be a year of hopeful resurgence for the Southern California housing market, balancing challenges with new opportunities.
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