2024 Housing Forecast

The Surge and Subsequent Challenges

The California housing market in 2023 faced many challenges. The extremely low interest rates in the previous two years caused a surge in demand that disrupted the real estate market. The Federal Reserve began to increase its key interest rate in March 2022 to curb inflation, which resulted in higher mortgage rates. Higher rates made it harder for Buyers to finance homes and discouraged Sellers from putting their homes on the market, as 80% of current homeowners have mortgages with interest rates below 6%, and almost half of them have rates below 4%.

The Golden Handcuffs

This situation, known as "The Golden Handcuffs," reduced the number of homes for sale. The low inventory created a competitive market where buyers competed, pushing prices higher. By October 2023, interest rates reached the highest level since before the Great Financial Crisis (GFC). The California Association of Realtors (CAR) reported that existing home sales in November dropped by the largest amount in a year and hit the lowest level since the GFC. Housing market analyst Ivy Zelman said:

"Existing home sales are likely at their lowest since the GFC. The main reasons are higher mortgage rates and low inventory."

With fewer homes on the market, prices have increased, but are they too high compared to the higher mortgage rates? The market thinks so! As of the 4th quarter of 2023, more than half of the current homes for sale have been on the market for more than 75 days, a sign that sales prices are too high. The average time to sell a house in California is 72 days. 37 days to get an offer and an additional 35 days to close. These homes are sitting, which confirms they are currently overpriced, and buyers have responded by waiting, leading to this slowdown.

Looking Ahead

The housing market may see some relief in 2024 as mortgage rates drop and demand rises. According to a market expert who predicted the Great Financial Crisis, a new factor could change the supply side. Meredith Whitney says that home prices will fall and home listings will increase because of a "Silver Tsunami" of baby boomers who will start to sell their homes and move to smaller ones. Whitney uses AARP data that shows that more than half of people over 50 - who own most of the homes in the US - want to downsize. This could add tens of millions of units to the market. Whitney says this trend will begin in 2024 and last for many years. "Boomers have a lot of equity in their homes. They can use it whenever they want. Older people usually have low or no mortgages." They will not be affected by higher mortgage rates with so much cash, which could make more homes available and lower the prices." This would be good news for California's struggling real estate market!