CAR: Home Sales, Prices to Slide in 2023, Recession "Mild"

Based on what it says will be a “modest” and “mild” recession, the California Association of Realtors is projecting that home prices and home sales will decline in the Golden State next year.

CAR, in a forecast released this week, is projecting an 8.8% decline in home prices in California in 2023 and a 7.2% decline in home prices.

Based on CAR’s forecast, single-family home sales in California will decline to a total of 333K units in 2023 from the projected pace of 359K in 2022. The 359K total for this year represents a YOY decline of 19.2%.

The median home price in CA is projected by CAR to decline to $759K in 2023 from the 2022 average, which is expected to come in at $831K.

“High inflationary pressures will keep mortgage rates elevated, which will reduce homebuyers’ purchasing power and depress housing affordability in the upcoming year,” Jordan Levine, CAR’s chief economist, said in a statement.

“A pullback in sales and a downward adjustment in home prices are expected in 2023,” Levine said.

CAR went out of its way to signal that it does not believe the downturn in the US economy will be deep.

”As the housing market continues to cool, the US economy will moderate further and is expected to slip into a mild recession in the first half of next year,” Levine said.

“High inflationary pressures will keep mortgage rates elevated, which will reduce buying power and depress housing affordability for prospective buyers in the upcoming year. As such, housing demand and home prices will soften throughout 2023,” Levine continued.

CAR President Otto Catrina, a Bay Area real estate broker, also exuded confidence that the market shift will be modest in a statement that accompanied the association’s 2023 forecasts, suggesting that buyers and sellers quickly are adapting to the “new realities” of the market.

“As sellers adjust their expectations, well-priced homes are still selling quickly,” Catrina 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.”

Mortgage rate on 30-year fixed loans are heading up past 7% in reaction to the Fed’s campaign of rate increases, which is likely to include another hike of at least 75 bps in November.

In what is clearly a reflection of the overheated state of the home sales market in California before everything started cooling off in Q3, CAR projects that prices for single-family homes will register a 5.7% YOY increase in 2022 when year-end figure come in.

Measured in a YOY comparison, the Q3 cooldown of home sales in California represents a 30% drop compared to the torrid pace of sales September 2021, a surge that pushed the median price of home up over $1M in California.