Expect a weaker housing market in California in 2023 as an ongoing battle against inflation creates a small recession — keeping interest rates elevated and suppressing buyer demand, according to a forecast released Wednesday, Oct. 12, by the Los Angeles County-based California Association of Realtors.
The baseline scenario of CAR’s “2023 California Housing Market Forecast” sees a decline in existing single-family home sales of 7.2% next year to reach 333,450 units, down from the projected 2022 sales figure of 359,220.
The 2022 figure is 19.2% lower compared with the pace of 444,520 homes sold in 2021, according to the real estate trade association. The California median home price is forecast to drop 8.8% to $758,600 in 2023, following a projected 5.7% increase to $831,460 in 2022 from $786,700 last year. A less competitive housing market for home buyers and a normalization in the mix of home sales will curb median price growth next year, CAR said.
“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 CAR President Otto Catrina, a Bay Area real estate broker and Realtor.
“As sellers adjust their expectations, well-priced homes are still selling quickly,” he said. “And for buyers: more homes for sale, less competition, and fewer homes selling above asking price, all point to a more favorable market environment for those who were outbid or sat out during the past two years when the market was fiercely competitive.”
CAR’s 2023 forecast also projects a dip in the U.S. gross domestic product of 0.5% next year, after a projected uptick of 0.9% in 2022. With California’s 2023 nonfarm job growth rate at 1.0%, up from a projected increase of 4.9% in 2022, the state’s unemployment rate will edge up to 4.7% in 2023 from 2022’s projected rate of 4.4%, the association said.
Stubbornly high inflation and growing economic concerns will keep the average for 30-year, fixed mortgage interest rates elevated at 6.6% in 2023, up from 5.2% in 2022 and from 3.0% in 2021 but will remain relatively low by historical standards, according to the forecast.