Thursday, August 15, 2024 / by Bob Cowan
CALIFORNIA'S HOUSING MARKET: ANALYSIS AND PREDICTIONS FOR AUGUST 2024
In June, home sales in California remained flat for the second month in a row, according to the California Association of Realtors® (C.A.R.). The seasonally adjusted annualized rate of existing single-family home sales was 270,200, a 0.8 percent drop from May's revised figure of 272,410. Compared to June 2023, sales fell by 2.7 percent from 277,690 homes sold.
Sales have stayed below the 300,000 mark for 21 months. Year-to-date, statewide home sales have decreased by 0.5 percent compared to the previous year. This stagnation is primarily due to high mortgage rates exceeding 7 percent during most of May, when many sales were initiated.
Current Trends in the California Housing Market (2024)
California Home Prices
In June, the statewide median home price slightly fell by 0.8 percent from May's $908,040 to $900,720. However, compared to June 2023, this price represents a 7.5 percent increase from $837,850. This marks the 12th consecutive month of annual price gains, though it is the smallest increase since January.
The rise in median prices continues to be driven by stronger sales in the high-end market. Properties priced at $1 million or more saw a 2.0 percent increase year-over-year, while homes under $500,000 experienced a significant decline of 21.0 percent. Sales of homes priced above $1 million now make up 36.3 percent of all sales, one of the highest shares in the past five years.
California Housing Supply
The unsold inventory index (UII), which indicates the number of months required to sell the current housing inventory, improved to 3.0 months in June, up from 2.6 months in May and 2.2 months in June 2023.
At the county level, the number of properties for sale increased in all but three counties. Alameda saw the largest year-over-year increase at 85.5 percent, followed by Contra Costa at 84.3 percent and Solano at 70.2 percent. The counties with declines were Glenn (-23.1 percent), San Francisco (-18.4 percent), and San Mateo (-3.0 percent).
New active listings at the state level grew for the sixth straight month, although the growth rate has slowed to single digits due to seasonal trends. Twenty-nine of the 52 counties tracked by C.A.R. reported increases in new listings, with Yuba showing the largest rise at 44.8 percent.
Regional Housing Market Trends
All major regions in California saw weaker home sales compared to the previous year. The Far North experienced a 16.3 percent decline, Southern California dropped by 11.5 percent, the Central Coast fell by 9.7 percent, and the Central Valley and San Francisco Bay Area saw decreases of 5.5 percent and 1.1 percent, respectively.
Despite these sales declines, median prices increased across all major regions from the previous year. The Central Coast saw the largest increase at 8.9 percent, followed by the Far North at 7.6 percent and Southern California at 7.4 percent. The San Francisco Bay Area and Central Valley also experienced price increases of 5.8 percent and 4.8 percent, respectively.
At the county level, 43 counties reported year-over-year increases in median sales prices. Mono had the highest increase at 34.1 percent, followed by Monterey at 30.5 percent and Siskiyou at 24.9 percent. Nine counties saw declines, with Mariposa experiencing the largest drop at 16.8 percent.
The median time to sell a single-family home in California was 18 days in June, up from 15 days in June 2023. The statewide sales-price-to-list-price ratio remained at 100.0 percent, indicating that homes were generally selling at their asking prices.
Looking ahead to the latter half of 2024, there could be potential for increased market activity if interest rates decrease in a more sustainable manner, potentially improving housing affordability and stimulating buyer activity.
California Real Estate Appreciation Trends
California's real estate appreciation has traditionally been strong, though recent data suggests a potential shift.
Recent Slowdown: The most recent quarter (Q3 2023 to Q4 2023) shows a surprising zero percent appreciation, which deviates from California's historical performance and may indicate a market shift.
Long-Term Trends: Over the past year (Q4 2022 to Q4 2023), appreciation has been a modest 3.77%, lower than the national average. However, over 5 and 10 years, California's appreciation rates are notable at 44.77% and 100.97%, respectively, with average annual rates of 7.68% and 7.23%, placing the state among the top performers.
Historical Context: California's real estate market has seen substantial growth followed by corrections. The recent appreciation slowdown may be part of this natural cycle, influenced by rising interest rates and economic factors.
California vs. The Nation: California's market remains diverse with regional variations. Coastal areas typically experience higher appreciation compared to inland regions. Despite recent slowdowns, California remains a top performer nationally over long periods, though short-term trends suggest a market correction aligning with national patterns.
Challenges Facing the California Housing Market
Several factors contribute to the complexities of the California housing market:
High Demand and Limited Supply: High population density and economic growth drive demand, but limited housing supply in desirable areas has pushed up prices.
Affordability Issues: High housing costs and rising interest rates have made homeownership challenging for many, with median prices significantly higher than the national average.
Strict Zoning and Land Use Regulations: Stringent regulations restrict new construction, contributing to the housing shortage and rising prices.
Lack of Affordable Housing: There is a severe shortage of affordable housing, particularly in major cities, exacerbated by high construction costs and complex approval processes.
Economic Factors: Economic conditions, including job growth and interest rates, influence housing demand. Slower economic growth and high rates have made entering the market difficult for many.
Impact of Natural Disasters: Wildfires and earthquakes can disrupt housing markets by damaging homes and increasing rebuilding costs, affecting availability and affordability.
Migration Patterns: Migration trends impact housing demand. Recent net outmigration due to affordability and congestion may affect market dynamics.
Forecast for the California Housing Market in 2024
California Housing Market Predictions for 2024
According to the California Association of Realtors® (C.A.R.) and their eagerly awaited “2024 California Housing Market Forecast,” California’s housing market is set to rebound in 2024. Here are the key projections:
Optimistic Projections: Sales and Prices
Existing single-family home sales are expected to surge by 22.9% compared to 2023.
This would result in approximately 327,100 homes sold in 2024, up from the projected 266,200 units in 2023.
The median home price in California is predicted to rise by 6.2%, reaching $860,300 in 2024.
Factors Driving the Recovery
The forecast is based on anticipated decreases in mortgage rates due to slower economic growth and easing inflation.
These changes are expected to create a more favorable environment for buyers, boosting housing demand.
Although housing supply is likely to remain below usual levels, a slight increase in active listings may provide some relief.
Economic Influences and Market Dynamics
The forecast includes economic indicators such as a modest 0.7% growth in U.S. GDP for 2024.
California’s nonfarm job growth is estimated at 0.5%, with the unemployment rate potentially rising to 5.0%.
Despite potential economic slowdowns, ongoing housing shortages and a competitive market are expected to keep upward pressure on home prices.
The Federal Reserve’s anticipated easing of monetary policy should lower mortgage rates throughout 2024, offering buyers more financial flexibility.
Final Thoughts: Insights for Buyers and Sellers
The C.A.R.’s forecast presents an optimistic outlook for California’s housing market in 2024. However, these are forecasts, and actual market performance will reveal the accuracy of these predictions as the year progresses. This information is valuable for both prospective buyers and sellers navigating the upcoming market.
Should You Buy a House in California in 2024?
California’s appeal, from its sunny climate to its relaxed lifestyle, often attracts homebuyers. But is now the right time to invest? Let’s evaluate the current market conditions to help you decide.
Market Trends: Boom or Bust?
California’s housing market has long been known for high prices, with significant appreciation in the past decade. Recently, the rapid growth has slowed, and some areas have even seen slight declines. This may indicate a market correction or merely a temporary adjustment.
Key Statistics: Reality Check
Even with recent price slowdowns, California homes remain expensive. The statewide median price recently exceeded $900,000, and rising interest rates have made mortgage payments a considerable expense.
Beyond the Numbers: Personal Considerations
When deciding to buy a house in California, consider more than just the figures:
Long-Term Commitment: California real estate has been a strong long-term investment. If you plan to stay for at least five to seven years, you’re likely to see appreciation despite short-term market fluctuations.
Upfront Costs: Be prepared for down payments, closing costs, and potential repairs. A solid financial cushion will help manage these initial expenses.
Job Stability: Secure employment is crucial, particularly in a state with a higher cost of living.
Navigating a Competitive Market
California’s housing market remains competitive, especially in sought-after areas. Be ready to act quickly and make strong offers. A pre-approval from a reputable lender can give you an edge.
Given the complexities of California’s market, working with a knowledgeable real estate agent is advisable. They can assist with navigating the local nuances, negotiating deals, and finding a home that fits your needs and budget.
The Verdict: It Depends
There’s no universal answer to whether buying a home in California is the right move. If you’ve researched the market, understand current conditions, and are financially prepared, purchasing a home could be a smart decision. However, it’s a significant investment, so approach it with careful consideration.
Is the California Housing Market Affordable?
Source: C.A.R.Considering Buying a Home in California?
The appeal of California, with its sunny weather, beautiful beaches, and dynamic cities, is undeniable. However, navigating the state’s housing market can feel like navigating a financial maze. To make a well-informed decision, it’s important to grasp just how expensive the market can be.
The Reality of Affordability
Recent reports from the California Association of Realtors® (C.A.R.) may highlight a slight improvement in housing affordability, noting an increase in the percentage of Californians who can manage a mortgage payment compared to the previous quarter. While this is positive, it's crucial to look at the broader picture.
Currently, only 17% of Californians can afford a median-priced single-family home in early 2024. This is a significant drop from 2012, when more than half of Californians could qualify for a home loan.
Why is Affordability a Challenge?
The main culprits behind the affordability crisis are high home prices and increasing interest rates. The median price for a single-family home in California stands at an eye-watering $814,280. To afford this, you’d need an annual income of $208,400—more than double the state’s median household income. This means hefty down payments and mortgage payments that can rival the cost of renting a luxury apartment.
Condominiums and townhomes offer some relief, with an affordability index rising to 24%. This means that a quarter of Californians can manage the payments for these properties. However, even here, the barrier remains high. An annual income of $167,600 is necessary to purchase a median-priced condo, with monthly payments around $4,190—an amount that may be out of reach for many young professionals or first-time buyers.
Comparing California to the National Average
The contrast between California and the national average is striking. Nearly 40% of households nationwide can afford the median-priced home, requiring a significantly lower income of $99,600. This highlights the steep price tag associated with achieving the California dream.
Regional Affordability Disparities
The report also reveals significant variations in affordability across the state. Lassen County stands out as the most affordable, with an affordability index of 51% and a qualifying income of just $66,000 for a home purchase. However, Lassen County may not be ideal for everyone due to factors like job availability and amenities.
Conversely, in counties like San Mateo and Santa Clara, you would need an annual income of at least $500,000 to afford a median-priced home. While these areas are centers for innovation and technology, homeownership here seems like a distant dream for many.
Future of Affordability in California
Although there is some improvement compared to the previous quarter, a year-over-year analysis shows a troubling trend. Housing affordability has worsened in 46 out of 58 counties. Rising home prices and stagnant wages are pushing many Californians out of the market, forcing them to choose between delaying homeownership, relocating to more affordable areas, or downsizing their living space.
What Should You Do as a Potential Homebuyer?
Don’t let the challenges discourage you, but remain realistic. Assess your financial situation thoroughly and explore all available options. Consider looking in areas with lower housing costs or accepting a longer commute if it makes homeownership feasible.
Explore government programs designed for first-time homebuyers and consider creative financing options. Despite the challenges, with careful planning and perseverance, owning a home in California can still be within reach.
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