Expert Predictions for a California Housing Market Crash in 2024

Most experts believe a 2024 California housing market crash is unlikely. The C.A.R. forecast sees a recovery next year as mortgage rates drop and inventory expands. However, Forbes highlights an ongoing affordability crisis stemming from high interest rates and inflated prices that restrict first-time home buying. Moreover, Forbes notes severely limited supply suggests demand will continue outpacing inventory despite expected rate declines. On the other hand, ManageCasa predicts more moderate though still positive home price growth – forecasting a 6.2% median price rise to $860,300 in 2024 after a -1.5% drop to $810,000 this year. So while growth may be slowing, a crash remains improbable.

Key Takeaway

• California has faced soaring home prices for over a decade due to limited housing supply and strong job growth.
• Median home values now exceed $860,000 statewide, more than double 2012 prices in some markets.
• Rising mortgage rates and inflation are slowing demand, but still-desperate inventory shortages support continued price resilience.
• Expert forecasts suggest home values may correct moderately in 2024 but are unlikely to crash without major external economic shocks.
• If recession strikes, layoffs in key California industries could spark up to 20% peak-to-trough declines in major metro prices, but extreme undersupply makes crashes below this scale unlikely.

Understanding the California Housing Market

The California housing market has long been one of the most expensive in the nation, consistently ranking #1 or #2 for highest home prices and rents. Fueled by strong economic growth in sectors like tech and entertainment, a desirable climate and lifestyle, and high foreign investor interest, home values have risen rapidly over the past 25+ years across California metros like San Francisco, San Jose, Los Angeles, and San Diego.

Recent Trends

• Prices: Median home prices in California rose 6.6% year-over-year in January 2024, reaching $840,360. However, there’s been a slight dip since September 2023. Experts predict a mid-single digit growth for 2024.
• Demand: Though mortgage rates increased, home sales saw an 8.2% year-over-year growth in January, indicating sustained demand. Optimistic forecasts predict a 22.9% increase in sales for 2024.
• Inventory: The number of homes for sale remains low, down 7% year-over-year, creating a competitive market and putting upward pressure on prices. Newly listed homes are increasing, potentially offering some relief.

Regional Variations

• Urban centers: Prices remain high in urban areas like San Francisco, Los Angeles, and San Diego, but saw some moderation in recent months. Demand remains strong due to job opportunities and lifestyle factors.
• Suburban areas: More affordable options compared to urban hubs, but prices are rising due to spillover demand. Inventory tends to be slightly higher in suburbs.

Also read: 2024 Real Estate Market Trends: Housing Forecast And Analysis

Factors Influencing the Market

The California housing market doesn’t operate in a vacuum. Broader economic forces in the US and globally impact its performance. Below are some of the key factors influencing CA’s housing market as we look towards 2024:

Interest Rates

Mortgage rates have risen swiftly, with 30-year fixed mortgages around 7% as of January 2024. As rates rise, buying power decreases significantly for home shoppers. Many are priced out of the market. Rising interest rates are broadly seen as the biggest risk of cooling demand long-term.

Inflation

High inflation – over 8% in 2022 – impacts the housing market both on the supply side and in consumer budgets. Construction costs and raw materials have gone up considerably, restricting new housing development when it’s needed most. At the same time, everyday costs for homeowners make it harder to afford mortgage payments.

Economic Growth & Employment

While 2022 saw solid economic fundamentals like low unemployment and strong consumer savings, the risk of an economic slowdown or recession is rising for 2023-2024. Job losses or stagnating wages would directly hit the housing market. However, California’s diverse tech, finance and creative economy could provide insulation.

Demographics

Millennials make up California’s largest population cohort, now ranging from ages 27 to 42. This group represents the single biggest source of first-time homebuyers in the state. How their finances, preferences and needs shape up will significantly mold the future of California’s housing.

Migration & Inventory

California has seen more outgoing migration in recent years, notably to other western states like Texas, Arizona, and Washington where housing is more affordable. While still the #1 destination for domestic migration, CA’s population boom appears to be slowing. At the same time, housing inventory hit record lows in 2022. More people leaving + fewer homes to buy keeps supply extremely tight.

Signs of a Potential Crash

Given the run-up in home prices over the last decade, it’s fair to ask if California’s housing market is in a bubble that could soon burst. Here are some signs that may indicate the risk of a crash:

1. Slowing Home Price Growth

By summer 2022, monthly home price growth slowed down from the heated pandemic peaks to single-digit percentages. July 2022 saw just 2.6% year-over-year growth – the lowest level since mid-2020. This sudden cooling suggests the momentum that carried the housing boom could be tapering off.

2. Rising Inventory

Active listings jumped 81% in California from January 2022 to 2023, the biggest inventory surge since 2015. While supply is still very low historically, this shift away from the desperation of 2021 shows sellers are becoming less sure of getting quick sales and massive price jumps.

3. Investor Speculation Receding

A record 28.1% of California homes were sold to investors in mid-2022. But investment purchases see declines in 2023 as profit margins narrow and holding costs increase. This indicates a peak in speculative mania.

4. Mortgage Applications Declining

With higher rates in late 2022, mortgage applications to purchase homes dropped 40% compared to 2021. Affordability is squeezing out many prospective buyers. Banks also began tightening lending standards, a classic sign of concerns over extending too much risky credit.

5. Building Permits Slowing

Home building permits in California were down over 30% as of November 2022 compared to 2021. This slowdown in new construction highlights that even developers see warning signs of a coming cooldown in the market.

These indicators demonstrate that while California’s market remains strong overall, it has demonstrably downshifted from the breakneck growth that defined the past 10+ years. The days of expecting double-digit annual price gains may be numbered.

Also read: How Will a Recession Affect the Housing Market? Find Out Now

Contrary Arguments and Reasons for Stability

Despite some cracks emerging in recent data, there are also sound reasons why a 2008-style full-on housing crash is unlikely for California in 2024.

1. Strong Economic Fundamentals

California boasts the largest economy of any state, now topping $3.89 trillion annually. Major industries like Big Tech and biotech/life sciences represent trillions in future growth. This economic engine provides stability and makes a sudden downturn in the housing market less likely so long as unemployment stays low.

2. Supply & Demand Imbalance

California faces a structural housing shortage of up to 3-4 million units. Mandatory zoning changes under new state laws will spur some development, but nowhere near enough to equalize supply and demand any time soon. With inventory projected to remain low compared to buyer demand, prices are likely to hold steady.

3. Weaker Mortgage Underwriting Standards

The 2008 crash was fueled by excessive subprime lending with lax standards. Today the average California homebuyer has a credit score of 758 and sizable down payments around 17% on average. This suggests most current mortgages represent less risk than 15 years ago.

4. Strong Consumer Savings

California households saved at more than twice the historic rate during the pandemic, stockpiling over $250 billion in excess savings. First-time buyers can tap this wealth to stomach higher housing costs and rates. Seeing less risky and better-capitalized buyers lowers odds of a sudden downturn.

5. Government Policy Interventions

The state government has already taken new steps to incentivize homebuilding where possible, like loosening zoning regulations. If the market shows growing instability, policymakers can deploy other tools to stimulate demand, similar to how the Fed propped up the market following 2008.

In essence, economic diversity, demographics, public policy adjustments and prudent lending mean this situation differs from past crashes. Slower growth seems probable but an all-out collapse looks unlikely sans a severe recession.

Also read: Best Places to Invest in Real Estate in the United States

Expert Opinions and Market Predictions

While predicting the future of any market is inherently uncertain, here’s a summary of expert opinions and predictions for the California housing market:

• California Association of Realtors (CAR): Optimistic forecast with rising prices (6.2% in 2024), increasing sales, and economic expansion. Downside risks include potential economic slowdown and rising interest rates.
• CoreLogic: Predicts a slight national price decrease (-0.2%) from November 2023 to December 2023, followed by moderate appreciation in 2024-2025. California might differ depending on regional variations.
• Forbes Advisor: Experts predict a shift towards stabilization and moderate appreciation in 2024-2025, but affordability challenges remain.
• ManageCasa: Highlights the strong economic fundamentals of California, attracting continued demand despite some outmigration.
• Houzeo: Anticipates continued competition due to low inventory, particularly for sellers offering concessions and iBuyers making lowball offers.

Mitigating Risks and Strategies for Homeowners

Current California homeowners wondering if they should list their home soon face a complex decision. On one hand, theoretical risks of a downturn exist. On the other, markets remain persistently undersupplied and most forecasts call for continued steady price gains.

Here are tips for homeowners to mitigate risks in this environment:

• Consider medium-term adjustable rate mortgages (ARMs) – With rising rates, ARMs with 3-5 year fixed terms before adjusting can secure lower rates now. Rates may moderate over that period.
• Pay down mortgages aggressively – Consider making extra mortgage principal payments while rates are high to pay loans quicker while home values keep appreciating.
• Upgrade now before market softens – Current low rates for refinancing let owners extract equity at lower costs to fund renovations while home values are peaking. This can maximize resale value later.
• Rent out extra rooms – Converting unused spaces for extra rental income can offset higher ownership costs rather than selling immediately.
• Line up selling agents – Consult real estate agents specializing in your neighborhood to map selling strategies catered to shifts in market timing and conditions.

Following these tips allows prudent homeowners to enjoy their property’s value growth while hedging risks – all without needing to panic sell.

Strategies for Homebuyers and Sellers in Uncertain Times

For both prospective homebuyers and sellers, significant uncertainty clouds the California market outlook heading into 2024. But opportunities still abound in markets that, while cooler than their peaks, remain highly desirable.

Buyers should

• Get pre-approved now for maximum mortgage amounts and shop below budget constraints
• Prioritise being flexible on timing rather than fixating on perceived dips
• Broaden their searches beyond ultra-competitive areas that saw huge price surges
• Prepare for possibly longer search times as bidding wars ease up

Stress test budgets to handle realistic higher rate scenarios when locks expire

Meanwhile, sellers should

• Set asking prices in line with recent comparable sales rather than peaks
• Prepare to receive more offers with contingencies rather than all-cash
• Improve curb appeal with cost-effective refreshes to compete better
• Consider bridging offers with investors who buy fast without contingencies
• Weigh benefits of adjustable rates which can ease monthly payments for buyers

Flexibility and prudent financial planning for both groups can open doors amid mixed signals on where the state’s housing market heads next.

How Is Today Different From the 2008 Housing Market Crash?

fresh scars of the 2008 housing crisis stir concerns whenever questions about a potential downturn emerge. But the differences between the run-up to 2008 and today’s market are quite distinct:

1. Mortgage Credit Quality

Today’s buyers have credit scores around 760 on average versus 720 in 2006. Subprime lending is virtually non-existent now, versus accounting for 19% of mortgages during the bubble years.

2. Supply & Demand Picture

The previous crash had an oversupply of houses after overzealous building. California now faces entrenched under-supply pressures and adds housing at less than 60% of state goals.

3. Mortgage Debt Growth Trends

Mortgage debt nationally grew over 75% faster than incomes from 2002 to 2007, fuelling an unstable bubble. Currently debt is growing roughly in line with incomes without excessive risk layering.

4. Run-up Differences

From 2000 to 2006, national home prices rose 85% after adjusting for inflation. The recent 10-year run-up in prices through 2022 is about 55% by comparison – making it less likely today’s growth is distorted or overheated.

5. Geographic Concentration

In 2008, the worst bubbles were concentrated in places like California, Nevada, Arizona and Florida. This time appreciation trends have been relatively consistent nationwide rather than skewed towards specific regions.

In short, prudent lending standards, positive (albeit slowing) economic fundamentals and consistent price growth indicate 2024’s housing outlook lacks the extremes that made 2008’s housing crash possible.

What Would a Recession Mean for the Housing Market?

A recession’s impact on the California housing market is complex and depends on several factors. Here’s a breakdown of potential outcomes:

Possible Impacts

• Reduced Demand: Job losses and income insecurity during a recession might lead to less people buying homes, decreasing overall demand and potentially slowing down the price growth or even causing a slight decline.
• Increased Inventory: Some homeowners facing financial hardship might choose to sell, increasing the number of homes available and putting downward pressure on prices.
• Lower Interest Rates: Central banks often lower interest rates during recessions to stimulate the economy. This could make mortgages more affordable and potentially counterbalance reduced demand. However, rising interest rates are currently predicted in 2024, so the impact might be muted.
• Regional Variations: Urban centers with strong economies might be more resilient, while areas heavily reliant on specific industries could see larger impacts.
• Affordability: In the short term, lower prices could improve affordability. However, if a recession leads to job losses and reduced income, affordability could still be a challenge for many.

Important Considerations

• Severity and Duration of Recession: A mild and short-lived recession might have less impact compared to a deep and prolonged one.
• Local Market Dynamics: Factors like supply, demand, and regulations will influence the severity of the impact in different regions.
• Individual Circumstances: Each homeowner’s situation is unique, and the impact will depend on their financial stability, job security, and housing situation.

Overall

• Predicting the exact impact of a recession on the California housing market is difficult.
• Potential outcomes include reduced demand, increased inventory, lower interest rates, and regional variations.
• Affordability may improve in the short term, but long-term impacts depend on economic recovery.
• Staying informed about local market trends and consulting a qualified real estate professional is crucial for navigating any market changes.

How Competitive is the California Housing Market?

California’s housing market is highly competitive, particularly for buyers, due to a combination of factors:

• High Demand: The state remains desirable despite recent outmigration, with strong demand driven by factors like job opportunities, weather, and cultural attractions.
• Low Inventory: The number of available homes for sale is significantly lower than the demand, creating fierce competition between buyers. This means homes often sell quickly, sometimes above asking price.
• Rapidly Rising P rices: The median home price in California continues to rise, making it increasingly difficult for buyers, especially first-time homebuyers, to afford a home.

Here are some metrics highlighting the competitiveness:

• Homes selling above list price: In January 2024, 35.9% of homes in California sold above list price, indicating multiple offers and competitive bidding.
• Median days on market: Homes are selling quickly, with the median days on market being only 45 days in January 2024.
• Sale-to-list price ratio: This ratio stands at 99.4%, suggesting homes are generally selling close to or above their asking price.

Top California Areas Poised to Increase Home Prices from 2024 to 2025

Based on the data provided, here is a summary of the top California areas poised to see increases in home prices from 2024 to 2025:

1. Santa Maria – Steady projected growth to 5.6% by January 31, 2025. Suggests a positive market sentiment.
2. San Diego – Projected 6.2% increase by January 31, 2025, indicating a strong upward trajectory.
3. Bakersfield – Consistent growth projections to 5.2% by January 31, 2025. Signals a positive trend.
4. Merced – Gradual yet steady projected growth to 4.8% by January 31, 2025. Points to a favorable market environment.
5. Hanford – Notable potential for growth to 4.6% by January 31, 2025. Real estate dynamics are on an upward trajectory.
6. Riverside – Positive growth trends to 4.2% by January 31, 2025. Steady, positive market sentiment.
7. Modesto – Notable potential for growth to 4.1% by January 31, 2025. Positive real estate trend.
8. Visalia – Steady, positive growth projections to 4.1% by January 31, 2025. Favorable for real estate investors.
9. Fresno – Growth projections remain strong at 4.5% by January 31, 2025. Signals an upward real estate trajectory.
10. Salinas – Promising growth potential to 4.1% by January 31, 2025. Positive market dynamics.

I summarized the key areas in California that have the highest projected home price growth from 2024 to 2025 based on the figures provided. Please let me know if you need any clarification or have additional questions!

Is It a Good Time to Buy a House in California?

Answering this complex question depends greatly on individual financial situations, timing needs, and risk tolerances amid a remarkably uncertain economic backdrop mired in decades-high inflation and rising recession probabilities.

For prospective buyers, run the numbers for best- and worst-case scenarios accounting for factors like:

• Potential income disruption
• Much higher mortgage rate assumptions
• Regional demand trends

Financial preparation remains vital before homebuying in volatile times too:

• Save for 20% minimum down payments
• Pay down debts hampering mortgage eligibility
• Have ample salary and credit qualifications to weather slowdowns

While California home values appear unlikely to plunge like 2008 again thanks to supply constraints, significant housing market uncertainty lies ahead. Ensuring your personal financial resilience makes for better-informed decisions and avoids future stresses if regional slowdowns emerge. But entering a dream home in a coveted location could fulfill life goals before prices resume steep climbs later either.

Conclusion

In summary, the preponderance of evidence suggests a 2008-level California housing market crash remains unlikely. Record-low inventory, still-strong demand drivers relative to supply, and conservative modern lending indicate even moderate home price declines may prove temporary.

Nonetheless, downside risks have grown in 2022 – especially if the economy dips into recession. Prudent risk-management aligned with personal financial and life priorities provides the ultimate guide amid a remarkably complex homebuying environment in California presently. Staying nimble and informed offers the surest path to navigate the turbulence ahead.

Frequently Asked Questions (FAQ)