Home price gains to subside in 2022
After 10 years of rising prices, the typical home in California expected to be affordable to just 23% of households next year
California’s white-hot housing market will cool in 2022, with price gains moderating and sales declining, the California Association of Realtors forecast Thursday.
But the inability of most buyers to afford California’s ever-escalating home prices will continue to plague the state, driving even more residents out of the state.
A CAR consumer survey showed, for example, that 35% of home sellers are moving out of state and fewer than 15% were moving to a home in the same county as their last residence.
“I think that pressure to migrate out of the state is going to be just as strong, if not stronger, as housing, affordability gets worse,” CAR Chief Economist Jordan Levine said. “I think that this is a housing-driven phenomenon, and we don’t have a lot of relief in terms of housing affordability.”
The 2022 median price of a California house, or the price at the midpoint of all sales, will be $834,400, up a mere 5.2% from this year’s projected median of $793,100, according to next year’s forecast.
Price gains have been in the double digits for the past two years, rising 11.3% in 2020, with a projected gain this year of 20.3%. The median price of an existing single-family home has risen more than $200,000 during the past two years, or almost $2,000 a week.
Sales are forecast to decline 5.2% next year, with a total of 416,800 houses changing hands, the forecast said.
Even though sales will go down, next’s year’s transaction volume should still be the second-highest of the past five years. And it will be slightly higher than the average of 414,000 transactions a year since the housing market began its recovery from the Great Recession in 2012.
“We can’t call this a cool market by any stretch of the imagination,” Levine said. “I would say that it’s gone from white-hot to this kind of a plain old, runof-the-mill boring red-hot (market) that California usually has, (with) too much demand and not enough supply.”
Rising mortgage rates, a limited supply of homes for sale and a lack of homes affordable to most buyers “will likely curb median price growth,” the forecast said. But demand still will outstrip supply, creating more “upward pressure” on prices.
“Structural challenges will reassert themselves,” Levine said. “Demand for homes will continue to outstrip available supply as the economy improves, resulting in higher home prices and slightly lower sales.”
In a statement, CAR President Dave Walsh said the slight decline from the torrid sales pace of the past 1 ½ years “will be a welcome relief to potential homebuyers.” High market competition and the lowest inventory in at least eight years, has “pushed (homebuyers) out of the market,” Walsh said.
CAR economists project the average interest rate for a 30-year, fixed-rate mortgage will rise to 3.5% in 2022, up from this year’s projected rate of 3%. So far, this year’s rate has averaged 2.9%, but is expected to rise by year’s end.
After 10 straight years of steadily rising home prices, the typical California home will be affordable to just 23% of California households, the forecast said. That’s down from 32% in 2020 and a projected rate of 26% this year.
“The erosion of housing affordability is starting to take its toll on buyers, so we do expect demand to take a bit of a step back,” Levine said.
CAR’s overall economic outlook is more rosy, projecting the state’s unemployment in the state will fall to 7.8% this year and 5.8% next year. The rate, which was below 4% right before the pandemic hit, climbed to 16.4% in the spring of 2020.
The nation’s economy also is projected to continue growing next year. The gross domestic product is forecast to hit 4.1% in 2022, on top of a projected gain of 6% in 2021.
“Assuming the pandemic situation can be kept under control next year, the cyclical effects from the latest economic downtown will wane, and a strong recovery will follow,” Levine said.