ANAHEIM, Calif. — Home prices in California's housing market, once one of the nation's hottest during the coronavirus pandemic, is forecasted to drop 9% next year as interest rates continue to skyrocket and dark clouds of a possible recession loom overhead.
On Wednesday, the California Association of Realtors released its 2023 California Housing Market Forecast. The group forecasts the state's median home price will decline 8.8% from $831,460 in 2022 to $758,600 in 2023.
The report also expects fewer home sales next year.
California, the report states, could see a 7.2% decline in single-family home sales to 333,450 units in 2023 from the projected sales figure of 359,220 in 2022.
CAR officials said the 2022 figure is 19.2% lower than the 444,520 homes sold in 2021.
"With the market shifting as home sales and prices are predicted to temper next year, buyers and sellers are adapting to the new realities of the market," said Otto Catrina, California Association Realtors president and real estate agent based in the Bay Area, in a news release.
The sudden drop in home prices and sales runs counter to the happenings of the housing market since the beginning of the coronavirus pandemic.
Like shoppers on Black Friday, the onset of the pandemic created a buying frenzy.
A combination of historically low-interest mortgage rates, low housing inventory and remote work accelerated the demand for housing in a state that already faced a massive housing shortage.
The high demand created a fiercely competitive market, as buyers tried to one-up each other, causing a sudden rise in housing valuations.
According to CAR, the state's median home price jumped from $592,000 in 2019 to $786,000 in 2021, a 32% increase. The association projects that the state's median home price will rise to $831,000 by the end of this year, a 5.7% year-over-year rise.
But in the past several months, the Federal Reserve began raising interest rates to clamp down on historically high inflation. The high rates have spooked prospective homebuyers, while more sellers are entering the market.
According to Freddie Mac's latest mortgage survey, the average 30-year mortgage rate has reached 6.9%, its highest level in 20 years. In April 2002, the average mortgage rate hit 6.89%.
Freddie Mac officials said mortgage rates are continuing their record-setting climb.
"We continue to see a tale of two economies in the data: Strong job and wage growth are keeping consumers' balance sheets positive, while lingering inflation, recession fears and housing affordability are driving housing demand down precipitously," Freddie Mac officials said in a news release. "The next several months will undoubtedly be important for the economy and the housing market."
CAR officials expect the 30-year, fixed mortgage rates to hover around 6.6% next year.
"As the housing market continues to cool, the U.S. economy will moderate further and is expected to slip into a mild recession in the first half of next year," said Jordan Levine, the vice president and chief economist at CAR. "High inflationary pressures will keep mortgage rates elevated, which will reduce buying power and depress housing affordability for prospective buyers in the upcoming year. As such, housing demand and home prices will soften throughout 2023."