ORANGE COUNTY, Calif. — California's hot housing market is expected to cool slightly next year but not enough for prices to drop as buyers, who sat out this past year's housing market, look to get back into the game of buying a home.
The California Association of Realtors' housing and economic forecast expects the state's median home price — or middle point of all sales — to increase by 5.2% from the previous year to $834,400 in 2022.
"With the economy continuing to recover next year and many employees still working remotely, housing demand will be solid next year, despite dipping slightly from 2021," said Oscar Wei, C.A.R.'s deputy chief economist.
As the coronavirus pandemic continues and businesses and people adjust to a new normal, housing will continue to be a big topic in the state in the new year.
C.A.R.'s forecast released last week expects a bit more housing inventory to come into the market next year, with prices only increasing slightly compared to years past, but affordability remains a crucial issue.
The good news is the mid-single-digit forecasted jump appears a bit more in line with housing price increases in the mid-2010s than in the past couple of years. From 2015 to 2019, the state's housing prices increased on average by 5.7% annually.
But heading into the pandemic and during it, a housing frenzy emerged. A combination of working from home, historically low interest rates, and fewer homes on the market, among other reasons, led to high demand.
From 2019 to 2020, home prices in the state increased 11%, C.A.R.'s annual forecast reported. During the pandemic, home prices jumped 20%, from $659,400 in 2020 to $793,100 in 2021.
Still, a mix of historically low housing inventory, slightly higher interest rates and motivated, well-qualified buyers will continue to drive the market next year. Though sales of single-family homes are expected to drop next year, C.A.R. reported that the transactions would reach the second-highest level in the past five years.
"A slight decline next year from the torrid sales pace of the past year-and-a-half will be a welcome relief to potential homebuyers who have been pushed out of the market due to high market competition and an extremely low level of homes available for sale," said C.A.R. President Dave Walsh.
"Homeownership aspirations remain strong and motivated buyers will have more inventory to choose from," Walsh added. "They will also benefit from a favorable lending environment, with the average 30-year fixed-rate mortgage remaining below 3.5% for most of next year."
However, housing affordability remains a big issue in the state, C.A.R. reports. The forecast expects the number of Californians who can afford a median price home to drop from 26% in 2021 to 23% in 2022. So a whopping 77% of residents in the state cannot afford to buy a median-priced home in California.
It's a trend that has gotten worse as the pandemic continues. The K-shape economic recovery has boosted middle and wealthy residents, while government shutdowns and business closures hammered those in the low-wage service and hospitality sector.
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As of the second quarter of this year, a person or a household would need to earn a minimum annual income of more than $151,000 to qualify for purchasing an $817,950 statewide median-priced, existing single-family home, C.A.R. reported.
According to C.A.R., the monthly payment, including taxes and insurance on a 30-year, fixed-rate loan, would be $3,770, assuming a 20% down payment and a 3.2% interest rate.
In Southern California, Orange County has the lowest percentage number in C.A.R.'s affordability index. Only 17% of households would be able to purchase a median-priced single-family home ($1.1 million) in Orange County. San Bernardino is the most affordable, with 43% of households able to afford a median-priced home of $420,000. In Los Angeles, about 22% of households could afford a median-priced home of $756,000.
Year-over-year, C.A.R. reported, housing affordability for condominiums and townhomes also declined in the second quarter of 2021.
Last year, in the second quarter, 44% of households in the state could afford to qualify to buy a median-priced condominium or townhome. That number has dropped to 37% this year.