California’s white-hot housing market will cool down in 2022, with price increases moderating and sales falling, the California Association of Realtors forecast Thursday, October 7.
But the inability of most buyers to afford the ever-rising home prices in California will continue to plague the state, driving out even more residents of the state.
A CAR consumer survey showed, for example, that 35% of home sellers leave the state and less than 15% move to a house in the same county as their last residence.
“I think the pressure to migrate out of state is going to be just as strong, if not stronger, as housing, affordability gets worse,” said CAR chief economist Jordan Levine. “I think this is a housing phenomenon, and we don’t have a lot of relief in terms of housing affordability.
The 2022 median price of a California home, or the price in the middle of all sales, will be $ 834,400, up just 5.2% from the projected median of $ 793,100 this year, according to forecasts. next year.
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Price increases have been in double digits over the past two years, increasing 11.3% in 2020, with an expected increase this year of 20.3%. The median price of an existing single-family home has increased by over $ 200,000 over the past two years, or nearly $ 2,000 per week.
Sales are expected to fall 5.2% next year, with a total of 416,800 homes changing hands, according to forecasts.
Even though sales will decline, next year’s transaction volume is still expected to be the second highest in the past five years. And it will be slightly above the average of 414,000 transactions per year since the housing market began to recover from the Great Recession in 2012.
“We can’t call it a cool market by any stretch of the imagination,” Levine said. “I would say it’s gone from white heat to that kind of boring old and ordinary (market) scorching that California usually has, (with) too much demand and not enough supply.”
Rising mortgage rates, a limited supply of homes for sale and a lack of affordable housing for most buyers “are likely to dampen the growth in median prices,” according to forecasts. But demand will always exceed supply, creating more “upward pressure” on prices.
“The structural challenges will reaffirm themselves,” Levine said. “The demand for housing will continue to exceed the available supply as the economy improves, leading to higher house prices and slightly lower sales.”
In a statement, CAR President Dave Walsh said the slight decline from the scorching sales pace of the past 1.5 years “will be a welcome relief for potential buyers.” The stiff competition in the market and the lowest stock in at least eight years has “pushed (the buyers) out of the market,” Walsh said.
CAR economists predict that the average interest rate for a 30-year fixed-rate mortgage will rise to 3.5% in 2022, from 3% this year. So far this year’s rate has averaged 2.9%, but is expected to increase by the end of the year.
After 10 straight years of steadily rising home prices, the typical California home will be affordable for just 23% of California households, according to forecasts. That’s down from 32% in 2020 and a projected rate of 26% this year.
“The erosion of housing affordability is starting to take its toll on buyers, so we expect demand to fall a bit,” Levine said.
CAR’s overall economic outlook is more optimistic, forecasting state unemployment in the state to fall to 7.8% this year and 5.8% next year. The rate, which was below 4% just before the start of the pandemic, rose to 16.4% in the spring of 2020.
The country’s economy is also expected to continue growing next year. Gross domestic product is expected to reach 4.1% in 2022, in addition to a projected gain of 6% in 2021.
“Assuming the pandemic situation can be brought under control next year, the cyclical effects of the last economic downtown will subside and a strong recovery will follow,” Levine said.