The number of homes sold annually is expected to increase nearly 23 percent to approximately 327,000, though remaining below historical averages of more than 400,000, according to the report.
“It’s an improvement, but it’s still a long way to go to get back to pre-pandemic levels. It’s still a low level compared to previous years,” Oscar Wei, deputy chief economist for the California Association of Realtors, told The Epoch Times Sept. 27. “The economy is doing a little bit better than we previously thought, but that also means that inflation is stickier than we previously thought. Core inflation is still pretty high.”
Housing affordability—the percentage of households that can afford to buy a median-priced home—plummeted from historic averages from 2017 to 2021 near 30 percent to 19 percent in 2022, falling further to 17 percent in 2023, where it is expected to remain for the next year.
Returning affordability to pre-pandemic levels will take several years and would require either wages keep pace with inflation or the construction of more housing to boost supply, according to experts.
“It’s kind of wishful thinking, because we know in the past wage growth did not keep up with inflation,” Mr. Wei said. “If we have more housing, more supply in the system, things will work.”
With gas prices jumping across the state over the last few weeks and some food and grocery prices 30 percent higher than a year ago, consumers are feeling the pinch of inflationary pressures, experts say.
The Federal Reserve paused interest rates Sept. 20 but did not rule out further increases. Such suggests, experts say, rates might not be cut as fast as the agency previously anticipated.
The higher rates are playing a role in housing supply issues, as some who purchased when rates were closer to 3 percent are reluctant to sell and be straddled with a new mortgage at today’s higher rates, hovering near 8 percent.
Experts say interest rates need to recede for supply to increase.
“We do expect rates to be lower, but the rate of decline will not be very fast,” Mr. Wei said. “Mortgage rates being lower will boost sales up, but at the same time, even though rates will go down, prices also will go up.”
While interest rates are expected to fall to below 7 and possibly even below 6 percent, in 2024, according to the report, California’s median home prices are expected to climb approximately 6 percent to more than $860,000, with supply increasing between 10 and 20 percent.
“We will see an increase in supply, but not as much as we were hoping. It will help relieve some supply, but that slight increase in supply will still be very, very tight for the housing market,” Mr. Wei said. “Because of supply being very tight, there still will be upward pressure on prices.”
Calculations in the report are based on expectations that interest rates and core inflation will both retreat in 2024, with some experts anticipating a change in federal monetary policy that could benefit the housing market.
“With the economy expected to soften in 2024, the Federal Reserve Bank will begin loosening its monetary policy next year. Mortgage rates will trend down throughout 2024, and the average 30-year fixed rate mortgage could reach the mid-5% range by the end of next year,” Jordan Levine, senior vice president and chief economist for the California Realtors Association, said in the report. “Buyers will have more financial flexibility to purchase homes at higher prices, which could generate increased housing demand and result in more upward pressure on home prices.”
Some realtors anticipate a healthier housing climate in the Golden State next year, as costs to finance homes decrease and more sellers and buyers participate in the market.
“2024 will be a better year for the California housing market for both buyers and sellers as mortgage interest rates are expected to decline next year,” Jennifer Branchini, president of the association and a Bay Area realtor. “First-time buyers who were squeezed out by the highly competitive market in the last couple of years will try to attain their American dream next year. Repeat buyers who have overcome the ‘lock-in effect’ will also return to the market as mortgage rates begin to trend down.”
