The Big Picture
“Home prices are holding up relatively well, despite rising interest rates and falling housing demand in recent months. Tight housing inventory was a primary factor preventing prices from free falling as new active listings continued to dip to reach the lowest level in at least the past five years” —Jordan Levine, Vice President and Chief Economist at the California Association of Realtors®
- California recorded its largest decline in existing home sales of 47.7% year-over-year in November 2022; a short respite in rising interest rates helped edge up home sales in December 2022, with the year ending with home sales up by 1.1% from November and down 44.1% from December 2021.
- California’s median home price remained on a downward trend for the fourth straight month and has been down on a monthly basis for six of the last seven months; December’s statewide median home price was down 0.4% percent from November and down 2.8% percent from December 2021.
- Housing inventory in California continued to rise from the previous year, and the 2023 housing market is poised to enter a period of balance between buyers and sellers.
- The annual inflation rate in the US slowed for a sixth straight month to 6.5% in December of 2022, the lowest since October of 2021; if inflation continues to ease, mortgage rates, already trending downward, should continue to fall through 2023.
What Experts Are Saying About the 2023 Housing Market
If you’re thinking about buying or selling a home soon, you probably want to know what you can expect from the housing market this year. In 2022, the market underwent a major shift as economic uncertainty and higher mortgage rates reduced buyer demand, slowed the pace of home sales, and moderated home prices. But what about 2023?
This year, experts agree we may see the return of greater stability and predictability in the housing market if inflation continues to ease and mortgage rates stabilize. Here’s what some have to say.
The 2023 forecast from the National Association of Realtors (NAR) says:
“While 2022 may be remembered as a year of housing volatility, 2023 likely will become a year of long-lost normalcy returning to the market, . . . mortgage rates are expected to stabilize while home sales and prices moderate after recent highs, . . .”
Danielle Hale, Chief Economist at realtor.com, adds:
“. . . buyers will not face the extreme competition that was commonplace over the past few years.”
Mark Fleming, Chief Economist at First American, says:
“The housing market, once adjusted to the new normal of higher mortgage rates, will benefit from continued strong demographic-driven demand relative to an overall, long-run shortage of supply.”
Think Twice Before Waiting for 3% Mortgage Rates
A lot of what happens to the housing market depends on what happens to mortgage rates. Last year, the Federal Reserve took action to try to bring down inflation. In response to those efforts, mortgage rates jumped from the record lows we saw in 2021, peaking at just over 7% last October. As a result, potential buyers experienced a hit to their purchasing power, and some decided to press pause on their plans.
In 2023, market experts say mortgage rates will likely stabilize below the peak we saw last year. That’s because mortgage rates tend to respond to inflation. And early signs show inflation is starting to cool. If inflation continues to ease, rates may fall a bit more, but the days of 3% are likely behind us. Greg McBride, Chief Financial Analyst at Bankrate, explains:
“I think we could be surprised at how much mortgage rates pull back this year. But we’re not going back to 3 percent anytime soon, because inflation is not going back to 2 percent anytime soon.”
It’s important to have a realistic vision for what you can expect this year as the housing market recalibrates to more balanced pre-pandemic levels.
The Big Picture Data
Silicon Valley Housing Market
- Sales continued to decline sharply in the fourth quarter, with the Bay Area recording its largest decline (-44.0%) since the pandemic shutdown in November 2022. A short retreat from rising interest rates helped edge up Bay Area home sales in December, breaking a two-month sales decline. Nevertheless, home sales ended the year down 37.4% compared with December 2021.
- The Bay Area median home price ended the year at $1,084,500, down 11.5% from its value in November and 9.6% from December 2021.
- Housing supply in the Bay Area continued to improved from a year ago because of a pullback in demand; however, inventory remains low as fewer listings come onto the market.
- The median number of days it took to sell a single-family home in the Bay Area continued its upward trajectory, ending the year at 28 days compared to 13 day in December 2021.
Housing market has cooled
Last year, the housing market slowed down in response to higher mortgage rates. Nevertheless, there is still a lot to be optimistic about the 2023 Silicon Valley market. If you’re ready to buy a home now, today’s market presents the opportunity to get a more affordable mortgage rate, find your dream home, and face less competition from other buyers. If you’re thinking of selling your house soon, that means you’ll want to adjust your expectations. In a more moderate market, how you price your house will make a big difference to not only your bottom line, but to how quickly your house could sell. And the reality is, homes priced right are still selling in today’s market.
As inflationary pressures ease, and mortgage rates drop, we’re entering a stage of slower, longer-term growth. On the national level, experts predict prices will most likely increase in 2023, but at a more sustainable rate of roughly 5-6%. Statewide, C.A.R. is forecasting a housing prices may decline some more. According to C.A.R. Vice President and Chief Economist Jordan Levine, “While depressed inventory will preclude major price declines beyond the 8.8 percent we forecast for this year, it will also slow sales growth and prevent the housing market from having a rapid recovery.” Even with the declines from the peaks reached in 2022, they have sustained their price gains from a year ago.
Unsold Inventory Index indicates continued sellers' market
The Unsold Inventory Index (UII) is a measure of the number of months it would take for all current homes on the market to sell at the current rate of sales. The long-term average UII is around three months in California, which indicates a balanced market. An UII lower than three months indicates that there are more buyers than sellers on the market, i.e., a sellers’ market, while a higher UII indicates there are more sellers than buyers, i.e., a buyers’ market.
Bay Area housing inventory continued to rise from the previous year but dipped on a month-to-month basis as the year came to an end as mortgage rates started to drop in November. The Unsold Inventory Index (UII) was 1.6 months in December 2022, down from 2.4 months in November 2022 but double the value recorded in December 2021. The index indicates that the market continues to favors sellers as we enter 2023.
Sales-to-list price ratio remains below 100%
Sales-to-list-price ratio is an indicator of the negotiation power of home buyers and home sellers under current market conditions. The ratio is calculated by dividing the final sales price of a property by its last list price and is expressed as a percentage. The sales-price-to-list-price ratio was 96.2% in December 2022 and 105.4% in December 2021. A sales-to-list ratio above 100 percent suggests that the property sold for more than the list price, and a ratio below 100 percent indicates that the price sold below the asking price.
Historical
Statistics are from the California Association of Realtors® Housing Market Overview report and reflect existing single-family homes except where indicated. % change is Year-Over-Year.
