2023 Housing Market Outlook

Over the past year, the housing market in California has shifted dramatically and rapidly. At the end of 2020, existing single-family home sales totaled more than 500,000 units on an annualized basis—the highest level of transactions in California in over a decade.

Demand and Mortgage Rates

Demand for homes has been impacted by rapidly rising mortgage rates that have eroded purchasing power and caused some would-be homebuyers to press pause on their search. Although rates are still relatively low by historic standards, the housing market has rarely had to adjust as quickly—prior to 2022, Freddie Mac has never reported mortgage rates doubling over the span of less than 1 year.

Housing Supply

At the same time, the housing supply also remains very depressed. Based on data from Freddie Mac, nearly 85% of homeowners have mortgages at or below 4% and nearly all of them have mortgages at less than 5%, which has created a lock-in effect for many homeowners that are now discouraged from moving by rising borrowing costs.

Economic Outlook

As for the economy, inflation will cool off throughout the year, but the pace of decline is expected to be slow. The Fed Reserve will continue to hike rates in the first half of 2023 to keep prices from flaring up again, which could lead to further economic slowdown in the second half of the year.