2024 Housing Forecast
Economists for the California Association of Realtors recently released a 2024 housing forecast with their expectations and predictions for next year. While most of 2023 will be marked by low inventory, steadily increasing interest rates and declining affordability, should we assume anything will change?
How did we get here? From the early 1960s through the late 1980s, there were roughly 100,000-300,000 residential units permitted annually throughout California with an average of approximately 200,000 per year (Dept of Finance). That number has decreased since the late 80s and even during the peak of the recent building boom in the mid 2000s, annual housing numbers just barely cracked the 200,000 mark. After 2007 and for the better part of a decade, there were less than 100,000 units being permitted each year and economists state California needs an additional 80,000-100,000 units per year to balance out supply and demand.
Low Inventory our New Norm: Within SLO County, the number of active listings has decreased significantly over the years. From 2008-2011, there were more than 2,000 active listings for sale during peak selling seasons. From 2011-2019 there were 1,000-1,500 active listings at any given time. Since COVID, the number of listings has reduced even further. As of December 6, 2023, there are only 404 active residential listings in SLO County. Economists state “Housing supply in 2024 will remain below the norm despite a projected increase in active listings of between 10 percent to 20 percent, as market conditions and the lending environment continue to improve.”
Interest Rates: Rates have been steadily increasing for most of the year, especially since April 2023, peaking at roughly 8% toward the end of October for a 30 year fixed rate mortgage. Economists predict that “slower economic growth and cooling inflation will bring down rates in 2024 and create a more favorable market environment to spur home sales next year.” The 30 year fixed rate is predicted to average 6.0% during 2024.
2nd Home Ownership in SLO County: Further complicating the supply / demand imbalance is the large percentage of homes within SLO County being used as 2nd homes. In 2005, around 4.5% of our county’s housing stock was 2nd homes which has since doubled to 9% today. By comparison, 2nd homes make up 2.4% of the housing stock statewide while surrounding counties also have substantially lower percentages of 2nd homes. SLO County is and will continue to be a highly desired location to live in and retire given temperate weather, relative lack of congestion and traffic compared to urban areas, low crime and good quality of life among other factors.
Lock-In Effect: Inventory could be limited for years or even decades to come given a lock-in effect of homeowners with mortgages in the sub 3-4% range having little incentive to move, even if their existing home no longer serves their needs. Meanwhile the average length of homeownership has increased from ~7 years in the early 2000s to roughly 13 years nowadays.
Housing Affordability: Affordability is in the tank, with strong sale prices after substantial appreciation over the last ~10 years in addition to high interest rates. Affordability currently stands at only 17% and not expected to improve any time soon. Many first time homebuyers have been priced out of the market, while older generations who have had time to build up equity and/or have higher paying jobs are generally doing a little better.
What’s to Come? After reaching almost 445,000 sales statewide in 2021, the number of sales has slowed significantly with projected sale figures for 2023 at around 266,000, a 40% decrease from 2021. SLO County has seen a slightly larger decrease, going from 3,944 sales in 2021 to 2,219 sales in 2023, a 43% decrease (as of 12/6/23). Economists for the California Association of Realtors predict the statewide median sale price to increase 6.2% from $810,000 in 2023 to $860,000 in 2024, with interest rates to average 6% in 2024. The median sale price of single family homes in SLO County was $896,000 in November 2023. Overall, it will continue to be a challenging market for buyers with low affordability, few options and competition from out of area buyers who may have deeper pockets. For current property owners, this means decreased competition when selling and strong sale prices.
Please feel free to reach out to me at 805-459-1865 or graham@ccreSLO.com to talk more about the market.