California’s housing market is expected to rebound next year from the disastrous sales drops of 2022-23, with both home sales and prices expected to pick up in 2024, Realtor economists predicted Wednesday, Sept. 20.
But even with a 23% jump in sales of existing single-family homes, 2024 still will have the lowest number of transactions since the Reagan Administration in 1984 — and the ninth-lowest in records dating back 55 years.
Also see: California homebuying pace plunges 32% to a record low
And with just slight improvements to the number of homes on the market, buyers waiting on the sidelines for prices to drop are likely to be disappointed, Realtor economists said. Lower mortgage rates will boost buyer competition and push the 2024 home price to a record high.
“We’re relatively optimistic that things will improve as we move into 2024,” CAR Chief Economist Jordan Levine said in a news conference. “Even with all of the uncertainty, with the challenges with the higher interest rates and even sales that have dipped over the course of the last couple of months, we still haven’t seen sales fall to the low levels that we hit last winter.”
Also see: Southern California real estate bosses add only 400 workers in August
The Realtor association predicted that 327,100 houses will change hands in the year ahead, up 22.9% from 2023’s projected sales total of just 266,200 sales.
While an improvement over 2023 — the third-slowest year in records dating back to 1970 — 2024’s projected sales still would be well below average, CAR records show.
Home prices, meanwhile, are forecast to keep climbing.
After falling 1.5% this year from the year before, the median price of a California house — or price at the midpoint of all sales — is forecast to reach an all-time high of $860,300 next year. That would be up 6.2% increase from this year’s projected median of $810,000.
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“It unfortunately means that we probably won’t see housing affordability recover, but that’s because prices will continue to go up even as those 30-year fixed rate mortgages drop,” Levine said. “I think 2023 will be the low-water mark, and we expect at least a double-digit increase in sales, with prices that will continue that upward trend.”
Key takeaways from the California Realtor forecast include:
Mortgage rates: The key metric in the forecast is a projection that mortgage rates will fall.
CAR predicted that average rates for 30-year fixed mortgages could drop to the mid-5% range by the end of next year, down from recent 22-year highs around 7.2%.
For the year as a whole, the average 30-year interest rate is forecast to be 6%, down from 6.7% for all of 2023.
Also see: Homebuyers canceling purchases at highest rate in 10 months
Affordability: While falling mortgage rates should increase the buying power for some priced-out home shoppers, rising prices will keep the “affordability rate” at the lowest level since 2007.
The number of California households able to afford a median-priced home will hold at 17% next year, unchanged from 2023, CAR predicted.
“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,” Levine said.
Inventory: Falling mortgage rates could unlock some “locked-in” homeowners, freeing them up to put their properties up for sale.
Last winter, 69% of all California homeowners with a mortgage were paying 4% or less in interest, making them reluctant to sell and pay a higher rate for a new home.
But 14% of owners now pay more than 5% in interest, with half of them paying more than 6%. If 30-year rates fall to 5.5% next year, that could free up more homes for sale.
Another obstacle keeping some owners from selling: 2.7 million California households would have to pay capital gains taxes should they sell because home values have gone up so dramatically. Levine noted that a bill pending in Congress to double the capital gains excluded from the tax would free up more than half of the homes “held hostage” by the tax penalty.
Economy: California employment levels are projected to increase by 0.5% next year as employers compete for a limited number of workers. In addition, foreclosures represent a minuscule portion of the market, with less than 2.5% of all borrowers behind on their mortgage payments.
While the risk of a mild recession continues to loom over the 2024 economic picture, Levine said, the economy continues to outperform expectations.
Cash buyers: Rising prices left many existing homeowners with tons of equity, or money in the bank after selling and paying off their home loan.
CAR numbers show that 28% of California homes sold this year without a mortgage. That’s the highest number of all-cash buyers since 2012.
“There’s a lot of nuance to the market,” Levine said. ” … On the whole, the market is experiencing only a slow recovery.”
