Despite a slowdown in the marketplace, at least one realty association is foreseeing an improvement in the current housing sales landscape, with some caveats.
Interest rates will begin to ebb in 2024 and housing inventory and sales pick up, said a recent report from the California Association of Realtors (CAR). The report also noted, however, that “updated guidance shows that consumers should prepare for interest rates to remain elevated for longer than initially anticipated as the economy, and labor markets in particular, continue to outperform expectations and keep inflation above the target range.”
Homebuying demand, though still grappling with reduced affordability as rates remain above 7%, saw a modest increase last week, said CAR, but market trends over the past 2 months suggest that buyers and sellers “are beginning to negotiate more with most measures of competitiveness having eased slightly, but consistently, over the past 8 weeks.”
The actual numbers these days are not impressive. In fact, the real estate market in California has seen its biggest slowdown in 35 years, according to the real estate newsletter, The Real Deal.
“Home sales skyrocketed on mortgage rates averaging 3 percent for a 30-year, fixed-rate loan, during the pandemic, but a rise to 7 percent has all but killed the market,” said the newsletter earlier this week.
Real Deal also noted, “Even with home prices inching back up as sales plummet because of the few number of homes for sale, real estate agents, home inspectors, escrow officers and mortgage brokers starve for business.
“The average real estate agent earned 19 to 29 percent less business in the latest year measured, according to Real Data Strategies. At least 5,100 agents who made money in the prior year ended the most recent 12-month period without a single sale.”
Nonetheless, CAR’s latest housing market and economic forecast for 2024 predicts a modest increase in both home sales and in home prices next year. Although the state is not expected to return to 2021 levels, existing single-family transactions are expected to rise to nearly 330,000 units, said the report—a 22.9% increase from a projected 266,100 units this year.
Home prices, driven higher by small inventories, will continue to rise in 2024, said CAR, with the median price expected to reach $866,300 on an annual basis—a 6.2% increase from 2023 and slightly higher than the original projection for last year. The recovery is likely to remain subdued, but both inventory and sales should pick up in the second half of the year as rates begin to dip slightly.
One vaguely hopeful sign, sid CAR, is that new mortgage purchase applications rose slightly last week despite rates rising.
The overall index rose 12% last week, bucking the 8-week slide that began in July. Despite this modest bump, September as a whole is coming in 12% below August and more than 25% lower than September 2023, said the CAR report.
First-time buyers remain challenged by decreasing affordability while repeat sales are locked into their current homes by low rates on their existing mortgages, CAR noted. An increasing number of long-time homeowners are facing potential capital gains if they were to sell their existing residence.
Last week, meanwhile, the Federal Reserve’s Federal Open Market Committee (FOMC) voted last week to keep their target interest rate the same at 5.5%. Although this was the expected outcome by oddsmakers, policymakers did signal that they may have to keep rates higher for longer in order to ensure that inflation is tamed.
The ‘dot plot,’ which is an estimation of where policymakers think rates need to be in order to achieve their dual mandate of full employment and price stability, showed that rates will need to remain elevated longer than was anticipated when they made their last set of projections at the end of June.
California’s housing market sales have not dipped back to the lows reached during the winter of 2022, but transactions did dip below 260,000 units for the first time since January, CAR noted.
Pending sales also suggest a “sluggish” next few months as new escrows dipped by more than 23% from 2022’s relatively lackluster pace in August, said the report.
Competition has also eased slightly approaching the winter months, as the number of homes being reduced has been rising in recent weeks while the percentage of homes selling above their listing price on the MLS has been falling, said CAR.
The market remains characterized by too little inventory, said CAR, but as the typical homebuying season has ebbed, homes are taking slightly longer to go pending and buyers and sellers are beginning to negotiate more.
