Realtors predict home prices will drop 9% in 2023 – Orange County Register

For years, buyers of overpriced homes have sat on the sidelines, praying for a market reversal to bring housing costs down from the sky.

Next year, their prayers might be answered – sort of.

Home prices and sales are expected to fall in 2023, according to a new forecast from the California Association of Realtors released today.

However, prices will remain relatively high, and for those using a mortgage, homes will be even less affordable in 2023 than this year thanks to rising interest rates.

The median price of an existing California home will drop 8.8% next year, falling to $758,600, according to CAR forecasts. That’s down from the projected median of $831,500 this year and the lowest since 2020.

Even after falling nearly 9%, the median house price in 2023 would still be 15% higher than in 2020, the year the pandemic hit, and up 28% from 2019.

Home sales, meanwhile, are expected to decline 7.2% next year to 333,400 transactions. That would be the lowest number of home sales since the housing bubble burst in 2007. And the projected tally of 359,200 sales this year would be the second lowest since then.

The slowdown in sales is good news for bidding war-weary homebuyers. But that’s bad news for realtors, escrow agents, and mortgage and title insurance providers, who rely on deals to make money.

If next year’s forecast is correct, home sales will be 25% lower than in 2021, when 444,520 single-family homes changed hands.

“Sales and prices are expected to moderate next year,” Bay Area realtor Otto Catrina, CAR’s 2022 president, said in a statement. “All point to a more favorable market environment for those who outbid or hold back over the past two years when the market was fiercely competitive.”

Admittedly, the outlook for the state realtor is far less bleak than in 2009, when home prices were down 51% from the market peak.

Housing economists predict a “modest recession” next year caused by the Federal Reserve’s battle to rein in inflation. Gross domestic product in 2023 is expected to fall 0.5% – the first annual drop since the pandemic strangled the economy in 2020.

Meanwhile, interest rates are expected to average 6.6% for a 30-year fixed rate mortgage next year, up from the projected average of 5.2% this year and the average of 3% from last year.

As a result, the monthly mortgage payment should increase even if prices should fall, unless you pay entirely in cash.

And more buyers are doing just that.

More than 22% of California buyers paid in full without a mortgage when buying a home in 2022, according to CAR figures, up from 18.6% last year.

“Strong inflationary pressures will keep mortgage rates high, reducing purchasing power and depressing housing affordability for potential buyers in the coming year,” CAR’s chief economist said. , Jordan Levine, in a press release. “As such, housing demand and housing prices will weaken throughout 2023.”

A calculation at the bottom of the envelope shows that the typical 30-year mortgage payment for a median-priced home will average $3,875 per month next year, according to CAR’s forecast. Despite the price drop, that’s up from $3,652 per month this year.

According to the realtor’s forecast, only 18% of California households will be able to afford a median-priced home in 2023, compared to 19% this year and 32% in 2020.

A CAR calculation based on Ventura County listings last August shows how rising mortgage rates are putting more homes out of reach for mainstream buyers.

If mortgage rates were still at 3%, 350 Ventura County listings — or 43% of homes on the market — would be affordable for buyers able to make a monthly payment of $3,750. But at a mortgage rate of 6%, the number of affordable homes for these buyers drops to 129, or just 16% of listings.

“Stubbornly high inflation and growing economic concerns will keep average mortgage interest rates high,” the realtor forecast.

As rates rose this year, homes began to take longer to sell and more sellers lowered their asking prices.

Forty-three percent of California homes sold below their original price at the end of the summer, compared to just 15% last spring.

The US inflation rate – the culprit of the latest housing downturn – is expected to slow, CAR reported, using projections from the St. Louis Federal Reserve. By next winter, the inflation rate is expected to drop below 6% and drop to 2.2% by fall 2023.

“Buyers and sellers are adapting to new market realities,” said CAR President Catrina. “As sellers adjust their expectations, well-priced homes are still selling quickly. And for buyers, (there are) more homes for sale, less competition, and fewer homes being sold above asking price.

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