California’s white-hot housing market will cool down in 2022, slashing price gains and declining sales as buyers struggle to find affordable homes, the California Association of Realtors forecast Thursday, Oct.
The 2022 median value of a California home, or the price at the midpoint of all sales, will be $834,400, a mere 5.2% increase from this year’s projected average of $793,100.
Price gains have been in double digits for the past two years, a growth of 11.3% in 2020, with an estimated profit of 20.3% this year. The average price of a current single-family home has increased by more than $200,000, or about $2,000 per week, during the past two years.
The forecast said sales are projected to decline 5.2% next year, with a total of 416,800 homes being replaced.
Even though sales will decline, next year’s transaction volume should still be the second highest in the past five years. And that would be slightly higher than the one-year average of 414,000 transactions as the housing market began its recovery from the Great Recession in 2012.
The forecast said rising mortgage rates, a limited supply of homes for sale and a lack of affordable homes for most buyers “will curb average price growth”. But demand will still outpace supply, creating more “upward pressure” on prices.
“Structural challenges will reinvent themselves,” said CAR chief economist Jordan Levine. “Demand for homes will continue to outpace available supply as the economy improves, resulting in higher home prices and slightly lower sales.”
In a statement, CAR President Dave Walsh said the modest decline from the fast sales momentum of the past 1 1/2 years “would be a welcome relief to potential home buyers.” High market competition and the lowest inventory in at least eight years have “pushed[home buyers]out of the market,” Walsh said.
CAR economists forecast the average interest rate for 30 years, with fixed-rate mortgages rising to 3.5% in 2022, from this year’s projected 3% rate. So far, this year’s rate has averaged 2.9%, but is expected to increase by the end of the year.
The forecast states that after 10 consecutive years of rising home prices, a typical California home will be affordable for just 23% of California households. This is down from an estimated rate of 32% in 2020 and 26% this year.
But the overall economic outlook of CAR is more bright, with state unemployment forecast to fall to 7.8% this year and 5.8% next year. That rate, which was below 4% just before the pandemic hit, rose to 16.4% in the spring of 2020.
The country’s economy is also expected to continue growing next year. On top of projected gains of 6% in 2021, GDP is projected to reach 4.1% in 2022.
“Assuming that the pandemic situation can be kept under control over the next year, the cyclical impact from the latest economic city will subside, and a strong recovery will follow,” Levine said.