The California housing market sizzled last year to break all records. It was a hot seller’s real estate market. According to Zillow, at the state level, California’s housing market remains the most valuable in the country, with a total value of $9.24 trillion in December, accounting for more than a fifth – 21.3 percent – of the national total. However, California’s overall value growth of $1.38 trillion in 2021 represents “only” 20.1 percent of the overall national growth of $6.9 trillion – somewhat “underperforming” by about -5.5 percent relative to its total weight, particularly given the extreme growth seen in other states.
While January 2022 marked the first time since July 2020 that the state’s median price did not increase by double digits on an annual basis, the statewide median price is expected to edge higher in the coming months as the market enters the spring homebuying season. Despite rising interest rates, the California housing market remained resilient in February 2022. According to C.A.R., California’s housing prices are accelerating and the market competition is intensifying.
California home prices continued to rise year over year, regaining speed following an eight-month lull. In February, the statewide median price increased to $771,270, up 0.7 percent from $765,610 in January and 10.3 percent from $699,000 in February 2021. The higher-than-expected growth in the statewide median price is partially due to a shift in the balance of sales toward million-dollar homes, as sales increased in more expensive locations such as the Central Coast and the San Francisco Bay Area.
February’s sales pace was down 4.5 percent month over month from 444,540 in January and 8.2 percent year over year from 462,720 homes sold in 2016. The decline in year-over-year sales was the eighth in a row and the weakest in seven months. While home sales decreased from the previous month and year, February’s pace was still the second-best for February in the last decade and was still robust in comparison to pre-pandemic levels in 2018 and 2019.
The supply-demand imbalance continues to heat the market, with many buyers offering sales bids that are higher than the asking price. Market competitiveness was less heated than a few months ago but remained elevated in February. The statewide median sales-price-to-list-price ratio remained above 100 percent. Nearly 65.4 percent still sold above the asking price in February and it was the highest in six months.
Homes are still flying off the shelves in record time. The median number of days required to sell a single-family home in California was 9 days in February and 10 days in February 2021. Tight inventory and low mortgage rates, similar to national housing market trends, are fueling the rise in California home prices. While this type of price appreciation has an impact on housing affordability, higher home prices should encourage more sellers to list their homes for sale, slowing the rate of appreciation.
Housing costs have been on the rise in California, which has impacted affordability. Only twenty-five percent of California households could afford to purchase the $797,470 median-priced home in the fourth quarter of 2021, up from 24 percent in third-quarter 2021 but down from 27 percent in fourth-quarter 2020.
According to C.A.R.’s Traditional Housing Affordability Index (HAI), the percentage of home buyers who could afford to purchase a median-priced, existing single-family home in California in the fourth-quarter 2021 inched up to 25 percent from 24 percent in the third quarter of 2021 but was down from 27 percent in the fourth quarter of 2020, The fourth-quarter 2021 figure is less than half of the affordability index peak of 56 percent in the first quarter of 2012.
C.A.R.’s HAI measures the percentage of all households that can afford to purchase a median-priced, single-family home in California. C.A.R. also reports affordability indices for regions and select counties within the state. The index is considered the most fundamental measure of housing well-being for homebuyers in the state.
A minimum annual income of $148,000 was needed to qualify for the purchase of a $797,470 statewide median-priced, existing single-family home in the fourth quarter of 2021.
The monthly payment, including taxes and insurance on a 30-year, fixed-rate loan, would be $3,700, assuming a 20 percent down payment and an effective composite interest rate of 3.28 percent.
The effective composite interest rate was 3.07 percent in third-quarter 2021 and 2.96 percent in fourth-quarter 2020.
A minimum annual income of $148,000 was needed to make monthly payments of $3,700
It included principal, interest, and taxes on a 30-year fixed-rate mortgage at a 3.28 percent interest rate.
Thirty-six percent of home buyers were able to purchase the $610,350 median-priced condo or townhome.
A minimum annual income of $113,200 was required to make a monthly payment of $2,830.
In February 2022, the median price in all of the major regions of California continued to grow on a year-over-year basis, with all of them increasing by double-digits. Except 3 counties all saw a rise in their median prices year over year. Thirty-eight of them increased by double digits year over year. The supply-demand imbalance, combined with low borrowing costs, continued to drive up property prices.
The San Francisco Bay Area had a year-over-year price gain of 15.9 percent, with the median price being $1,335,000.
Southern California had a year-over-year price gain of 12.6 percent, with the median price being $760,000.
The Central Valley had the highest year-over-year price gain of 14.8 percent, with the median price being $465,000.
The Far North had a year-over-year gain of 11.9 percent, with the median price being $375,000.
The Central Coast had a year-over-year price gain of 10.1 percent, with the median price being $912,250.
The Los Angeles Metro Area had a year-over-year price gain of 11.7 percent, with the median price being $725,000.
Inland Empire had a year-over-year price gain of 17.2 percent, with the median price being $551,000.
California is still a seller’s market and home prices have reached record-highs across all the regions due to tight supply. Nearly 65% of homes sold above the asking price in February 2022. New construction can’t keep up with demand in the California housing market. Every major region saw home prices continuing to increase from last year as buyers competed amid a shortage of homes for sale. There is an increase in demand leading to bidding wars and subsequent higher selling prices.
These trends show us that the California housing market remains very competitive. Growth of sales are prices are driven by low mortgage rates, buyers seeking more living space, and a perennial shortage of housing supply. Homes are selling quickly with a minimal price reduction. The statewide sales-price-to-list-price ratio was 102.6 percent in February 2022 and 101.0 percent in February 2021. If it’s less than 100%, the home sold for less than the list price.
High demand across all of California’s sub-markets means that low inventory and lightning-fast market conditions are not going away soon. There just aren’t enough homes listed for sale to satisfy the demand from buyers. California’s Unsold Inventory Index (UII) rose in February as active listings climbed from January to the highest level in three months. February’s UII was 2.0 months and 2.1 months in February 2021. The index indicates the number of months it would take to sell the supply of homes on the market at the current rate of sales.
Will The Housing Market Go Up or Down in California in 2022?
Each month C.A.R. surveys 1,000 California consumers regarding their sentiments about various aspects of the housing market or the economy that directly impact housing to create a California Housing Sentiment Index. In March 2022, the overall housing sentiment index reached 67 (unchanged from last month). It showed that consumers acknowledged the current market challenges and felt increasingly pessimistic about homebuying opportunities.
Consumers who thought it was a “Good time to buy” dropped to 17% in March, an increase from 16% last month. Still, about one in every four consumers is holding out hope that it will be easier to find a home in the next 12 months and nearly two in every three believe that home prices will rise over the same period of time.
Despite the robust gain in home prices and rising interest rates, homebuyer demand remains unexpectedly strong. There is some evidence that inventory is gradually starting to thaw, but real estate faces many variables in the months ahead. Encouragingly, the number of new listings being added to the MLS each day has finally started to exceed closed sales and C.A.R. is still forecasting at least 10% growth in home sales this year. Here’s what consumers feel at this time.
Is it a good time to buy a home in California?
C.A.R.’s monthly Consumer Housing Sentiment Index for March 2022 found that only 17% of consumers believe that now is the good time to buy a home, and 83% think this is not a good time to buy a home. The overall housing sentiment is unchanged from last month. As a result of continuously rising prices in all the major regions, the housing market sentiment also shows that only 26% of the consumers feel that it will be easier to find a home over the next twelve months (+1 from last month’s survey). 74% said it won’t be easier to find their dream house.
Is it a good time to sell a home in California?
According to the survey, more than one-third (75 percent) of Californians believe now is a good time to sell a home. That’s an increase of +3% over the Feb 2022 poll. More than half of the consumers (64%) who participated in the survey still feel that home prices will continue to rise in the 12 months. That’s an increase of +1% from the previous month. Less than half of the people are optimistic about the economy’s recovery. Only 31% (-5% from last month) believe that economic conditions will improve in the state over the next 12 months while 70% still have a gloomy outlook.
Infographic Credits: CAR’s Mar 2022 Housing Sentiment Index
California Housing Market Predictions 2022
Let us look at the price trends recorded by Zillow over the past few years. Since the last decade (Apr 2012), California home values have appreciated by nearly 155% — Zillow Home Value Index. ZHVI is not the median price of homes that are sold in a month within a geographic region. It is calculated by taking all estimated home values for a given region and month (Also called Zestimates), taking a median of those values, applying some adjustments to account for seasonality or errors in individual home estimates.
It, therefore, represents the whole housing stock and not just the homes that list or sell in a given month. By this calculation, the current typical home value of homes in California is $774,899. It indicates that 50 percent of all housing stock in the area is worth more than $774,899 and 50 percent is worth less (adjusting for seasonal fluctuations and only includes the middle price tier of homes).
In March 2021, the typical value of homes in California was around $635,000. Home values have gone up 22% over the last twelve months. It can be said that California is currently the seller’s real estate market which means that demand is exceeding the supply, giving sellers an advantage over buyers in price negotiations. There are fewer homes for sale than there are active buyers in the marketplace. Buyer demand remains robust, which has been pushing home prices up by a double-digit rate of appreciation.
Courtesy of Zillow.com
Here’s a rundown of the forecast released by CAR in October 2021
What are the California real estate market predictions for 2022? California housing market is shaping up to continue the trend of the last few years as one of the hottest markets in the U.S. Supply constraints and higher home prices will bring California home sales down slightly in 2022, but transactions will still post their second-highest level in the past five years, according to a housing and economic forecast released today by the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.).
Existing, single-family home sales are forecast to total 416,800 units in 2022, a decline of 5.2 percent from 2021’s projected pace of 439,800.
California’s median home price is forecasted to rise 5.2 percent to $834,400 in 2022, following a projected 20.3 percent increase to $793,100 in 2021.
Housing affordability is expected to drop to 23 percent next year from a projected 26 percent in 2021.
C.A.R.’s “2022 California Housing Market Forecast” assumes a 5.2 percent decrease in existing single-family home sales next year, to 416,800 units, down from the predicted 439,800 units in 2021. The forecast for 2021 is 6.8% greater than the pace of 411,900 houses sold in 2020. California’s median house price is expected to climb 5.2 percent to $834,400 in 2022, from $659,400 in 2020. Demand and supply imbalances will keep prices rising, but higher interest rates and a partial adjustment of the sales mix will likely slow the price rise. The rise of remote working will help keep costs in control and prevent the statewide median price from increasing too quickly in 2022.
According to C.A.R.’s 2022 projection, the US gross domestic product would expand by 4.1 percent in 2022, after a predicted rise of 6.0 percent in 2021. With a predicted nonfarm job growth rate of 4.6 percent in 2022, up from 2.0 percent in 2021, California’s unemployment rate will fall to 5.8 percent in 2022, down from 7.8 percent in 2021. In 2022, the average 30-year fixed mortgage rate will be 3.5 percent, up from 3.0 percent in 2021 and 3.1 percent in 2020, but still low by historical standards.
Courtesy of Car.org
Latest Weekly Trends & Forecast From California REALTORS®
CAR’s latest weekly housing data for the week ending April 09, 2022, shows that buyer demand continues to be robust, albeit slightly lower than last year’s record highs. More new inventory is being added. Mortgage rates continue to climb as the market expects the Feds to be aggressive in raising rates in the coming months to combat inflation. The average 30-year fixed-rate mortgage inched up to 4.72% last week from 4.67% in the prior week, reaching the highest level since December 2018.
As the Federal Reserve prepares to boost target interest rates, and despite rising mortgage rates, the housing market remains exceedingly competitive. Despite the uptick in mortgage rates, the California housing market has been stable thus far this year, and there are hints that the coming months may see a healthy homebuying season.
According to CAR, the supply situation should improve in the near future, since numerous potential sellers have indicated that they intend to list their properties over the next six months. Meanwhile, home prices are likely to climb as well, but at a slower pace than early this year. Concerns about the economy are growing that the central bank’s balancing task may precipitate a recession in 2023. However, it is still too early to say if the Fed’s move would result in a soft landing or a recession.
According to a new Realtor.com® survey, more than two-thirds of homeowners planning to sell in 2022 anticipate listing within the next six months or by August. Indeed, nearly half (45.4 percent) of them intend to list their home in the next three months. As a result, the housing market should experience an increase in the number of for-sale properties as spring and summer progress.
However, with the market staying competitive, four out of ten (42%) homeowners planning to sell this year stated that they will ask for more than their home is worth. Over a quarter (28%) do not intend to pay for any repairs or enhancements discovered during the inspection process, and nearly one-fifth (19%) will not accept certain contingencies.
With the statewide median price expected to increase by double digits year over year in 2022, home equity is expected to continue to grow. According to the results of the 2021 Annual Housing Market Survey, home sellers typically pocketed a net cash gain of $322,500 upon selling their homes. This represents a 95.5% increase over the purchase price. And less than 1% of all sellers experienced a net loss on their home sales in 2021, which is significantly less than the long-run average of 9.9% dating all the way back to 1994. Home sellers who stayed in their homes for less than five years earned a profit of 33.3 percent, while those who stayed for five or more years earned a profit of 135.1 percent.
In 2021, low-interest rates have been continuing to attract first-time buyers. While the share of sales is down from 38.4 percent in 2020, first-time buyers still account for more than a third (35.5 percent) of homes sold this year, the highest share since 2013. First-time buyers are finding it more difficult to purchase a home as monthly mortgage payments continue to rise. With interest rates expected to rise and home prices expected to increase slightly in 2022, the affordability challenge for first-time buyers is likely to deteriorate further in the coming year.
Here’s a rundown of the California market competitiveness for the week ending April 09, 2022.
Median Listing Price = $749K
Median Listing Prices Per Sq. Ft. = $425
Median Closed Price = $0.81M
Median Closed Prices Per Sq. Ft. = $453
% of Active Listings w/Reduced Price = 17.8%
Median Reduction on Reduced-Price Listings % = -5.1%
% of Sales Closed Below List Price = 17.8%
% of Homes Closed Above List Price = 74%
Median Overage on Homes Closing Above List = 7.4%
Median Days on Market = 10 days
Credits: CAR.org
California housing affordability improves in the fourth quarter of 2021, according to C.A.R.’s Traditional Housing Affordability Index (HAI).
A tempering of home price growth combined with a solid increase in household incomes improved the affordability outlook for Californians in the fourth quarter of 2021.
Twenty-five percent of California households could afford to purchase the $797,470 median-priced home in the fourth quarter of 2021, up from 24 percent in third-quarter 2021 but down from 27 percent in fourth-quarter 2020.
A minimum annual income of $148,000 was needed to make monthly payments of $3,700, including principal, interest, and taxes on a 30-year fixed-rate mortgage at a 3.28 percent interest rate.
Thirty-six percent of home buyers were able to purchase the $610,350 median-priced condo or townhome.
A minimum annual income of $113,200 was required to make a monthly payment of $2,830.
Compared to the previous quarter, housing affordability in the fourth quarter of 2021 declined in 19 counties, improved in 19 counties, and remained unchanged in 13 counties.
Compared to the previous year, forty-one counties experienced a drop in housing affordability from a year ago.
6 counties increased year-over-year, and four counties remained flat from last year.
The C.A.R.’s 2020 Annual Housing Market Survey finds that 39 percent of REALTORS® who responded said their buyers are opting for a bigger home.
This trend is likely to continue in 2021 as well.
35 percent said buyers are opting for a property with more rooms.
37 percent said buyers are opting to live in a suburb rather than a city.
26 percent said buyers are opting to live in rural areas rather than cities or suburbs.
Source: Q4 2021 Housing Affordability Index By C.A.R.
California Housing Market Trends 2022
Infographic Courtesy of CAR
Here are some of the key points of the California housing market report for February 2022, according to the Mar 15, 2022 release by C.A.R.
Existing-Home Sales
February’s sales pace was down 4.5 percent on a monthly basis from 444,540 in January.
It was also down 8.2 percent from a year ago when 462,720 homes were sold on an annualized basis.
The year-over-year sales decrease was the eighth straight decline and the smallest in seven months.
At the regional level, nearly all major regions in California except the Central Valley recorded a decrease in sales on a year-over-year basis.
The data showed that lower-priced areas continued to fare better than higher-priced areas.
The Central Coast region had the biggest year-over-year sales decline of all regions at -16.3 percent.
The San Francisco Bay Area had a year-over-year sales decline of -13.7 percent.
Southern California also experienced a double-digit or a near double-digit sales loss of -9.9 percent.
Home sales in the Far North also dipped 8.5 percent.
The Central Valley was the only region with a sales gain in February, increasing 1.2 percent from a year ago.
Over 70 percent of all counties tracked by C.A.R. experienced a dip in existing home sales from a year ago.
24 counties declined more than 10 percent on a year-over-year basis.
Plumas had the largest decline of all counties in February, falling 62.1 percent from a year ago.
Fourteen counties experienced a sales gain from last year, with Yuba (65.3 percent) surging the most.
California Median Home Price
Median prices in all major regions continued to grow on a year-over-year basis, with all of them increasing by double-digits in February.
The San Francisco Bay Area outpaced the rest of the state with a 15.9 percent year-over-year gain.
It was followed by the Central Valley (14.8 percent), Southern California (12.6 percent), the Far North (11.9 percent), the Central Coast (10.1 percent).
All but three counties showed a year-over-year increase in median price in February.
24 California counties set new record high median prices.
Thirty-eight of them had a double-digit gain from a year ago with Santa Cruz surging the most at 30.4 percent.
Median prices declined in three counties with Mono declining the most at -30.8 percent.
California Housing Supply
California’s Unsold Inventory Index (UII) rose in February as active listings climbed from January to the highest level in three months.
February’s UII was 2.0 months and 2.1 months in February 2021.
The index indicates the number of months it would take to sell the supply of homes on the market at the current rate of sales.
Median Days & Sales Price to List Price Ratio
The median number of days required to sell a single-family home in California was 9 days in February and 10 days in February 2021.
C.A.R.’s statewide sales-price-to-list-price ratio was 102.6 percent in February 2022 and 101.0 percent in February 2021.
Looking at sale-to-list percentages can help buyers and sellers get a sense of how to negotiate on pricing.
The higher ratio of 100% or above shows a strong market favoring sellers.
The statewide average price per square foot for an existing single-family home remained elevated.
February’s price per square foot was $392, up from $338 in February a year ago.
California Housing Market – Regional Sales and Price Trends – February 2022
At the regional level, all major regions in California except the Central Valley saw a year-over-year decline in sales in February. All major regions had significant year-over-year increases in median home prices, with all of them posting double-digit year-over-year increases. The San Francisco Bay Area outperformed the rest of the state, increasing 15.9 percent year over year.
Source: C.A.R.’s Feb 2022 Market Report
These monthly and yearly trends numbers can be positive or negative depending on which side of the fence you are — Buyer or Seller? Home sales rebounded in June 2020 for the first time since the pandemic and California’s median home price reached $626,170, improving 6.5 percent from May and 2.5 percent from June 2019. The monthly price increase was higher than the historical average price change from May to June and was the highest ever recorded for a May-to-June change.
Factors are businesses reopening, mortgage payments are falling, and some sellers are more ready and eager to sell. Sales remain strong in a traditional off-season and the new year looks promising across the region. Home sales fell in February 2022, C.A.R. reported, but the California housing market remained resilient. Median prices in all major regions continued to increase — showing signs that the listings crunch is thawing.
“Despite higher mortgage rates, California’s housing market is holding up remarkably strong, with home prices reaccelerating, market competition growing and signs that the listings crunch is thawing,” said C.A.R. President Otto Catrina, a Bay Area real estate broker and REALTOR®. “Prospective buyers are taking advantage of still-low rates before they move higher and getting a jump on competition before the start of the spring homebuying season.”
Whether you’re looking to buy or sell, timing your local market is an important part of real estate investment. For sellers in the California housing market, it is a good time to sell. A low inventory would keep the prices from falling. Sales Price to List Price ratio has been 102.6% in February 2022. Around 65% of homes were sold above their initial asking prices on MLS. A seller would always prefer this ratio to be close to 100% or higher. C.A.R.’s monthly Consumer Housing Sentiment Index dropped 2 points from last month as consumers acknowledged the current market challenges and felt increasingly pessimistic about homebuying opportunities.
References/Data Sources
https://www.car.org/
https://www.car.org/aboutus/mediacenter/newsreleases
https://www.car.org/marketdata/data/countysalesactivity
https://www.car.org/marketdata/marketforecast
https://www.car.org/marketdata/marketminute
https://www.car.org/marketdata/interactive/housingmarketoverview
https://www.zillow.com/ca/home-values
https://lao.ca.gov/LAOEconTax/Article/Detail/265
https://sf.curbed.com/2020/3/23/21188781/sf-housing-market-coronavirus-covid-19
https://www.ppic.org/publication/new-patterns-of-immigrant-settlement-in-california
https://fox40.com/news/business/local-real-estate-market-slows-amid-covid-19-pandemic
https://www.washingtonpost.com/business/2020/02/27/mortgage-rates-head-back-down-coronavirus-fears
https://www.cnbc.com/2020/03/18/weekly-mortgage-applications-drop-over-8percent-as-interest-rates-jump.html
https://www.usnews.com/news/business/articles/2020-03-25/business-fallout-companies-in-china-see-delays-in-reopening
https://www.dallasnews.com/business/real-estate/2020/03/25/homeowners-who-cant-pay-their-mortgages-are-getting-help
https://www.wfsb.com/news/businesses-considered-essential-under-stay-safe-stay-home-policy/article_53f8e0d0-6d17-11ea-a04d-57ecbb72c518.html
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