Home Business Real Estate Will California home and rent prices drop in 2024?

Will California home and rent prices drop in 2024?

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In the last few years, the number of existing single-family homes for sale has decreased. But home prices have increased. To make homeownership a possibility for everyone, there needs to be a higher housing inventory of affordable homes.

ANDREW KHOURI, DANA CHIUEH, PHI DO, DEVON MILLEY | Contributors

Southern California home prices dipped from November to December, the second consecutive monthly decline after a period of rising values.

The average home price in the six-county region clocked in at $825,621 in December, down 0.3% from the prior month, according to data from Zillow.

All counties saw home prices drop except Riverside and San Bernardino; values in both Inland Empire counties were essentially flat, up less than 0.1%.

Nicole Bachaud, a senior economist with Zillow, said the small price declines across much of Southern California over the last two months can be attributed to two things: Fall and winter are typically a slower time of the year for home sales, and buyers are struggling with high prices and high mortgage rates.

According to the California Assn. of Realtors, only 11% of households in Los Angeles and Orange counties could afford the median-priced house during the third quarter, compared with 19% of households in Riverside County and 25% in San Bernardino County.

Data as of Jan. 18. Calculation is based on 0.32% of home value for home insurance and 1.25% of home value for property tax. | Courtesy of Phi Do

When mortgage rates first surged in 2022, home prices fell in response as buyers pulled away and inventory swelled. But prices started rising again last year as homeowners increasingly chose not to sell, unwilling to give up their rock-bottom mortgage rates on loans taken out before and during the pandemic.

In most counties, home prices are near their all-time peak despite the small declines in November and December.

Prospective buyers have received a sliver of good news in recent weeks. Mortgage interest rates have fallen from a high of 7.79% to the mid-6% range, giving them a bit more buying power.

But experts don’t expect a significant improvement in affordability. In large part, that’s because as mortgage rates decline, more buyers are expected to jump into the market. While sellers appear to be more willing to list their homes as the era of 3% mortgage rates fades, Bachaud said there’s unlikely to be enough new listings to offset the increase in demand.

The recent drop in mortgage interest rates caused Zillow to predict price increases this year in areas it previously called for values to be flat or down slightly. Overall, Zillow now expects home prices to rise by 3.1% in the Inland Empire counties of Riverside and San Bernardino in 2024. Across Los Angeles and Orange counties, prices are predicted to climb 1.4%.

If the Federal Reserve’s actions to tame inflation push the economy into recession, home values could see a sustained drop as people default on their loans. However, there’s growing optimism that the country will avoid an economic downturn.

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