The housing market. Over the past few years, it has gone up at a dramatic rate.
At the beginning of 2022, the median home price in the United States was $428,700. That median home price is 30% higher than the price at the end of 2020.
So, considering that the national housing market has risen so dramatically over the last couple of years, some of you may be curious about how California is doing.
Will the California housing market see that success in 2023? What housing market trends will affect next year’s market?
This is your guide.
Rise of Mortgage Rates
One big thing that will play into next year’s housing market is the rising mortgage rates. Last year, the average mortgage rate was at a historic low. You could realistically get a mortgage while paying just over 3% interest on that loan.
The 2022 climate is a lot different here. As of December, the mortgage rates have more than doubled, averaging around 6.31%.
What this means is that compared to this same time last year, you can only afford to buy a home about half of the price as the one you could last year.
For example, let’s say that you were trying to buy a home that costs about $800,000 and you put a 20% down payment on it. The interest here is 6.3%.
In this situation, you would have to pay nearly $4,000 per month in monthly mortgage payments. The total interest paid would be nearly $800,000.
Now, take that same listing price and down payment percentage, but change the interest rate to 3.1%. You would only pay about $2,733 per month in monthly mortgage payments and the total interest paid would be just under $344,000.
As you can see, you are paying more than double the interest with the new mortgage rates out there. So, assuming most people have a budget for what kind of house they can afford, they are not going to be able to afford to buy it for the prices that they could last year.
One thing that you need to watch in California is how much housing inventory is available. To do this, most realtors measure this in months’ supply for the typical demand in that market.
As of November 2022, California has a 3.3 months supply of unsold houses available for buyers. How much is that?
Well, compared to 2021, that is over 106% higher. What this means is that in 2022, there is slightly more than double the housing inventory available compared to 2021.
If buyers start to become aware of this, they will realize that there are more options for them in the California housing market than there were last year. As a result, buyers may not feel as rushed and antsy to pull the trigger on a house.
This is starting to show up in the current market, which we will get below.
Median Days on Market
Related to the housing inventory are the median days that a house spends on the market. In 2022, that median is 24 days. That is a 118% increase compared to 2021.
So, if a home was sold just 11 days after it was put on the market and now it takes 24 days for that same home to be sold in 2022, what does that tell you?
It should tell you that buyers are now taking more time to make a decision on what home they are going to buy. This could also mean that buyers do not feel as rushed or as pressured to make an immediate offer as they may have been last year.
The existing home sales speak to this as well. As of November 2022, there were just over 237,000 existing homes sold in California.
How does that compare to this same time last year? Well, home sales in California have dropped by over 21%.
So, that means that about 60,000 more homes are sitting on the market throughout the state than there were in 2021. This also contributes to buyers having more options and eventually, buyers not feeling the need to make as big of offers on homes as they did in 2021.
Current Home Prices
With all of that mentioned above, the important question to some people may be how much it cost to buy a house in California. Well, the answer to that is not as much as you may have expected.
If you look at November 2021 and November 2022, you will see very little change. From that year to date, the median home price went down by just .6% in November 2022 compared to the year prior.
That home price is $777,500. However, what could be alarming to some people is comparing the median home price just a month prior.
In October 2022, the median home price was over $782,000. In just one month, that median home price decreased by 3%.
What this could mean is that the inventory trends and the mortgage rate trends discussed above are finally starting to show on the market. While the year-to-date can cover this up better, if this type of decline continues for a few months, houses may be much cheaper in 2023.
Keep Up With the California Housing Market
These are the biggest trends that you should know about the California housing market going into 2023. One of the top things that should be of concern for home sellers is the mortgage rate.
With that being so high, people can’t afford the same homes that they could last year. So, inventory continues to increase and if the last month is any indication, the median home price may keep decreasing.
Do you have more questions about the market forecast? Message us with any questions or concerns that you may have here.