California housing affordability to stay at 17%: Report
Housing prices are set to rise in 2024 and interest rates will slightly decrease, but unfortunately, more than 80 percent of Californians will still struggle to afford a home, according to a recently released report from the California Association of Realtors.
The report predicts that the number of homes sold annually will increase by nearly 23 percent to around 327,000, although this is still below the historical average of over 400,000.
“It’s definitely an improvement, but we still have a long way to go to reach pre-pandemic levels. Compared to previous years, it’s still relatively low,” said Oscar Wei, deputy chief economist for the California Association of Realtors, in an interview with The Epoch Times on Sept. 27. “The economy is performing better than expected, but that also means inflation is higher than expected. Core inflation remains quite high.”
Housing affordability, which measures the percentage of households able to afford a median-priced home, has significantly declined in recent years. It dropped from around 30 percent in 2017 to 19 percent in 2021, and further decreased to 17 percent in 2023, where it is expected to remain for the next year.
Experts believe that it will take several years to restore affordability to pre-pandemic levels, and this can only be achieved if wages keep up with inflation or if more housing is built to increase supply.
“It’s somewhat wishful thinking because historically, wage growth has not kept pace with inflation,” Mr. Wei explained. “If we have more housing and increased supply, it will help address the issue.”
With gas prices soaring across the state and food and grocery prices up by 30 percent compared to last year, consumers are feeling the impact of inflationary pressures.
The Federal Reserve recently paused interest rates but did not rule out future increases. This suggests that rates may not be cut as quickly as previously anticipated.
Higher interest rates are contributing to the housing supply issue, as homeowners who purchased when rates were around 3 percent are hesitant to sell and take on a new mortgage at today’s higher rates, which are hovering near 8 percent.
Experts emphasize that interest rates need to decrease in order to boost housing supply.
“We do expect rates to go down, but the decline won’t be very rapid,” Mr. Wei stated. “Lower mortgage rates will stimulate sales, but at the same time, prices will continue to rise.”
While interest rates are projected to fall below 7 percent, possibly even below 6 percent, in 2024, the report predicts that California’s median home prices will increase by approximately 6 percent to over $860,000. Supply is expected to increase by 10 to 20 percent.
“We will see some increase in supply, but not as much as we had hoped. It will help alleviate the supply issue, but even with a slight increase, the housing market will still be extremely tight,” Mr. Wei explained. “Due to the limited supply, there will continue to be upward pressure on prices.”
The calculations in the report are based on the expectation that interest rates and core inflation will both decrease in 2024. Some experts anticipate a change in federal monetary policy that could benefit the housing market.
“With the economy expected to weaken in 2024, the Federal Reserve Bank will begin to loosen its monetary policy next year. Mortgage rates will gradually decline throughout 2024, and the average 30-year fixed rate mortgage could reach the mid-5% range by the end of next year,” said Jordan Levine, senior vice president and chief economist for the California Realtors Association in the report. “Buyers will have more financial flexibility to purchase homes at higher prices, which could generate increased housing demand and result in more upward pressure on home prices.”
Some realtors are optimistic about a healthier housing market in California next year, as the cost of financing homes decreases and more buyers and sellers participate in the market.
“2024 will be a better year for the California housing market for both buyers and sellers as mortgage interest rates are expected to decline next year,” said Jennifer Branchini, president of the association and a Bay Area realtor. ”First-time buyers who were previously unable to compete in the highly competitive market will strive to achieve their American dream next year. Repeat buyers who were hesitant to enter the market due to high rates will also return as mortgage rates begin to trend down.”
Instability further strained households’ ability to pay for housing. This has led to debates and discussions surrounding the effectiveness of policies and programs aimed at addressing housing affordability, such as the Property Assessed Clean Energy (PACE) program. PACE allows homeowners to finance energy-efficient improvements through a special assessment on their property tax bill, making it easier for them to invest in sustainable upgrades without upfront costs. However, there are concerns about whether PACE is truly benefiting the majority of Californians facing housing affordability challenges. To explore this issue further, here are three related questions:
Crease by 5.1 percent to $725,000. This means that even with lower interest rates, the affordability gap will persist for the majority of Californians.
The issue of housing affordability has been a pressing concern in California for several years. The high demand for housing, coupled with limited supply, has driven up prices and made it increasingly difficult for residents to afford a home. The COVID-19 pandemic exacerbated this problem, as job losses and economic
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