California Housing Market Predictions for 2022

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A brief overview

One of the most bustling real estate markets in the US is the state of California. Home to popular cities like Los Angeles and San Francisco, the economy in California has been strong, which has led to a hot housing market. However, with the recent decline in home prices all over the country, what does this mean for the California housing market?

Main Topics

Home prices all over the country are setting record highs and interest rates are rising at a rapid pace. The real estate market is causing waves across the country and many people wonder if we’re in a housing bubble, or whether the market is about to crash. One of the biggest real estate markets in the country belongs to the state of California, and last year the state had a sizzling seller’s market. So, what are the California housing market predictions for 2022?

Overview of California Home Prices

California

Historical performance of California Housing Market

California has one of the most valuable housing markets in the US, according to Zillow, racking up a total value of $9.24 trillion by December 2021, which is 21.3% of the national total. Historically, the state has had a hot housing market, and this continues to be the case, even while home prices are declining. The state has had a seller’s market for many years, with prices remaining high even amidst previous housing market crashes.

Current home prices in California

Home prices in California have hit record highs over the first half of 2022. This, combined with the increase in interest rates has iced many home buyers out of the market entirely as house prices became unaffordable for them. The state has seen a major reduction in home sales, as a result of prices going further up.

According to the California Association of Realtors (C.A.R), the sales price-to-list ratio was 104.2% in April 2022, which means that the number of properties selling for more than the listed price was very high.

In May 2022, the state recorded the lowest number of house sales since June 2020, which was where the shift began in the housing market this year. May was also the month where home prices in California hit a record high of $898,980, and 30-year fixed rate mortgage rates reached an unprecedented high of 5%, which was the highest since 2010.

Since then, however, home prices have begun to level out with June seeing a slowdown in house sales as 344,970 single-family homes were sold, according to the C.A.R. The median home price for California in June was $863,790 which is also a decline from the previous month and shows how the real estate market in the US and in California is starting to cool down. In fact, June was the biggest cooling that the California housing market has experienced since May 2020.

California houses

Why are house prices in California so high?

The main reason for the high house prices in California currently is the increase in interest rates, which has led to the rise in mortgage rates. Areas like San Francisco and Los Angeles have notoriously high home prices, which add to the overall price level across the state.

Many areas of California experienced houses going off the market very quickly, which further added to the price surge as supply is limited and demand continues to be high. Some areas, such as San Diego, even have houses flying off the market within as little as 8 days.

However, one thing that sets California apart is that there’s a steady stream of people wanting to live in the state. So, the demand for houses is often high and people continue to find the state an attractive place to live. Which means that if the supply continues to be outstripped by the demand, it remains a seller’s market and house prices remain higher.

New construction in California also can’t keep up with the demand, which means that the imbalance between supply and demand continues to be skewed. This work in favor of sellers as they can price their homes higher and still get them sold based on the high level of demand.

California Housing Market Statistics

Median Sales Price

$884,890

Days on Market (Average)

29 Days 

Housing Affordability Index

24%

Total Home Sales

419,040 (April)

Population Size In CA

39.6 million

Median Household Income

$78,672 (2020) 

Mortgage Rates (30-Year Fixed)

5.71% 

Unemployment Rate

4.3%

California is to home to 39.6 million people, and this makes it the 3rd largest state in the US by size and the 11th largest state in the country by population density. Each year, the state has consistently high population growth.

The average household income in California as of 2020 was $78,672, which is quite a jump higher than the countrywide average household income of $67,521. This gives Californians a higher buying power than other areas of the country, however it’s all relative considering house prices are also higher in this state.

According to the C.A.R.’s Traditional Housing Affordability Index, California dropped to 24% in the first quarter of 2022, which means that only 25% of residents in California could afford to buy a median-priced single-family home in the sunny state.

In April 2022, there were 419,040 existing single-family homes sold in California, and this was a 1.9% decline from March 2022. Over the last year, home sales in the state have dropped by 7.4% due to a number of factors, not least of which is rising prices and increasing interest rates.

Houses in California are spending 29 days on the market on average, as of June 2022. This is much lower than the peak of 69 days in January 2020, showing the state’s remarkable recovery from the devastating pandemic effects.

The median sales price for homes in California in April 2022 was $884,890, which is 4.2% higher than the median sales price in March 2022. This is significantly higher than the country overall, according to Federal Reserve Economic Data, which states that the median price of houses sold in 2022 is $428,700 across the US.

Currently, the mortgage rate for a 30-year fixed rate mortgage in California is 5.71%, and 4.99% for a 15-year fixed rate mortgage. However, these rates vary depending on the area within the state, as well as each person’s personal financial standing.

The unemployment rate in California as of May 2022 was 4.3%, which means that of the total 39.35 million people that live in the state, 835,000 are unemployed. The state’s unemployment rate has been on the decline as employers hire more people, particularly over the first half of 2022.

*All data resources used in this article have been listed below

Predictions for California housing market in 2022

house prices in california

Will house prices drop in California in 2022?

Home buyers are beginning to wonder when house prices will drop, as the rising mortgage rates and house prices, coupled with stiff competition and lack of housing inventory, means that many buyers are unable to enter the housing market just yet. A lack of affordable housing is a problem for first-time home buyers who are waiting for home prices to drop. The question is, will that happen any time soon?

Unfortunately, Tabitha Mazzara, director of operations at Mortgage Bank of California, has some bad news for home buyers saying, “If you’re waiting for prices to suddenly plummet to what they were in the past, you’re making a mistake,”. She goes on to give buyers some advice saying, “The Fed has promised another interest rate boost. If you’re ready to buy, don’t wait because prices aren’t headed dramatically downwards to what our parents paid. Things might dip a bit, but there’s no cliff dive that’s going to happen.”

Her predictions align with those of many real estate experts with regards to the overall real estate market across the country. However, in California, a Realtor.com report shows that inventory may be on the rise over the second half of 2022, “While housing costs remain high, pushing home shoppers to make tough choices about their budget priorities, the number of homes for sale is expected to continue to grow, building on the turnaround begun in May,”. So, we see a glimmer of hope for home buyers in California.

Rates are forecasted to average around 5.7% towards to the end of 2022, which is still high and could impact buying power in the state. C.A.R. President Otto Catrina, a Bay Area real estate broker and realtor, gives her opinion on the California market saying, “With interest rates moving sideways in recent weeks and fewer homes now selling above listing price, prospective buyers have the rare opportunity to see more listings coming onto the market and face less competition that could force them to engage in a bidding war.“

C.A.R. predictions for house prices in California for 2022 have been revised and single-family homes are expected to reach 380,630 units in 2022. This is a 14.4% decrease from 2021, when 444,520 units were sold. The median home price for the state is expected the end the year on $863,390, which is still higher than 2021 but not as high as the May 2022 record.

California houses

Is the California real estate bubble going to burst?

According to C.A.R. Vice President and Chief Economist Jordan Levine, “Excluding the three-month pandemic lockdown period in 2020, June’s sales level was the lowest since April 2008. Pending sales data also suggests we can expect additional retreating in the coming months,”. In other words, the market is expected to begin cooling off even further over the rest of year and head back towards a normal amount of home sales, with lower price growth.

California’s real estate market has been classified as overvalued by Fitch Ratings, which is due to the giant 21% increase in home prices over the last year. Many real estate analysts still say that house price growth will slow down gradually, instead of a major drop-off, but they all agree that prices are going to go down. As mortgage prices remain high (or even go higher) and ice buyers out of the market, sellers will be forced to lower prices as demand drops. California median sales prices are still expected to rise by 9.7% though, according to C.A.R, in spite of the market cooldown.

Where to find affordable housing in California

For those who are looking to buy a house in California but are scared off by the high median house price, or for first time home buyers, there are a few places with more affordable housing options.

Bakersfield

Bakersfield

Bakersfield is situated along a main route between Northern and Southern California, which makes it easy to get in and out of. There are many neighborhoods in Bakersfield where the average home is around $300,000, such as Lakeview, Benton Park and Kern City. The median home price in Bakersfield is $381,500 as of 2022 and the median days on the market for homes is just 14.

Stockton

Stockton

While the median home price in Stockton is around $460,000, there are various neighborhoods where you can find even more affordable homes. In Midtown West, Anderson and Swain Oaks homes can be found for well under the median home price. On the Redfin housing market score, Stockton scores an 82 out of 100.

Fresno

Fresno

Another area in California where more affordable houses can be found is Fresno. With a median sales price of $383,750, Fresno offers a cheaper area for people in California to live more comfortably near Yosemite National Park, and a variety of outdoor activities.

Sacramento

Sacramento

The state capital of California offers home buyers properties that are well below the state median home price, however the median home price in Sacramento is around $510,000 which isn’t low. Houses are flying off the market in this area in just 9 days, according to data from Redfin. Tahoe Park South and North Oak Park are two areas that offer homes to suit a tighter budget or for first-time home buyers.  

Hottest housing markets in California

Bakersfield

Bakersfield

While Bakersfield is one of the more affordable places to live in California, it also boasts one of the hottest housing markets, with a 22% increase in the median selling price year-on-year. Bakersfield is situated north of Los Angeles, and offers an outdoor lifestyle for residents, with many trails through the Kern River Ranger District, which is part of Sequoia National Forest.

Anaheim

Anaheim

The median house selling price in Anaheim has risen 18.40%, year-on-year, setting this area up to be a housing hotspot. Disneyland is located in Anaheim, which is one of the huge attractions for the area that serves to support the economy. Another economic goldmine for Anaheim is the University of California, Irvine. The median home value in Anaheim is $787,897.

San Diego

San Diego

This sunny city offers a beach lifestyle for anyone wanting a more laidback life than the bigger cities offer, with the taste of the hustle and bustle of city life. Millennials are flocking to San Diego for the employment opportunities on offer, as well as the beach town lifestyle. The median home value in this city is $800,683, and the home listing price has increased by 17.10% year-on-year.

Will home prices drop in California in 2023?

The future of the housing market in the bustling state of California is likely to result in a decline in median home prices. According to Jordan Levine, chief economist at the C.A.R, it’s likely that a mild recession could occur and with it, a decline in house prices. This decline is also going to be a carryover from the increase in rates this year. John Burns Real Estate Consulting in Irvine corroborates this prediction saying that California is likely to see house prices declines in the mid-single digits.

While a recession isn’t guaranteed, house prices could continue to fall in 2023, regardless. So those who are looking to buy a home in California next year should take note of this.