Many people are wondering what the future holds for the California housing market, especially after a turbulent year of high prices, low inventory, and rising mortgage rates. Will the California market crash in 2024, or will it rebound and continue to grow?
The California housing market in 2024 is expected to be characterized by continued stability with potential for moderate growth, rather than a dramatic boom or bust cycle. In this blog post, we will look at the latest data and projections from the California Association of Realtors (C.A.R.), one of the most authoritative sources of information on the state's housing trends.
Key Factors Influencing Prediction
- Stricter Lending Standards: Unlike the loose lending practices that fueled the 2008 housing bubble, today's stricter regulations make it much more difficult for unqualified borrowers to obtain a mortgage. This helps prevent a similar scenario from unfolding again, where a large number of homeowners default on their loans, leading to a sharp decline in home values. Potential homebuyers must now go through a more rigorous qualification process, ensuring they have the financial stability to handle mortgage payments. This reduces the risk of widespread defaults, which could trigger a housing market crash.
- Low Inventory, High Demand: The supply of houses for sale in California has been consistently lagging behind buyer demand for quite some time. This imbalance is expected to continue in 2024, putting upward pressure on housing prices and preventing a significant drop. With more buyers competing for a limited number of houses, sellers are in a strong position and can command higher prices. This lack of inventory is a major reason why a crash is unlikely.
However, a market slowdown is a distinct possibility. Rising interest rates, which are already significantly higher than the historic lows of recent years, could increase the monthly mortgage payment for many Californians. This could potentially discourage some from buying a home and lead to a decrease in sales activity. Even though a crash is unlikely, rising interest rates could dampen the market enthusiasm and lead to a more balanced scenario between buyers and sellers.
Will the California Housing Market Crash in 2024?
According to C.A.R.'s 2024 California Housing Market Forecast, released in September 2023, the market will experience a significant recovery in 2024, as mortgage rates are expected to decline and more homes become available for sale.
The forecast predicts that existing single-family home sales will increase by 22.9 percent in 2024, reaching 327,100 units, up from the estimated 266,200 units sold in 2023. The 2023 figure represents a 22.2 percent drop from the 342,000 units sold in 2022, which was a record-breaking year for the market.
Home Prices Will Rise in 2024
The median home price, which is the point at which half of the homes sold for more and half sold for less, is also projected to rise by 6.2 percent in 2024, reaching $860,300, up from the estimated $810,000 in 2023. The 2023 figure reflects a 1.5 percent decrease from the $822,300 recorded in 2022, which was also a historic high for the state.
The forecast attributes the price growth to the persistent housing shortage and the competitive market conditions that will continue to put upward pressure on prices.
Factors Behind the Rebound in 2024
The forecast also provides some insights into the factors that will shape the market dynamics in 2024. One of the main drivers of the market recovery will be the lower mortgage interest rates, which are expected to average 6 percent in 2024, down from the projected 6.7 percent in 2023.
The lower rates will make borrowing more affordable and attractive for homebuyers, especially first-time buyers who were squeezed out by the high rates and prices in the previous years.
Another factor that will boost the market activity will be the increase in housing supply, which has been a major challenge for the state for many years. The forecast expects that more homes will come on the market in 2024, as sellers who have overcome the “lock-in effect” will take advantage of the favorable market conditions and list their homes for sale.
The “lock-in effect” refers to the phenomenon where homeowners are reluctant to sell their homes because they fear they will not be able to find or afford another home in their desired location.
The forecast also notes that housing affordability will remain a key issue for the market, as only 17 percent of households will be able to afford a median-priced home in 2024, unchanged from the projected figure for 2023. This means that many potential buyers will be priced out of the market or have to look for alternative options such as renting or moving to more affordable areas.
In summary, the California Housing Market Forecast for 2024 offers a more optimistic outlook for the state's real estate market. It anticipates a strong rebound in sales and prices after a challenging year of declining activity. The forecast is based on a baseline scenario that assumes a moderate economic growth and inflation rate for the state and the nation.
However, it also acknowledges that there are some uncertainties and risks that could affect the market outlook, such as changes in consumer confidence, government policies, natural disasters, and global events.While challenges remain, the overall trend suggests that the California housing market is set to rebound in 2024.
