A modest recession caused by the ongoing battle against inflation will keep interest rates elevated, suppress buyer demand, and contribute to a weaker housing market in 2023, according to a forecast by the California Association of Realtors (C.A.R.). The C.A.R.’s 2023 California Housing Market Forecast projects a decline in existing single-family home sales of 7.2% in 2023.
The California median home price is forecast to decline 8.8% to $785,600 in 2023, according to the C.A.R. A less competitive housing market and normalization in the mix of home sales are both expected to contribute to curbed median price growth during 2023.
“With the market shifting as home sales and prices are predicted to temper next year, buyers and sellers are adapting to the new realities of the market,” says C.A.R. president Otto Catrina, a San Francisco Bay area real estate broker and Realtor. “As sellers adjust their expectations, well-priced homes are still selling quickly. 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.”
The C.A.R. projects high inflation and growing economic concerns will keep the average for 30-year, fixed-rate mortgage interest rates elevated at 6.6% in 2023, up from 5.2% in 2022 and 3.0% in 2021. The job growth rate in California is expected to moderate at 1% net year following growth near 5% in 2022, and the state unemployment rate is projected to edge up to 4.7% in 2023.
“As the housing market continues to cool, the U.S. economy will moderate further and is expected to slip into a mild recession in the first half of next year,” says C.A.R. vice president and chief economist Jordan Levine. “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.”
