California Housing Market Storm Update 2022

However, California's overall value increase of $1.38 trillion in 2021 signifies only "20.1 percent" of the country's expansion of $6.9 trillion, implying that the state is "underachieving" by approximately -5.5 percent relative to its total weight, especially given the extreme advancement seen in other states.

We've all heard that it's a good idea to save aside a part of each paycheck for the next "rainy day." The rain clouds are forming around California's property market, and everybody who works in real estate should grab their umbrellas.

Rising interest rates have certainly reduced buyers' purchasing power, but bigger inventories and fewer competition mean that buyers who stay in the market have a better chance of having their offer accepted than at any other time since the epidemic began.

After more than two years of significant year-over-year decreases in the number of active listings for sale, the inventory shortage has shown consistent signs of recovery in recent weeks.

Last week, there were more active listings on the market than at any time in the preceding two years. Over 48,000 active listings were listed last week, however, It is essential to note that listings remain at historically low levels, but it is encouraging to see a more consistent upward trend this year.

But the question is, "Will the market be the same in 2022 as it was the previous two years?" Yes and no are the short answers to this question. Here are three reasons why we believe the California real estate market will change in 2022.

1. INTEREST RATES

This year, interest rates were raised. We have been fortunate over the last few years in that interest rates have mostly remained in the 2% range. Low interest rates were a major factor in the California real estate boom that occurred in 2020 and 2021. One important takeaway for buyers to understand is that interest rates will almost certainly rise this year.

According to Dr. Lawrence Yun, chief economist for the National Association of Realtors (NAR), the 30-year fixed mortgage rate will rise to 3.5 percent by the end of 2022 as the Fed raises interest rates to control inflation. Those buyers who have been thinking about buying a home this year may want to act sooner rather than later.

Although interest rates will remain at historic lows, the rate increase may have an impact on the purchasing power of some buyers. One thing that some buyers should keep in mind if they are purchasing new construction with a completion date that is months away is that the rate you were quoted initially may differ when you are able to lock in the interest rate closer to the close date of your home.

For most lenders, the best time to lock is usually 30 days before the closing date. So, keep in touch with your lender on a regular basis to keep track of where rates are at as you go—rates will fluctuate!

2. INVENTORY

Inventory levels remain at historic lows. The demand for purchasing a home remains very high in comparison to the amount of inventory on the market. 2022 will be a seller's market once more. Those considering selling their homes may want to consider getting all of their ducks in a row now in order to capitalize on the market we are entering. Although sellers will continue to have the upper hand in the market, they must remember that this market is very different from what it was two years ago.

We believe it is critical for the listing agent to set realistic expectations for sellers regarding what to expect in 2022. Our country is dealing with a number of forces, including the coronavirus, which will still be present in 2022 with the spread of the new omicron variant. The market we are in is not expected to be like the ones we have seen in recent years. Multiple offers are still possible, but the chances of receiving an offer with the insane terms we were seeing, i.e., thousands over the asking price or no contingencies, are less likely.

We reached out to a top producing realtor in the Southern California region, Bob Livingston of the Livingston/Clark Team with Realty World Main Street, for insight on the current real estate market from a Top Producer with 18+ years experience.

Mr. Livingston stated, "Personally, I believe there are many triggers causing the issues in front of us real estate wise. Inflation and the lack of consumer confidence that follows and of course the fact that inventory has doubled in some area and tripled in others because people are breathing again."

Bob went on to say, "Buyers are certainly in a better position to negotiate and seller’s, well its time they listened to the Realtor they have chosen, backed up by facts of course and adjust accordingly."
(Read Bob Livingston's Full Response)

On this note, buyers should be aware that inventory will remain low, but it is expected to rise. This will benefit buyers because they will not face the same level of bidding competition that we have been seeing. First-time buyers and VA buyers can be confident that they will be successful in this new market.