October 17, 2022 – Buyer demand continues to dwindle as rising mortgage rates erode consumer purchasing power. And, with the latest inflation reading coming in hot, we can expect further increases from the Fed at their upcoming meeting. In addition, REALTORS® surveyed over the past moth are becoming less optimistic and buyers and sellers are still in the process of adapting to the new market environment. However, the market has become less competitive and more sellers are willing to negotiate or offer buyer incentives, and despite a modest recession forecast for 2023, the long-term prospects for continued price growth in California may continue to draw buyers who still qualify at higher rates but have been sidelined during the past two years of frenzied conditions. 

C.A.R. projects mild recession and higher interest rates in latest forecast: A modest recession caused by an ongoing battle against inflation will keep interest rates elevated to suppress buyer demand in 2023. Existing, single-family home sales are forecast to total 333,450 units in 2023, a decline of 7.2 percent from 2022’s projected pace of 359,220. California’s median home price is forecast to decline 8.8 percent to $758,600 in 2023, following a projected 5.7 percent increase to $831,460 in 2022. Part of the price decline will result from less growth in sales of higher-priced properties, with the remainder owing to rebalancing supply and demand in the face of higher rates.

REALTORS® optimism declines amidst housing market shift: The percentage of REALTORS® that think sales will go up in the near future has been declining consecutively since April 2022 and dropped to just 4.6% in October. This is the lowest reading since C.A.R. began surveying its members shortly after the onset of the pandemic. The survey also showed that fewer members expect listings to rise, as the share dropped from half of respondents at the beginning of the year to one in five this month. The percentage who think prices will increase remains in the low single-digits, where it has been for the last five months. Members are reporting softer demand, but the dearth of listings is keeping inventory relatively tight.

Sellers reluctant to dump properties in uncertain environment: C.A.R.’s latest monthly REALTOR® survey found that the percentage of agents experiencing sellers holding back from listing their property has been trending upwards since May and recorded its second highest level this year at 36% in October. In addition, 25% of REALTORS® surveyed also reported having a client remove their home from the market altogether in October – the highest share since the beginning of the survey more than two years ago. For the sellers that kept their home on the market, more REALTORS® are reporting price reductions after climbing consecutively from it’s low-point in April of just 5%. However, the share of respondents whose clients lower their asking price in October dipped to 39% from the peak of 43% recorded in September.

Despite CPI easing overall, core inflation remains near 40-year high: Although the Consumer Price Index (CPI) improved from 8.3% in August to 8.2% in September, core inflation (which excludes food and energy prices) rose 6.6.% from last year to a new 40-year high. Rising prices for core services like medical care, transportation, and shelter were the primary reason for the jump in core inflation, which recorded a 0.8% increase from the previous month – the strongest monthly gain since 1982. This persistent inflation suggests that we can expect another 75 basis-point increase at the upcoming Fed meeting in a few weeks.

Rates near 7% as Treasuries suffer: The average rate on a 30-year fixed-rate mortgage reach 6.92% in the latest reading from Freddie Mac last week. That is the highest weekly mortgage rate in more than 20 years going all the way back to April of 2002. Inflation expectations have begun to weigh on the bond market as the rate for 10-year Treasuries rose to 3.94% last week, which was at its highest level since April of 2010. Given the impact to purchasing power, mortgage applications have started to accelerate downward with last week seeing new purchase applications dip by 39%–the largest year-to-year decline since 2010.

Source: California Association of Realtors | https://www.car.org/marketdata/marketminute