As the California housing market experienced a rapid decline in home prices throughout the past year, recent data offers a glimmer of hope for stabilization, according to the Orange County Register. However, higher mortgage rates and a potentially weaker economy complicate the road to recovery.
Case-Shiller and the California Association of Realtors found that home prices have actually been increasing in the state. The former reported two-month price gains in three major California markets, while the latter noted an 11% increase in statewide prices between March and April of 2023. Nevertheless, the Federal Housing Finance Agency (FHFA) hasn't mirrored any early 2023 valuation rebound, continuing to display a cautious outlook.
Before this turnaround, California's home prices suffered, as highlighted in a December 2022 Mercury News article, where San Francisco, San Diego, and Los Angeles-Orange County ranked as three of the biggest drops in Case-Shiller's index. Homeowners in San Francisco saw their home prices decrease by 13% from their peak, while the San Diego and Los Angeles-Orange County figures dropped by 8.5% and 6.6%, respectively. Despite these declines, home prices remained up year-over-year in all three regions.
Fast forward to 2023, and the picture may have changed. In the two months leading up to Case-Shiller's analysis, San Francisco home prices rose by 4.1% — the best gain among the 20 US cities tracked. Though 14% off the previous year's peak, they have increased by 26% since February 2020. San Diego followed closely with a 4% increase during the same period, with Los Angeles and Orange counties experiencing a 2.6% surge.
However, increased mortgage rates and a potentially weakening economy still pose challenges to homeowners and potential buyers. Mortgage rates have risen, with Freddie Mac's average rates reaching 6.1% in early February 2023, down from 7.1% in November before jumping back to 6.6% by the end of May.
FHFA data showed that statewide values dipped 0.5% in the first quarter of 2023, revealing a cumulative 3.5% drop from last year's peak but still 34% above the end of 2019. According to the Orange County Register, only 20% of buyers in California were able to successfully purchase a house by early 2023, suggesting that the low affordability cutoff remains a substantial obstacle for potential buyers.
While the recent gains in home prices offer some relief for hopeful homeowners, the ongoing challenges posed by current mortgage rates and potential economic weakness continue to cast a shadow over California's housing market. As Craig Lazzara, Managing Director for Standard & Poor's, commented, "two months of increasing prices do not a definitive recovery make." Lazzara then added, "the decline in home prices that began in June 2022 may have come to an end. That said, the challenges posed by current mortgage rates and the continuing possibility of economic weakness are likely to remain a headwind for housing prices for at least the next several months."
While a seemingly positive turn in California's housing market paints an optimistic picture, the road ahead remains shrouded in uncertainty. As history has proven, only time will tell if a true recovery is on the horizon or if additional challenges await.
